##### Table of Contents









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 year ended March 31,
    2002                                                    
|           
|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

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 o          No þ

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 June 28, 2002 was
approximately $14,421,655 (based on the price of $4.90 per
share, which is the average of the bid and asked prices 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
June 28, 2002 was 35,323,820.



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TABLE OF CONTENTS



|                                                                                  |                                                                                                         |                                                           |  |  |  |  |  | 
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT
|PART I                                                                           
|                                                                                  | ITEM 1. BUSINESS                                                                                       
|                                                                                  | ITEM 2. PROPERTIES                                                                                     
|                                                                                  | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                                                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|PART II                                                                          
|                                                                                  | ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                      
|                                                                                  | ITEM 6. SELECTED FINANCIAL DATA                                                                        
|                                                                                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                                                                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|                                                                                  | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                                                                  |                                                                                                         | REPORT OF INDEPENDENT AUDITORS                           
|                                                                                  |                                                                                                         | CONSOLIDATED BALANCE SHEETS                              
|                                                                                  |                                                                                                         | CONSOLIDATED STATEMENTS OF INCOME                        
|                                                                                  |                                                                                                         | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|                                                                                  |                                                                                                         | CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|                                                                                  |                                                                                                         | NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS       
|                                                                                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|PART III                                                                         
|                                                                                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                                                                  | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                                                                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                                                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|PART IV                                                                          
|SIGNATURES                                                                       
|SCHEDULE II                                                                      
|Employment Agreements                                                            
|Amendment to Amended & Restated Plan of Merger                                   
|Subsidiaries                                                                     



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##### Table of Contents






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.

1



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##### Table of Contents






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 five
complementary, distribution channels, including direct response
television, traditional mass-market retailers, home shopping
channels, telemarketing 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.

Our strategy has resulted in a compound annual
growth in revenues and income from operations of 179% and 278%,
respectively, during the five-year period ended March 31,
2002. Our business model, with direct sales to the end customer,
low fixed cost structure and minimal working capital needs has
produced historically above-average industry margins,
significant free cash flow and a high return on invested
capital. We believe that our ongoing diversification of product
lines and distribution channels has significantly advanced our
goal of creating a stable, predictable and profitable growth
business.

For the twelve-month period ended March 31,
2002, we sold over 200 products in 3 product
categories through 6 distribution channels to approximately
200 wholesaler distributors and approximately 250,000
individual consumers in 80 countries worldwide.

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.

2



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##### Table of Contents



Domestic Direct Marketing Industry

|              |            |                 |         |       |   |      |         |                   |   |           |         |       |   |  |      |   |  |  |      |   | 
|------------- | ---------- | --------------- | ------- | ----- | - | ---- | ------- | ----------------- | - | --------- | ------- | ----- | - |  | ---- | - |  |  | ---- | - | 
|              |            |                 |         |       |   |      |         |                  
|              |            |                 |         |       |   |      |         | Compounded Annual
|              |            |                 |         |       |   |      |         | Growth Rate      
|              |            |                 |         |       |   |      |         |                  
|              |            | 1995            |         | 2000  |   | 2005 |         | 1995-2000         |   | 2000-2005
|              |            |                 |         |       |   |      |         |                   |   |          
|              |            |                
|              |            | ($ in billions)
|Telemarketing |            | $               | 367.2   |       |   | $    | 611.7   |                   |   | $         | 939.5   |       |   |  | 10.7 | % |  |  | 9.0  | %
|              | % of Total |                 |         | 34.7  | % |      |         | 35.3              | % |           |         | 34.3  | % |  |      |   |  |  |      |   | 
|Direct Mail   |            | $               | 338.2   |       |   | $    | 528.5   |                   |   | $         | 820.1   |       |   |  | 9.3  | % |  |  | 9.2  | %
|              | % of Total |                 |         | 32.0  | % |      |         | 30.5              | % |           |         | 30.0  | % |  |      |   |  |  |      |   | 
|Newspaper     |            | $               | 150.7   |       |   | $    | 239.0   |                   |   | $         | 356.8   |       |   |  | 9.7  | % |  |  | 8.3  | %
|              | % of Total |                 |         | 14.2  | % |      |         | 13.8              | % |           |         | 13.0  | % |  |      |   |  |  |      |   | 
|Magazine      |            | $               | 56.5    |       |   | $    | 91.3    |                   |   | $         | 135.3   |       |   |  | 10.1 | % |  |  | 8.2  | %
|              | % of Total |                 |         | 5.3   | % |      |         | 5.3               | % |           |         | 4.9   | % |  |      |   |  |  |      |   | 
|Television    |            | $               | 68.5    |       |   | $    | 117.6   |                   |   | $         | 178.9   |       |   |  | 11.4 | % |  |  | 8.8  | %
|              | % of Total |                 |         | 6.5   | % |      |         | 6.8               | % |           |         | 6.5   | % |  |      |   |  |  |      |   | 
|Radio         |            | $               | 26.0    |       |   | $    | 50.4    |                   |   | $         | 83.0    |       |   |  | 14.2 | % |  |  | 10.5 | %
|              | % of Total |                 |         | 2.5   | % |      |         | 2.9               | % |           |         | 3.0   | % |  |      |   |  |  |      |   | 
|Other         |            | $               | 50.6    |       |   | $    | 92.0    |                   |   | $         | 224.0   |       |   |  | 12.7 | % |  |  | 19.5 | %
|              | % of Total |                 |         | 4.8   | % |      |         | 5.3               | % |           |         | 8.2   | % |  |      |   |  |  |      |   | 
|              |            |                 |         |       |   |      |         |                   |   |           |         |       |   |  |      |   |  |  |      |  
|TOTAL         |            | $               | 1,057.7 |       |   | $    | 1,730.5 |                   |   | $         | 2,737.6 |       |   |  | 10.3 | % |  |  | 9.6  | %
|              |            |                 |         |       |   |      |         |                   |   |           |         |       |   |  |      |   |  |  |      |  
|              | % of Total |                 |         | 100.0 | % |      |         | 100.0             | % |           |         | 100.0 | % |  |      |   |  |  |      |   | 
|              |            |                 |         |       |   |      |         |                   |   |           |         |       |   |  |      |   |  |  |      |  



---

Source: Direct Marketing Association


The international direct marketing industry,
although still in the early stages of development, is expected
to generate $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.

International Direct Marketing
Industry

|              |            |                 |       |       |   |                   |       |       |   |  |      |   | 
|------------- | ---------- | --------------- | ----- | ----- | - | ----------------- | ----- | ----- | - |  | ---- | - | 
|              |            |                 |       |       |   | Compounded Annual
|              |            |                 |       |       |   | Growth Rate      
|              |            | 2000            |       | 2005  |   | 2000-2005        
|              |            |                 |       |       |   |                  
|              |            |                
|              |            | ($ in billions)
|Europe        |            | $               | 252.5 |       |   | $                 | 420.9 |       |   |  | 11.0 | %
|              | % of Total |                 |       | 44.5  | % |                   |       | 47.6  | % |  |      |   | 
|Asia/ Pacific |            | $               | 310.3 |       |   | $                 | 452.0 |       |   |  | 8.0  | %
|              | % of Total |                 |       | 54.6  | % |                   |       | 51.1  | % |  |      |   | 
|South America |            | $               | 4.9   |       |   | $                 | 10.7  |       |   |  | 17.0 | %
|              | % of Total |                 |       | 0.9   | % |                   |       | 1.2   | % |  |      |   | 
|Africa        |            | $               | 0.2   |       |   | $                 | 0.3   |       |   |  | 10.0 | %
|              | % of Total |                 |       | 0.0   | % |                   |       | 0.0   | % |  |      |   | 
|              |            |                 |       |       |   |                   |       |       |   |  |      |  
|TOTAL         |            | $               | 567.9 |       |   | $                 | 883.9 |       |   |  | 9.0  | %
|              |            |                 |       |       |   |                   |       |       |   |  |      |  
|              | % of Total |                 |       | 100.0 | % |                   |       | 100.0 | % |  |      |   | 
|              |            |                 |       |       |   |                   |       |       |   |  |      |  



---

Source: Direct Marketing Association


3



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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. There are
currently more than 9,000 cable televisions systems in the
United States, of which 900 have 25,000 or more subscribers.

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 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
have 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.

The past 18 to 24 months 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

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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.


Increasingly, direct response television buyers
are also Internet buyers. Approximately 65% of direct
response television buyers surveyed in 2000 by the Aftermarket
Company and Response Magazine indicated that they also shop
on-line as compared to 31% in 1999. In addition, 26% of the
total population surveyed in 2001 indicated that they had used
the Internet instead of the phone to purchase a direct response
television product.

The average price of direct response television
products has risen over the past few years. According to a
September 2001 survey conducted by The AfterMarket Company and
Response Magazine, 43% of the products being sold through direct
response television programs in 2000 were priced in the
$100-$200 range, with another 24% priced at higher levels.
Approximately 52% of direct response television purchases in
2000 were for products with price points in excess of $100
versus 41% in 1999. At the same time, purchases of products
priced below $29.99 fell from 23% of all direct response
television purchases in 1999 to 16% in 2000.

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.

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 reviewed 2,328, 3,968
and 5,420 product proposals from third parties in fiscal years
2000, 2001 and 2002, respectively. In addition, we have an
in-house product development staff to create products to
capitalize on market opportunities in its domestic and
international markets. We marketed over 200 products during
fiscal 2002.

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 life-cycle
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.
International sales have grown from $1.3 million in fiscal
1998 to $89.5 million in fiscal 2002. Wholesale revenues
have increased from $1.8 million in fiscal 1999 to
$59.6 million in fiscal 2002. Our revenue mix for fiscal
2002 was 24.9% domestic direct to consumer, 23.3% wholesale,
35.0% international and 16.8% Internet and other.

Maintain low cost
structure.We are able 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

5



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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 (over $54 million) 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 acquisitions

An important component of our growth strategy is
the acquisition of complementary single product and single
channel companies that will offer increased product diversity,
additional product categories or strengthened distribution
infrastructure. Our recent acquisitions of Krane Products, Inc.
and Reliant Interactive Media Corp. have allowed us to
significantly broaden our product portfolio through the addition
of the home maintenance product category, the expansion of our
existing housewares product category, and the addition of a
telemarketing distribution channel. These acquisitions further
enabled us to enhance our product generation infrastructure as
well as expand our product development capabilities.

In March 2002, we acquired Krane. Krane focuses
on the sale of repetitive use home maintenance products to
customers in rural and smaller communities, a demographic
segment that is estimated at 24.7 million households and
approximately 24% of the United States population. Kranes
target market is attractive for direct marketing sales due to:
(i) lack of convenient shopping alternatives;
(ii) less competition from competing marketers;
(iii) homogenous customer profile; and (iv) strong
demand for utilitarian products such as home maintenance and
family products. Krane has approximately 1.5 million
customer profiles on file, of which over 250,000 were added in
fiscal 2000 and over 135,000 were added in calendar year 2001.

In May 2002, we acquired Reliant. 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 processing, fulfillment, and customer
service.

Product overview

We have successfully attracted and generated a
significant flow of product ideas from numerous sources over the
years. We reviewed 2,328, 3,968 and 5,420 product proposals from
third parties in fiscal 2000, 2001 and 2002, respectively. 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

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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
sole 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. Historically, approximately 20% of
all products taken to market by us were acquired from owners
third-party or inventors.

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.
Examples of products in this category include Orbitrek, a
fitness machine that we designed after analyzing competing
elliptical trainers seen at fitness trade shows. Historically,
approximately 40% of all products that we have taken to market
were developed in house.

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. Examples of distribution partnerships include
AB-Doer and Septic Helper. Historically, approximately 40% of
all products taken to market by us were through distribution
partnerships.

Current products

We market a variety of consumer products which we
classify into three product categories: fitness,
health & beauty and housewares. During fiscal 2002, we
offered over 200 products to consumers through our various
distribution channels. We currently offer the following products:

Fitness.We sell our
fitness products under the We Fitness brand name.
Our most significant fitness products include:



|  |                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The AB-Doer,a
    unique rotating torso trimmer that targets the upper abdominal
    muscles, lower abdominal muscles, obliques and lower back all in
    one circular motion;
| 
| | The Orbitrek and the Orbitrek
    Pro,elliptical cardiovascular,
    full-body exercise machines;                                                                             

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|  |                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Bun and Thigh
    Isolater,isolates buns and thighs
    simultaneously for optimum results by mobilizing the midsection,
    offering ergonomic back support and an adjustable back rest; and
| 
| | The Total Doer,combines muscle toning and strength training to trim and tone
    the upper and lower body, including hard to tone areas like the
    inner thigh.                                

Fitness products comprised approximately 58%, 74%
and 80% of our total product revenues for fiscal years 2000,
2001 and 2002, respectively.

Health and beauty.We market numerous health and beauty
products, including:



|  |                                                                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | California Beauty Sunless Tan,provides natural looking tan without
    harmful sun damage;                                                                         
| 
| | California Beauty
    Peel,a mini-peel system that removes
    dead skin cells while nourishing delicate cells underneath with
    vitamins and natural botanicals;
| 
| | California Beauty
    Cosmetics,professional quality
    make-up to conceal imperfections and enhance natural beauty;                                              
| 
| | Slim & Lift,micro-fiber technology flattens stomach and lifts and supports
    buns and thighs;                                                                    
| 
| | Youth Cocktail,natural age-fighting herbal vitamins
    and minerals;                                                                                              
| 
| | Eurossage,an
    anatomically designed body massager; and                                                                                                          
| 
| | Mojave Convertible
    Eyeware,a sports sunglass set that
    includes four interchangeable UVA and UVB filtered lenses.                                           

Health and beauty products comprised
approximately 40%, 21% and 7% of our total product revenues for
fiscal years 2000, 2001 and 2002, respectively.

Housewares.We
market numerous housewares products, including:



|  |                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                    
| 
| | Septic Helper,a
    septic tank cleaner that contains enzymes and bacteria, which
    aid in the cleaning and maintenance of septic tanks, cesspools
    and drain lines; and                                                               
| 
| | Enza-Clene,an
    all-natural antibacterial drain cleaner and deodorizer
    specifically formulated to liquefy grease, fats, oils,
    detergents, food particles, hair, paper and organic waste, into
    a harmless, free flowing liquid.

We intend to begin marketing our housewares
products under a common brand name. Housewares and other
products comprised approximately 2%, 5% and 13% of our total
product revenues for fiscal years 2000, 2001 and 2002,
respectively.

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) telemarketing,
(vii) the Internet, (viii) catalogs, (ix) credit
card inserts, (x) print advertisements, and
(xi) 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

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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.


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. During fiscal 2002, we
produced 13 direct response television commercials generating
domestic sales of approximately $57.8 million.

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 2002,
our Canadian direct response television programming generated
sales of approximately $22.0 million of our total international
sales of $89.5 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 Untied 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. Our international wholesale
sales in fiscal 2002 were distributed to Europe (41%), Asia
(34%) and the Middle East (4%). International sales have grown
from $1.3 million in fiscal 1998 to $89.5 million in
fiscal 2002. 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.

(RELIANT INTERACTIVE MEDIA CORP. MAP)

|                   |  |                    |  |                 |  |                  |  |                     
|------------------ |  | ------------------ |  | --------------- |  | ---------------- |  | --------------------
|Argentina (2)      |  | Dominican Republic |  | Kuwait          |  | Paraguay         |  | Surinam             
|Australia (2)      |  | Ecuador            |  | Latvia          |  | Peru             |  | Sweden (2)          
|Austria (5)        |  | Egypt              |  | Lebanon         |  | Philippines      |  | Switzerland (5)     
|Bahrain            |  | El Salvador        |  | Lithuania       |  | Poland (3)       |  | Syria               
|Belgium (2)        |  | Estonia            |  | Macedonia       |  | Portugal         |  | Tahiti              
|Bolivia            |  | Finland (2)        |  | Malaysia        |  | Puerto Rico (2)  |  | Taiwan              
|Bosnia             |  | France             |  | Malta           |  | Qatar            |  | Thailand            
|Brazil             |  | Germany (5)        |  | Mexico          |  | Romania          |  | Trinidad            
|Bulgaria           |  | Guatemala          |  | Mongolia        |  | Russia (3)       |  | Tunis               
|Caribbean (5)      |  | Hungary            |  | Morocco         |  | Saudi Arabia     |  | Turkey              
|Chile              |  | India (2)          |  | Nepal           |  | Singapore        |  | Ukraine             
|Colombia           |  | Indonesia          |  | Netherlands (2) |  | Slovakia         |  | United Arab Emirates
|Costa Rica         |  | Ireland (2)        |  | New Zealand     |  | Slovenia         |  | United Kingdom (9)  
|Croatia (2)        |  | Israel             |  | Nicaragua       |  | South Africa (2) |  | Uruguay             
|Cyprus (2)         |  | Italy (2)          |  | Norway          |  | South Korea (4)  |  | Venezuela           
|Czech Republic (3) |  | Japan (7)          |  | Oman            |  | Spain (2)        |  | Yemen               
|Denmark            |  | Kazakhstan         |  | Panama          |  | Sri Lanka        |  | Yugoslavia          

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Retail.We have over
53 major retail customers that stock our products in their
stores. Some of the larger retail customers include Target,
Walmart, Kmart, Sears, Sams Club, Best Buy, Eckerds,
Costco, Federated and Walgreens. Retail sales capitalize on the
customer awareness and brand loyalty created by direct response
television programming without the media costs. Consequently,
gross margins for retail sales are 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.

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.

Telemarketing.We
operate seven outbound call centers (six in South Florida and
one in Georgia) employing over 400 telemarketing specialists. We
focus our telemarketing activities to customers in rural and
smaller communities, a demographic segment that comprises
approximately 24% of the United States population according to
the 2000 United States Census. Our telemarketers are highly
trained sales people, with substantial experience in selling
products to rural homeowners, a market niche largely comprised
of ardent do-it-yourselfers who prefer performing their own
preventative maintenance to paying for repair work later on. We
believe that our knowledge of this targeted customer base and
our interactive sales process have had the effect of increasing
sales effectiveness when introducing new and complementary
products. We seek to increase sales by pursuing our strategy of
repeated interaction with customers to provide multiple
opportunities to up-sell and cross-sell additional products with
only the cost of an extended phone call. Although we currently
sell primarily houseware maintenance products utilizing this
distribution channel, we seek to market additional products
through this channel in the future.

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.

We currently sell over 180 products through our
websites, including both ours and third-party products. Our
websites receive over 1.5 million unique visits per month
and maintain a customer database of approximately 450,000 files.

Our websites provide consumers with a broad
selection of products in a user-friendly manner in three
different languages, while generating high margins
(approximately 43%). 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. We believe that over
35 million consumers have visited our websites since 1999
and we currently maintain a customer database of over
450,000 buyers. Internet sales have increased from $884,000
in fiscal 1999 to $13.0 million in fiscal 2002. 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 over 16 national catalog publishers on a
wholesale basis. Some of our larger catalog customers include
Sears, Fingerhut, Spiegel, Hammacher Schlemmer,
J.C. Penney, Amway and Harriett Carter. 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.

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Credit card inserts.We contract with certain syndicators,
such as Media Solutions Services and Santa Barbara Promotions,
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 a 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 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. The selection criteria include:



|  |                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Margin:The selling
    price must be four to five times the cost of goods.                                                                                                                                    
| 
| | Visual Appeal:The
    product usefulness must be easily demonstrable and visually
    appealing.                                                                                                              
| 
| | Characteristics:The
    product must be unique, new, innovative and unavailable in mass
    retail.                                                                                                           
| 
| | Product Partner:The
    product owner, inventor or partner must be reasonable and
    ethical.                                                                                                                
| 
| | Spokesperson:The
    direct response television program must feature a dynamic and
    enthusiastic spokesperson.                                                                                             
| 
| | Target Market:The
    product must have a target market of at least 20 million
    households and mass appeal in both the domestic and
    international markets.                                             
| 
| | Hot Buttons:The
    product must appeal to consumer hot buttons, such as
    a desire to look and feel younger and healthier, an ease of use
    or sense of fun. The product must encourage impulse buying.

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|  |                                                                                                                                 
|- | --------------------------------------------------------------------------------------------------------------------------------
| | Compelling Story:The direct response television program
    must be entertaining and explain the products discovery or
    use.
| 
| | Reorder Potential:The product should have the potential
    to generate multiple or related orders.                             
| 
| | Retail Sales Potential:The product should solve an existing
    problem, not prevent a potential problem.                       
| 
| | Product Categories:The product must be in a proven direct
    response television marketing category.                           
| 
| | Value:The consumer
    must perceive the product as a bargain.                                                                  

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 23 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.

Test marketing.We
test market our products prior to making significant media and
inventory investments. We usually test market products using one
of two basic methods. One method is to create a marketing
message for a relatively inexpensive distribution channel such
as the home shopping channels. These channels are a cost
effective means of introducing an untested product in selected
markets prior to full-scale production of the direct response
television program. A later stage of testing is to air the
direct response television program on a limited basis to a
precisely targeted audience. This allows us to (i) evaluate
the amount and geographic coverage of the media that we may
purchase for such product, (ii) experiment with different
marketing messages and pricing structures to determine the
optimal marketing approach and price point and
(iii) minimize inventory and media risk associated with
launching new products.

If a direct response television program achieves
acceptable results, as defined by customer orders per cost of
media, we typically air the program on a rapidly increasing
schedule on cable networks and broadcast channels. During this
initial phase, we may modify the creative presentation of the
direct response television program and/or the pricing. We
typically adjust the frequency of a programs airing to
maximize profitability of all of the products being marketed at
a given time. In 2002, we produced 13 direct response
television programs, and 3 were rolled-out nationally, compared
to 10 shows produced in 2001, of which 6 were rolled out.
We believe that our test marketing techniques can accurately
predict the potential success of a product and have historically
been successful at screening out marginal products.

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

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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. In fiscal 2002, we spent more
than $54.0 million on media. We believe that this
expenditure will contribute to building, over time, a
significant brand equity and franchise value associated with our
name.

We track the success of each of our spot
commercials and direct response television programs by
determining how many viewers respond to each airing. We
accumulate this information in a database that we use to
evaluate the cost-effectiveness of available media time. In
addition, we believe our database enables us to predict with
reasonable accuracy how many product sales and inquiries will
result from each spot commercial and direct response television
program that we air. We also believe that we can effectively
track changing viewer patterns and adjust our advertising
accordingly.

We do not currently purchase media time under
long-term contracts. We book most of our spot commercial time on
a quarterly basis and most of our direct response television
program time on a monthly or quarterly basis, as networks make
time available. Networks typically allow us to cancel booked
time with two weeks advanced notice, which enables us to
adjust our advertising schedule if our statistical tracking
indicates that a particular network or time slot is no longer
cost effective. Generally, we can increase or decrease the
frequency of our spot commercial and direct response television
program airings at almost any time.

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 1-800 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. Order processing is an important aspect of
direct marketing, as a successfully captured customer will
usually generate additional high margin sales. 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

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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, 53 retail chains, the
Home Shopping Network, QVC, 186 international distributors
and strategic partners and 16 national catalog publishers.
No single customer accounted for greater than five percent
(5%) of revenues for any of our 2000, 2001 and 2002 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 for each of fiscal 2000, 2001 and 2002 was
9.04%, 9.06% and 7.49%, respectively. 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
successful products primarily through direct response television
programs. Additionally, there are a number of direct marketing
companies that market their products primarily through catalogs,
such as Lands End and Spiegel, Inc.

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 that 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, local consumer protection and
health

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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 its 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 June 26, 2002, we had approximately
716 employees, of which 17 were in direct response
television production, 8 were in product development and
acquisition, 430 were in telemarketing call centers and 261 were
in operations, administration and accounting. None of our
employees are represented by a labor organization. We consider
our employee relations to be good.






|        |           
|------- | ----------
|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.
This facility is 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

We are a party from time to time to 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

Not applicable.

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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 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 | 

As of June 24, 2002, there were
approximately 585 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.

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 December 2001, we issued
options to purchase up to an aggregate of 2,880,000 shares of
our common stock to certain employees pursuant to our 1999 Stock
Option Plan.

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 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 2000, 2001 and 2002 and the Balance Sheet
Data as of March 31, 2001 and 2002 are derived from
Thanes audited financial statements included elsewhere in
this Form 10-K. The Statement of Operations Data for fiscal
1998 and 1999 and the Balance Sheet Data as of March 31,
1998, 1999 and 2000 are derived from audited financial
statements not included herein.

|                                                               |  |                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------------- |  | --------------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                               |  |                      
|                                                               |  | Years Ended March 31,
|                                                               |  |                      
|                                                               |  | 1998                  |        | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                               |  |                       |        |      |  |      |         |      |  |     
|                                                               |  |                      
|                                                               |  | (In thousands)       
|Statement of Income Data:                                      |  |                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total revenues                                                 |  | $                     | 80,968 |      |  | $    | 109,288 |      |  | $    | 80,458  |   |  | $ | 190,524 |   |  | $ | 255,771 |  
|Cost of sales, including selling expenses                      |  |                       | 69,256 |      |  |      | 90,977  |      |  |      | 63,915  |   |  |   | 147,329 |   |  |   | 203,682 |  
|General and administrative expenses                            |  |                       | 3,318  |      |  |      | 7,135   |      |  |      | 8,376   |   |  |   | 14,190  |   |  |   | 21,073  |  
|Depreciation and amortization                                  |  |                       | 50     |      |  |      | 194     |      |  |      | 196     |   |  |   | 146     |   |  |   | 422     |  
|Total costs and expenses                                       |  |                       | 72,624 |      |  |      | 98,306  |      |  |      | 72,487  |   |  |   | 161,665 |   |  |   | 225,177 |  
|Income from operations                                         |  |                       | 8,344  |      |  |      | 10,982  |      |  |      | 7,971   |   |  |   | 28,859  |   |  |   | 30,594  |  
|Interest income (expense), net(1)(3)                           |  |                       | 73     |      |  |      | 230     |      |  |      | (1,991  | ) |  |   | (2,497  | ) |  |   | (11,492 | )
|Minority interest and other                                    |  |                       | 76     |      |  |      | (187    | )    |  |      | (269    | ) |  |   | (317    | ) |  |   | (382    | )
|Income before income taxes                                     |  |                       | 8,493  |      |  |      | 11,025  |      |  |      | 5,711   |   |  |   | 26,045  |   |  |   | 18,720  |  
|Provision for income taxes                                     |  |                       | 3,633  |      |  |      | 3,916   |      |  |      | 1,501   |   |  |   | 10,053  |   |  |   | 8,860   |  
|Net income                                                     |  | $                     | 4,860  |      |  | $    | 7,109   |      |  | $    | 4,210   |   |  | $ | 15,992  |   |  | $ | 9,860   |  
|Balance Sheet Data (at end of
    period):                     |  |                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash and cash equivalents                                      |  | $                     | 5,563  |      |  | $    | 7,120   |      |  | $    | 2,249   |   |  | $ | 4,060   |   |  | $ | 13,568  |  
|Working capital                                                |  |                       | 5,674  |      |  |      | 12,504  |      |  |      | 2,992   |   |  |   | 13,649  |   |  |   | 20,460  |  
|Total assets                                                   |  |                       | 14,985 |      |  |      | 22,264  |      |  |      | 18,787  |   |  |   | 63,157  |   |  |   | 93,843  |  
|Total debt                                                     |  |                       | 50     |      |  |      | 0       |      |  |      | 22,500  |   |  |   | 23,433  |   |  |   | 27,907  |  
|Total stockholders equity (deficit)(1)                        |  |                       | 6,849  |      |  |      | 13,953  |      |  |      | (11,016 | ) |  |   | 5,195   |   |  |   | 36,047  |  
|Statement of Cash Flow Data:                                   |  |                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net cash provided by operating activities                      |  | $                     | 5,774  |      |  | $    | 2,869   |      |  | $    | 1,791   |   |  | $ | 1,567   |   |  | $ | 23,199  |  
|Net cash used in investing activities                          |  |                       | (246   | )    |  |      | (216    | )    |  |      | (139    | ) |  |   | (669    | ) |  |   | (1,710  | )
|Net cash provided by (used in) financing
    activities        |  |                       | (324   | )    |  |      | (1,096  | )    |  |      | (6,523  | ) |  |   | 913     |   |  |   | (11,981 | )
|Net increase (decrease) in cash and cash
    equivalents       |  | $                     | 5,204  |      |  | $    | 1,557   |      |  | $    | (4,871  | ) |  | $ | 1,811   |   |  | $ | 9,508   |  
|Other Operating and Financial Data:                            |  |                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|EBITDA(2)                                                      |  | $                     | 8,394  |      |  | $    | 11,176  |      |  | $    | 8,167   |   |  | $ | 29,005  |   |  | $ | 31,016  |  
|Capital expenditures                                           |  |                       | 246    |      |  |      | 182     |      |  |      | 139     |   |  |   | 319     |   |  |   | 961     |  
|Total costs and expenses as a percentage of total
    revenues |  |                       | 89.69  | %    |  |      | 89.95   | %    |  |      | 90.12   | % |  |   | 84.93   | % |  |   | 88.04   | %
|Income from operations as a percentage of total
    revenues   |  |                       | 10.31  | %    |  |      | 10.05   | %    |  |      | 9.88    | % |  |   | 15.07   | % |  |   | 11.96   | %
|EBITDA as a percentage of total revenues(2)                    |  |                       | 10.37  | %    |  |      | 10.23   | %    |  |      | 10.13   | % |  |   | 15.14   | % |  |   | 12.13   | %



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 before interest, income taxes, 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.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 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 house wares 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 $89.5 million in fiscal
2002. Wholesale revenues have increased from $1.8 million
in fiscal 1999 to $59.6 million in fiscal 2002. 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. We expect the
typical seasonal trend in fiscal 2003. 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 intend to leverage our multi-channel
distribution infrastructure and marketing expertise to provide
marketing services to third party inventors and product owners
for a service fee. In connection with these arrangements, we
expect to enter into marketing and service agreements pursuant
to which we will create

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marketing messages, produce direct response
television programs, manage media purchases, and manage the
outsourcing of order processing and fulfillment functions for
fees based on the total revenues generated for a particular
product as a result of our efforts. Although we will not
recognize revenues on the sales of the products pursuant to
these arrangements, we expect to recognize increased commission
income. We do not expect to incur any inventory, media
purchasing or warranty or product liability risk in connection
with these arrangements. We anticipate that as we begin to enter
into more of these marketing and management agreements,
commission income will constitute a growing portion of our
earnings.


We acquired Krane Products, Inc. on
March 15, 2002. Therefore, only fifteen days of financial
information for Krane is presented.

RESULTS OF OPERATIONS

The following table sets forth income statement
data for the periods indicated as a percentage of revenue.

|                                          |                                       |                     |        |       |   |      |        |      |   |  |        |      |  
|----------------------------------------- | ------------------------------------- | ------------------- | ------ | ----- | - | ---- | ------ | ---- | - |  | ------ | ---- | -
|                                          |                                       |                    
|                                          |                                       | For the Years Ended
|                                          |                                       | March 31,          
|                                          |                                       |                    
|                                          |                                       | 2000                |        | 2001  |   | 2002
|                                          |                                       |                     |        |       |   |     
|Total revenues                            |                                       |                     | 100.00 | %     |   |      | 100.00 | %    |   |  | 100.00 | %   
|Cost of sales, including selling expenses |                                       |                     | 79.44  | %     |   |      | 77.33  | %    |   |  | 79.63  | %   
|Gross profit                              |                                       |                     | 20.56  | %     |   |      | 22.67  | %    |   |  | 20.37  | %   
|Operating expenses                        |                                       |                     |        |       |   |      |        |      |   |  |        |     
|                                          | General and administrative            |                     |        | 10.41 | % |      |        | 7.45 | % |  |        | 8.24 | %
|                                          | Depreciation                          |                     |        | 0.24  | % |      |        | 0.08 | % |  |        | 0.17 | %
|Income from operations                    |                                       |                     | 9.91   | %     |   |      | 15.14  | %    |   |  | 11.96  | %   
|Other expenses                            |                                       |                     |        |       |   |      |        |      |   |  |        |     
|                                          | Interest, minority interest and other |                     |        | 2.81  | % |      |        | 1.47 | % |  |        | 4.64 | %
|Income before income taxes                |                                       |                     | 7.10   | %     |   |      | 13.67  | %    |   |  | 7.32   | %   
|Provision for income taxes                |                                       |                     | 1.87   | %     |   |      | 5.28   | %    |   |  | 3.46   | %   
|Net income                                |                                       |                     | 5.23   | %     |   |      | 8.39   | %    |   |  | 3.86   | %   

The year ended March 31, 2002 compared to
the year ended March 31, 2001

Total revenuesincreased $65.3 million, or
34.3%, to $255.8 million for fiscal 2002 from
$190.5 million for fiscal 2001. The increase in total
revenues is primarily attributable to wholesale sales increasing
$28.1 million, or 89.2%, from $31.5 million to
$59.6 million, international sales increasing
$68.0 million, or 316.3%, from $21.5 million to
$89.5 million which were offset by a decrease in United
States direct marketing sales of $57.8 million, or 47.6%,
from $121.5 million to $63.7 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. Cost of
sales increased $56.4 million, or 38.3%, to
$203.7 million for fiscal 2002 from $147.3 million for
fiscal 2001. As a percentage of total revenues, cost of sales
increased from 77.33% for the year ended March 31, 2001 to
79.63% for the year ended March 31, 2002. The increase in
cost of sales is primarily due to higher sales levels. The
increase in cost of sales as a percentage of total revenues is
primarily due to lower gross profit margins

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caused by increased media expenditures, changes
in product mix and reduced pricing of certain fitness products.


Gross profitincreased $8.9 million, or 20.6%,
to $52.1 million for fiscal 2002 from $43.2 million
for fiscal 2001. As a percentage of total revenues, gross profit
decreased 2.30% from 22.67% for fiscal 2001 to 20.37% for fiscal
2002. The decrease in gross profits as a percentage of total
revenues is the result of decreased gross profits on domestic
direct marketing sales. Gross profit margins were affected by
increased media expenditures, changes in product mix and reduced
pricing of certain fitness products.

General and administrative expensesincreased $6.9 million, or 48.5%,
to $21.1 million for fiscal 2002 from $14.2 million
for fiscal 2001. As a percentage of total revenues, general and
administrative expenses increased to 8.24% for fiscal 2002 from
7.45% 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. In addition, there was an increase in bad debt
expense due to higher wholesale sales. 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. We expect
general and administrative expense dollars to remain relatively
constant. Depreciation and amortization 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 6.0%,
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 15.14% for fiscal 2001 to 11.96% for
fiscal 2002. The decrease in income from operations as a
percentage of total revenues is attributable to the decreased
gross margin percentage and increased general and administrative
expenses discussed above.

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
38.3% decrease.

The year ended March 31, 2001 compared to
the year ended March 31, 2000

Total revenuesincreased $110.1 million, or
136.8%, to $190.5 million for fiscal 2001 from
$80.4 million for fiscal 2000. The increase in total
revenues is primarily attributable to domestic direct marketing
sales increasing $72.0 million, or 145.5%, from
$49.5 million to $121.5 million, wholesale sales
increasing $27.4 million, or 668.3%, from $4.1 million
to $31.5 million, and international sales increasing
$3.5 million, or 19.5%, from $18.0 million to
$21.5 million. The increase in United States direct
marketing sales is primarily related to increased sales of a
fitness product. 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 a larger number of international distributors
and strategic partners.

Cost of salesincreased $83.4 million, or
130.5%, to $147.3 million for fiscal 2001 from
$63.9 million for fiscal 2000. The increase in cost of
sales is primarily attributable to increased sales.

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Gross profitincreased $26.7 million, or
161.1%, to $43.2 million for fiscal 2001 from
$16.5 million for fiscal 2000. As a percentage of total
revenues, gross profit increased from 20.6% for fiscal 2000 to
22.7% for fiscal 2001. The increase in gross profits is the
result of the successful introduction of a fitness product in
the last nine months of the fiscal year. During fiscal 2001, we
expanded our wholesale operations, which required significant
increases in inventory. At the end of fiscal 2001, our inventory
was composed of a significant amount of a single product. As a
result, we increased our inventory reserve by approximately
$4.1 million at March 31, 2001.

General and administrative expensesincreased $5.8 million, or 69.4%,
to $14.2 million for fiscal 2001 from $8.4 million for
fiscal 2000. As a percentage of total revenues, general and
administrative expenses decreased to 7.45% for fiscal 2001 from
10.41% for fiscal 2000. General and administrative expenses
increased as a result of the building of our infrastructure in
anticipation of our future growth as well as an increase in bad
debt expense. Our payroll expense increased by $1.6 million
as a result of the increase in our employees from 64 at
March 31, 2000 to 102 at March 31, 2001. The balance
of the increase was primarily the result of increased bad debt
expense due to higher sales volume across all channels of
distribution.

Income from operationsincreased $20.9 million, or
261.3%, to $28.9 million for fiscal 2001 from
$8.0 million for fiscal 2000. As a percentage of total
revenues, income from operations increased from 9.91% for fiscal
2000 to 15.14% for fiscal 2001. The increase in income from
operations as a percentage of total revenues is attributable to
the increased gross margin and reduced general and
administrative expenses as a percentage of total revenues.

Other expensesincreased $554,000 or 24.5%, to
$2.8 million in fiscal 2001 from $2.3 million for
fiscal 2000. As a percentage of total revenues, other expenses
decreased from 2.81% in fiscal 2000 to 1.47% in fiscal 2001 due
to increased sales volume. The increase in other expenses was
primarily the result of increased interest expense.

Income before income taxesincreased $20.3 million, or
356.1%, to $26.0 million for fiscal 2001 from
$5.7 million for fiscal 2000. After applying the effective
tax rate of 38.6% and 26.3%, for fiscal 2001 and fiscal 2000,
respectively, net income for the respective periods was
$16.0 million and $4.2 million, a 279.9% increase.

Financial condition, liquidity and capital
resources

As of March 31, 2002, cash and cash
equivalents were $13.6 million compared to
$4.1 million at March 31, 2001. Total assets were
$93.8 million at March 31, 2002 compared to
$63.2 million at March 31, 2001. Of this increase,
$24.4 million was due to an increase in goodwill related to
acquisitions made during the year and $3.3 million was due
to an increase in assets held under capital lease. Total
decrease in receivables and inventory of approximately $8.0
million offset by an increase of $4.0 million in deferred
tax assets primarily accounted for the balance of the change in
total assets. In addition, total working capital increased to
$20.5 million at March 31, 2002 from
$13.6 million at March 31, 2001.

For the fiscal year ended March 31, 2002,
the net cash provided by operating activities was
$23.2 million compared to net cash provided by operating
activities of $1.6 million for the fiscal year ended
March 31, 2001. Net cash used in investing and financing
activities was $13.7 million as compared to net cash
provided by investing and financing activities of $244,000 in
the fiscal year ended March 31, 2001. The operating
activity increases were primarily due to decreases in inventory,
receivables and prepaid advertising at March 31, 2002 as
compared to March 31, 2001 and the net cash used in
investing and financing activities was primarily due to the
reduction in debt.

In March 2002, we entered into a loan and
security agreement with Congress Financial Corporation that
provides us with a $20.0 million senior secured revolving
credit facility and an aggregate of $14.0 million in
long-term loans. These facilities were used to refinance our
prior credit facilities, repurchase outstanding warrants to
purchase shares of our common stock, to pay certain fees and
expenses related to the Reliant and Krane acquisitions and
provide for future working capital requirements. As of
March 31, 2002, no borrowings were outstanding under the
revolving credit facility and $14.0 million was outstanding
under the term loans.

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Krane is a party to a credit agreement with
LaSalle Bank National Association. The credit agreement provides
Krane with a term loan and a revolving credit facility, each of
which are collateralized by cash, receivables, and all products
and proceeds of Krane. As of March 31, 2002, Krane had
$7.2 million outstanding on the term loan and
$1.5 million outstanding under the revolving loan. The
facilities mature in February 2003. Krane also maintains a
$1.9 million unsecured subordinated term loan with Prairie
Capital Mezzanine Fund, L.P., which matures in June 2003.

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.

On March 15, 2002, we redeemed the 248,896
shares of our common stock that were issued to Kranes
current lenders in exchange for an aggregate cash payment of
$1.2 million.

We believe that, through future cash flows 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.

From time to time, we review potential
acquisitions of direct marketing and other companies that we
deem complimentary to our business. We may be able to finance
smaller acquisitions with cash flow from operations; however,
larger acquisitions will require the use of stock as acquisition
currency or our obtaining additional public or private equity or
debt financing. We may pursue additional public or private
financing from time to time on an opportunistic basis.

Critical Accounting Policies

Revenue recognition

Revenue is recorded 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.

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.

Goodwill

In June 2001, the FASB issued FAS No. 141,
Business Combinations(FAS 141), and FAS No. 142,
Goodwill and Other Intangible Assets(FAS 142), effective
for fiscal years beginning after December 15, 2001. Under
these new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject
to annual impairment tests. Other intangible assets will
continue to be amortized

23



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##### Table of Contents



over their estimated useful lives. FAS 142 is
immediately applicable to any acquisitions made after
June 30, 2001.


In June 2001, the FASB issued Statement
No. 143, Accounting for Asset Retirement Obligations.Statement No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation when an
existing law or contract requires that the obligation be
settled. The statement requires that the amount recorded as a
liability be capitalized by increasing the carrying amount of
the related long-lived asset. The capitalized cost is
depreciated over the useful life of the related asset. Statement
No. 143 will be effective for financial statements
beginning after January 21, 2003, with earlier application
encouraged. The Company is currently evaluating the impact on
its consolidated financial statements of adopting this statement.

In October 2001, the FASB issued FAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(FAS 144), which supersedes prior
accounting standards concerning the financial accounting and
reporting for the impairment or the disposition of the
long-lived assets and for the disposition of a segment of a
business. FAS 144 is effective for fiscal years beginning after
December 15, 2001. The company expects to adopt FAS 144 as
of April 1, 2002 and has not yet determined the effect, if
any, the adoption of FAS 144 will have on its results of
operations and financial condition.

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 and in accordance with FAS 142
and during 2002, no goodwill has been amortized.




ITEM
7A.     QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

In connection with borrowings under our senior
secured credit facility with Congress Financial Corp. and under
Kranes senior secured credit facility and revolving loan
with LaSalle Bank National Association, 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 these facilities bear interest at variable
rates based on the Prime Rate. Because such rates vary 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 two
term loans for total borrowings of $14.0 million. To date,
we have not utilized our revolving credit facility. Kranes
variable rate debt currently consists of a term loan borrowing
and revolving loan borrowings of $7.3 million and
$1.5 million, respectively. Kranes unsecured debt of
$2.5 million with Prairie Capital Mezzanine Fund, L.P.
bears interest at a fixed rate of 15%.

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 |                                                               |      | 27 |   
|                                          | Consolidated Balance Sheets                                   |      |    | 27 | 
|                                          | Consolidated Statements of Income                             |      |    | 28 | 
|                                          | Consolidated Statements of Stockholders
    Equity (Deficit) |      |    | 29 | 
|                                          | Consolidated Statements of Cash Flows                         |      |    | 30 | 
|                                          | Notes to Audited Consolidated Financial Statements            |      |    | 31 | 

25



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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, 2002 and 2001, and the related consolidated
statements of income, stockholders equity (deficit), and
cash flows for each of the three years in the period ended
March 31, 2002. Our audits also included the financial
statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedules
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 consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Thane
International, Inc. and subsidiaries at March 31, 2002 and
2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
March 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information
set forth therein.



| |                  
| | -----------------
| | Ernst & Young LLP

Irvine, California


June 17, 2002


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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(In thousands, except share and per share
data)


|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |        |    | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------- | ------ | ------ | -- | - | ------ | ------ | -- | 
|                                           |                                                                                                        |                                                                                             
|                                           |                                                                                                        | March 31                                                                                    
|                                           |                                                                                                        |                                                                                             
|                                           |                                                                                                        | 2002                                                                                         |        | 2001  
|                                           |                                                                                                        |                                                                                              |        |       
|ASSETS                                    
|Current assets:                            |                                                                                                        |                                                                                              |        |        |    |   |        |       
|                                           | Cash and cash equivalents                                                                              |                                                                                              | $      | 13,568 |    |   | $      | 4,060  |   
|                                           | Accounts receivable, net of allowance of $6,342
    and $1,912 in 2002 and 2001, respectively          |                                                                                              |        | 19,706 |    |   |        | 24,856 |   
|                                           | Inventories, net of reserves of $4,134 and $4,358
    in 2002 and 2001, respectively                   |                                                                                              |        | 13,458 |    |   |        | 20,554 |   
|                                           | Prepaid advertising                                                                                    |                                                                                              |        | 991    |    |   |        | 4,094  |   
|                                           | Prepaid expenses and other                                                                             |                                                                                              |        | 1,755  |    |   |        | 2,361  |   
|                                           | Due from affiliate                                                                                     |                                                                                              |        | 3,156  |    |   |        |       |   
|                                           | Deferred income taxes                                                                                  |                                                                                              |        | 6,579  |    |   |        | 3,122  |   
|                                           | Income taxes receivable                                                                                |                                                                                              |        | 515    |    |   |        |       |   
|                                           | Other current assets                                                                                   |                                                                                              |        | 621    |    |   |        | 2,168  |   
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Total current assets                       |                                                                                                        |                                                                                              | 60,349 |        |    |   | 61,215 |       
|Property and equipment:                    |                                                                                                        |                                                                                              |        |        |    |   |        |       
|                                           | Building                                                                                               |                                                                                              |        | 3,260  |    |   |        |       |   
|                                           | Furniture, fixtures and equipment                                                                      |                                                                                              |        | 2,247  |    |   |        | 1,041  |   
|                                           | Less accumulated depreciation                                                                          |                                                                                              |        | (821   | )  |   |        | (543   | ) 
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|                                           |                                                                                                        |                                                                                              | 4,686  |        |    |   | 498    |       
|Noncurrent assets:                         |                                                                                                        |                                                                                              |        |        |    |   |        |       
|                                           | Production costs, net of accumulated amortization
    of $52 and $1,892 in 2002 and 2001, respectively |                                                                                              |        | 471    |    |   |        | 792    |   
|                                           | Goodwill                                                                                               |                                                                                              |        | 24,415 |    |   |        |       |   
|                                           | Financing costs, net                                                                                   |                                                                                              |        | 1,402  |    |   |        | 528    |   
|                                           | Deferred income taxes                                                                                  |                                                                                              |        | 496    |    |   |        |       |   
|                                           | Other noncurrent assets                                                                                |                                                                                              |        | 2,024  |    |   |        | 124    |   
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Total noncurrent assets                    |                                                                                                        |                                                                                              | 28,808 |        |    |   | 1,444  |       
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Total assets                               |                                                                                                        | $                                                                                            | 93,843 |        |    | $ | 63,157 |       
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|Current liabilities:                       |                                                                                                        |                                                                                              |        |        |    |   |        |       
|                                           | Accounts payable                                                                                       |                                                                                              | $      | 8,819  |    |   | $      | 14,521 |   
|                                           | Allowance for product refunds and returns                                                              |                                                                                              |        | 3,523  |    |   |        | 4,523  |   
|                                           | Accrued expenses                                                                                       |                                                                                              |        | 14,755 |    |   |        | 5,989  |   
|                                           | Income taxes payable                                                                                   |                                                                                              |        |       |    |   |        | 9,350  |   
|                                           | Line of credit                                                                                         |                                                                                              |        | 1,522  |    |   |        | 8,333  |   
|                                           | Current portion of long-term debt                                                                      |                                                                                              |        | 9,040  |    |   |        | 4,850  |   
|                                           | Deferred consideration                                                                                 |                                                                                              |        | 2,230  |    |   |        |       |   
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Total current liabilities                  |                                                                                                        |                                                                                              | 39,889 |        |    |   | 47,566 |       
|Long-term debt, less current portion       |                                                                                                        |                                                                                              | 14,107 |        |    |   | 10,250 |       
|Capital lease obligation                   |                                                                                                        |                                                                                              | 3,238  |        |    |   |       |       
|Minority interest                          |                                                                                                        |                                                                                              | 562    |        |    |   | 146    |       
|Commitments and contingencies              |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Stockholders equity:                      |                                                                                                        |                                                                                              |        |        |    |   |        |       
|                                           | Class A common stock, par value $.001:                                                                 |                                                                                              |        |        |    |   |        |        |   
|                                           |                                                                                                        | Authorized shares  200,000,000                                                              |        |        |    |   |        |        |    | 
|                                           |                                                                                                        | Issued and outstanding shares  31,791,406
    and 32,577,088 in 2002 and 2001, respectively |        |        | 32 |   |        |        | 33 | 
|                                           | Warrants                                                                                               |                                                                                              |        | 5,130  |    |   |        |       |   
|                                           | Paid-in capital                                                                                        |                                                                                              |        | 22,114 |    |   |        | 6,251  |   
|                                           | Retained earnings (deficit)                                                                            |                                                                                              |        | 8,771  |    |   |        | (1,089 | ) 
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Total stockholders equity                 |                                                                                                        |                                                                                              | 36,047 |        |    |   | 5,195  |       
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       
|Total liabilities and stockholders equity |                                                                                                        | $                                                                                            | 93,843 |        |    | $ | 63,157 |       
|                                           |                                                                                                        |                                                                                              |        |        |    |   |        |       

See accompanying notes.

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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF INCOME


(In thousands, except share and per share
data)


|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |        | 
|--------------------------------- | ------------------------------------------ | ------------------- | ---------- | ------- |  | ---- | ---------- | ------- |  | - | ---------- | ------ | 
|                                  |                                            |                    
|                                  |                                            | Year Ended March 31
|                                  |                                            |                    
|                                  |                                            | 2002                |            | 2001    |  | 2000
|                                  |                                            |                     |            |         |  |     
|Revenues:                         |                                            |                     |            |         |  |      |            |         |  |   |            |       
|                                  | Net product sales                          |                     | $          | 218,905 |  |      | $          | 182,499 |  |   | $          | 73,946 | 
|                                  | Other                                      |                     |            | 36,866  |  |      |            | 8,025   |  |   |            | 6,512  | 
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Total revenues                    |                                            |                     | 255,771    |         |  |      | 190,524    |         |  |   | 80,458     |       
|Costs and expenses:               |                                            |                     |            |         |  |      |            |         |  |   |            |       
|                                  | Costs of sales, including selling expenses |                     |            | 203,682 |  |      |            | 147,329 |  |   |            | 63,915 | 
|                                  | General and administrative expenses        |                     |            | 21,073  |  |      |            | 14,190  |  |   |            | 8,376  | 
|                                  | Depreciation                               |                     |            | 422     |  |      |            | 146     |  |   |            | 196    | 
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Total costs and expenses          |                                            |                     | 225,177    |         |  |      | 161,665    |         |  |   | 72,487     |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Income from operations            |                                            |                     | 30,594     |         |  |      | 28,859     |         |  |   | 7,971      |       
|Interest expense, net             |                                            |                     | 11,492     |         |  |      | 2,497      |         |  |   | 1,991      |       
|Minority interest and other       |                                            |                     | 382        |         |  |      | 317        |         |  |   | 269        |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Income before income taxes        |                                            |                     | 18,720     |         |  |      | 26,045     |         |  |   | 5,711      |       
|Provision for income taxes        |                                            |                     | 8,860      |         |  |      | 10,053     |         |  |   | 1,501      |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Net income                        |                                            | $                   | 9,860      |         |  | $    | 15,992     |         |  | $ | 4,210      |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Weighted average shares  basic   |                                            |                     | 32,533,958 |         |  |      | 32,079,968 |         |  |   | 27,382,486 |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Basic earnings per share          |                                            | $                   | 0.30       |         |  | $    | 0.50       |         |  | $ | 0.15       |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Weighted average shares  diluted |                                            |                     | 35,064,425 |         |  |      | 32,079,968 |         |  |   | 27,382,486 |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       
|Diluted earnings per share        |                                            | $                   | 0.28       |         |  | $    | 0.50       |         |  | $ | 0.15       |       
|                                  |                                            |                     |            |         |  |      |            |         |  |   |            |       

See accompanying notes.

28



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)


(In thousands, except share data)


|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |           |    |       |   |   |       |       |  |   |        |        |   |   |         |         |   |   |         |         |  
|------------------------- | ------------------------------------------------------------ | ------------ | ---------- | -------------------- | - | ------ | -- | ------ | - | -------- | --------- | ---------- | - | --------- | -- | ----- | - | - | ----- | ----- |  | - | ------ | ------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |          
|                          |                                                              |              |            | Series A Convertible |   |        |    |        |   |          |           |           
|                          |                                                              | Common Stock |            | Preferred Stock      |   |        |    |        |   |          |           |           
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |           
|                          |                                                              | Number       |            |                      |   | Number |    |        |   |          |           |            |   | Retained  |    |      
|                          |                                                              | of           |            |                      |   | of     |    |        |   |          |           | Paid-in    |   | Earnings  |    |      
|                          |                                                              | Shares       |            | Amount               |   | Shares |    | Amount |   | Warrants |           | Capital    |   | (Deficit) |    | Total
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |           |    |      
|Balance at April 1, 1999  |                                                              |              | 8,241,185  |                      |   | $      | 82 |        |   |          | 1,823,127 |            |   | $         | 18 |       |   | $ |      |       |  | $ | 1,856  |        |   | $ | 11,997  |         |   | $ | 13,954  |        
|                          | Conversion of preferred shares to common shares              |              |            | 250,000              |   |        |    | 3      |   |          |           | (250,000   | ) |           |    | (3    | ) |   |       |      |  |   |        |       |   |   |         |        |   |   |         |        |  
|                          | Exercise of stock options                                    |              |            | 451,815              |   |        |    | 5      |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | 715    |   |   |         |        |   |   |         | 720     |  
|                          | Common stock issued for services                             |              |            | 14,500               |   |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | 30     |   |   |         |        |   |   |         | 30      |  
|                          | Retirement of preferred shares                               |              |            |                     |   |        |    |       |   |          |           | (1,573,127 | ) |           |    | (15   | ) |   |       |      |  |   |        |       |   |   |         | (6,459  | ) |   |         | (6,474  | )
|                          | Retirement of old common shares through
    recapitalization |              |            | (8,665,500           | ) |        |    | (90    | ) |          |           |           |   |           |    |      |   |   |       |      |  |   |        | (2,536 | ) |   |         | (26,801 | ) |   |         | (29,428 | )
|                          | Sale of common stock                                         |              |            | 708,000              |   |        |    | 1      |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | 5,999  |   |   |         |        |   |   |         | 6,000   |  
|                          | Preferred stock dividends                                    |              |            |                     |   |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        |       |   |   |         | (28     | ) |   |         | (28     | )
|                          | Stock split                                                  |              |            | 31,000,000           |   |        |    | 31     |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | (31    | ) |   |         |        |   |   |         |        |  
|                          | Net income                                                   |              |            |                     |   |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        |       |   |   |         | 4,210   |   |   |         | 4,210   |  
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |           |    |       |   |   |       |       |  |   |        |        |   |   |         |         |   |   |         |        
|Balance at March 31, 2000 |                                                              |              | 32,000,000 |                      |   |        | 32 |        |   |          |          |            |   |           |   |       |   |   |      |       |  |   | 6,033  |        |   |   | (17,081 | )       |   |   | (11,016 | )      
|                          | Common stock repurchased                                     |              |            | (62,912              | ) |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | (66    | ) |   |         |        |   |   |         | (66     | )
|                          | Purchase of minority interest in Thane Direct                |              |            | 640,000              |   |        |    | 1      |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | 284    |   |   |         |        |   |   |         | 285     |  
|                          | Net income                                                   |              |            |                     |   |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        |       |   |   |         | 15,992  |   |   |         | 15,992  |  
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |           |    |       |   |   |       |       |  |   |        |        |   |   |         |         |   |   |         |        
|Balance at March 31, 2001 |                                                              |              | 32,577,088 |                      |   |        | 33 |        |   |          |          |            |   |           |   |       |   |   |      |       |  |   | 6,251  |        |   |   | (1,089  | )       |   |   | 5,195   |        
|                          | Common stock repurchased                                     |              |            | (248,898             | ) |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | (1,185 | ) |   |         |        |   |   |         | (1,185  | )
|                          | Cancellation of common stock                                 |              |            | (3,171,552           | ) |        |    | (3     | ) |          |           |           |   |           |    |      |   |   |       |      |  |   |        | 3      |   |   |         |        |   |   |         |        |  
|                          | Issuance of warrants                                         |              |            |                     |   |        |    |       |   |          |           |           |   |           |    |      |   |   |       | 5,130 |  |   |        |       |   |   |         |        |   |   |         | 5,130   |  
|                          | Common stock issued in connection with acquisition           |              |            | 2,634,768            |   |        |    | 2      |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        | 17,045 |   |   |         |        |   |   |         | 17,047  |  
|                          | Net income                                                   |              |            |                     |   |        |    |       |   |          |           |           |   |           |    |      |   |   |       |      |  |   |        |       |   |   |         | 9,860   |   |   |         | 9,860   |  
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |           |    |       |   |   |       |       |  |   |        |        |   |   |         |         |   |   |         |        
|Balance at March 31, 2002 |                                                              |              | 31,791,406 |                      |   | $      | 32 |        |   |          |          |            |   | $         |   |       |   | $ | 5,130 |       |  | $ | 22,114 |        |   | $ | 8,771   |         |   | $ | 36,047  |        
|                          |                                                              |              |            |                      |   |        |    |        |   |          |           |            |   |           |    |       |   |   |       |       |  |   |        |        |   |   |         |         |   |   |         |        

See accompanying notes.

29



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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |       |        |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------ | ---- | ------ | ------ | ------- | - | ------- | ----- | ------ | -
|                                                                                      |                                                           |                                          
|                                                                                      |                                                           | Year Ended March 31,                     
|                                                                                      |                                                           |                                          
|                                                                                      |                                                           | 2002                                      |         | 2001   |        | 2000
|                                                                                      |                                                           |                                           |         |        |        |     
|Operating activities                                                                  |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Net income                                                                            |                                                           | $                                         | 9,860   |        |        | $    | 15,992 |        |         | $ | 4,210   |      
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|                                                                                      | Depreciation                                              |                                           |         | 422    |        |      |        | 146    |         |   |         | 196   |       
|                                                                                      | Amortization of production costs                          |                                           |         | 910    |        |      |        | 361    |         |   |         | 1,259 |       
|                                                                                      | Amortization of financing costs                           |                                           |         | 167    |        |      |        | 165    |         |   |         | 133   |       
|                                                                                      | Amortization of discount on acquired debt                 |                                           |         | 23     |        |      |        |       |         |   |         |      |       
|                                                                                      | Interest expense attributable to issuance of
    warrants |                                           |         | 5,130  |        |      |        |       |         |   |         |      |       
|                                                                                      | Write-off of financing costs                              |                                           |         | 376    |        |      |        |       |         |   |         |      |       
|                                                                                      | Provision for doubtful accounts                           |                                           |         | (41    | )      |      |        | 1,588  |         |   |         | 163   |       
|                                                                                      | Provision for inventory reserves                          |                                           |         | (224   | )      |      |        | 4,112  |         |   |         | (76   | )     
|                                                                                      | Deferred income taxes                                     |                                           |         | (2,256 | )      |      |        | (3,131 | )       |   |         | (145  | )     
|                                                                                      | Stock issued for services                                 |                                           |         |       |        |      |        |       |         |   |         | 29    |       
|                                                                                      | Minority interest                                         |                                           |         | 382    |        |      |        | 306    |         |   |         | 269   |       
|                                                                                      | Changes in operating assets and liabilities:              |                                           |         |        |        |      |        |        |         |   |         |       |       
|                                                                                      |                                                           | Accounts receivable                       |         |        | 9,429  |      |        |        | (21,588 | ) |         |       | 245    |  
|                                                                                      |                                                           | Inventories                               |         |        | 7,971  |      |        |        | (19,365 | ) |         |       | (2,255 | )
|                                                                                      |                                                           | Prepaid advertising                       |         |        | 3,103  |      |        |        | (1,575  | ) |         |       | 409    |  
|                                                                                      |                                                           | Prepaid expenses and other                |         |        | 779    |      |        |        | (1,283  | ) |         |       | (771   | )
|                                                                                      |                                                           | Production costs                          |         |        | (589   | )    |        |        | (719    | ) |         |       | (842   | )
|                                                                                      |                                                           | Due from affiliate                        |         |        | (3,156 | )    |        |        |        |   |         |       |       |  
|                                                                                      |                                                           | Income taxes receivable                   |         |        | (435   | )    |        |        |        |   |         |       |       |  
|                                                                                      |                                                           | Other assets                              |         |        | (186   | )    |        |        | (960    | ) |         |       | 99     |  
|                                                                                      |                                                           | Accounts payable                          |         |        | (5,933 | )    |        |        | 11,210  |   |         |       | 483    |  
|                                                                                      |                                                           | Allowance for product refunds and returns |         |        | (1,000 | )    |        |        | 3,486   |   |         |       | (198   | )
|                                                                                      |                                                           | Accrued expenses                          |         |        | 7,817  |      |        |        | 3,956   |   |         |       | (1,845 | )
|                                                                                      |                                                           | Income taxes payable                      |         |        | (9,350 | )    |        |        | 8,866   |   |         |       | 428    |  
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Net cash provided by operating activities                                             |                                                           |                                           | 23,199  |        |        |      | 1,567  |        |         |   | 1,791   |      
|Investing activities                                                                  |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Purchases of furniture, fixtures and equipment                                        |                                                           |                                           | (961    | )      |        |      | (319   | )      |         |   | (139    | )    
|Acquisition of companies, net of cash acquired                                        |                                                           |                                           | (749    | )      |        |      |       |        |         |   |        |      
|Acquisitions of minority interest                                                     |                                                           |                                           |        |        |        |      | (350   | )      |         |   |        |      
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Net cash used in investing activities                                                 |                                                           |                                           | (1,710  | )      |        |      | (669   | )      |         |   | (139    | )    
|Financing activities                                                                  |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Proceeds from stockholder loan receivable                                             |                                                           |                                           |        |        |        |      |       |        |         |   | 1,011   |      
|Proceeds from subordinated debt                                                       |                                                           |                                           |        |        |        |      |       |        |         |   | 3,000   |      
|Proceeds from line of credit                                                          |                                                           |                                           | 5,000   |        |        |      | 8,133  |        |         |   | 3,200   |      
|Payments on line of credit                                                            |                                                           |                                           | (13,333 | )      |        |      | (3,000 | )      |         |   |        |      
|Proceeds from long-term debt                                                          |                                                           |                                           | 14,000  |        |        |      |       |        |         |   | 19,000  |      
|Payments on long-term debt                                                            |                                                           |                                           | (15,414 | )      |        |      | (4,200 | )      |         |   | (2,700  | )    
|Debt issuance costs                                                                   |                                                           |                                           | (1,061  | )      |        |      |       |        |         |   | (826    | )    
|Dividend to stockholders                                                              |                                                           |                                           |        |        |        |      |       |        |         |   | (28     | )    
|Retirement of preferred stock                                                         |                                                           |                                           |        |        |        |      |       |        |         |   | (6,474  | )    
|Retirement of common stock                                                            |                                                           |                                           |        |        |        |      |       |        |         |   | (29,426 | )    
|Repurchase of common stock                                                            |                                                           |                                           | (1,185  | )      |        |      | (66    | )      |         |   |        |      
|Issuance of common stock                                                              |                                                           |                                           |        |        |        |      |       |        |         |   | 6,000   |      
|Payments on capital lease obligations                                                 |                                                           |                                           | (22     | )      |        |      |       |        |         |   |        |      
|Proceeds from issuance of stock options                                               |                                                           |                                           |        |        |        |      |       |        |         |   | 720     |      
|Investments from minority owners                                                      |                                                           |                                           | 34      |        |        |      | 45     |        |         |   |        |      
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Net cash provided by (used) in financing
    activities                               |                                                           |                                           | (11,981 | )      |        |      | 913    |        |         |   | (6,523  | )    
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Net increase (decrease) in cash and cash
    equivalents                              |                                                           |                                           | 9,508   |        |        |      | 1,811  |        |         |   | (4,871  | )    
|Cash and cash equivalents at beginning of year                                        |                                                           |                                           | 4,060   |        |        |      | 2,249  |        |         |   | 7,120   |      
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Cash and cash equivalents at end of year                                              |                                                           | $                                         | 13,568  |        |        | $    | 4,060  |        |         | $ | 2,249   |      
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Supplemental disclosures of cash flow
    information                                 |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Cash paid during the period for:                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|                                                                                      | Interest, including purchase of warrants                  |                                           | $       | 5,939  |        |      | $      | 2,427  |         |   | $       | 1,827 |       
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|                                                                                      | Income taxes                                              |                                           | $       | 20,933 |        |      | $      | 4,125  |         |   | $       | 1,190 |       
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|Supplemental disclosures of non-cash
    items                                        |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|                                                                                      | Write-off of fully amortized production costs             |                                           | $       | 2,750  |        |      | $      |       |         |   | $       |      |       
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      
|                                                                                      | Asset acquired under capital lease                        |                                           | $       | 3,260  |        |      | $      |       |         |   | $       |      |       
|                                                                                      |                                                           |                                           |         |        |        |      |        |        |         |   |         |      

See accompanying notes.

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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES






NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS


March 31, 2002


(In thousands, except share and per share
data)


1.     Summary of
Operations

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.

During November 1997, Thane Direct, Inc. and its
wholly owned subsidiary, Thane Direct, Canada, were formed as
the vehicle to market products internationally. Thane Direct,
Inc. is 80% owned by the Company, and the remaining 20% minority
interest is owned by Thane Direct, Inc.s president. On
March 31, 1999, the Company acquired an additional 5%
interest in Thane Direct, Inc., increasing its ownership to 85%.
On January 12, 2001, the Company acquired the remaining 15%
interest in Thane Direct for $350 and 20,000 shares of the
Companys common stock.

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 (see Note 8).

2.     Acquisitions

Internet Retailer

On August 8, 2001, the Company purchased the
stock of an internet retailer, Tradewinds, Inc., for
approximately $1,000. 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 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   | 
|Deferred consideration                  |  |   | 2,230 | 
|Acquisition costs                       |  |   | 137   | 
|                                        |  |   |       | 
|Total goodwill                          |  | $ | 2,653 | 
|                                        |  |   |       | 

Subsequent to year end, the Company paid $190 in
cash and $1,115 in the form of 138,961 shares of Company stock,
calculated in accordance with the terms of the purchase
agreement.

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.
This acquisition was accounted for using the purchase method of

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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


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

Pro Forma Results (Unaudited)

The unaudited pro forma financial information
below for the years ended March 31, 2002 and 2001 were
prepared as if the transactions above had occurred on
April 1, 2000, and assumes the refinancing (Note 5)
and warrant repurchase (Note 8) occurred on March 31,
2000 to facilitate the transactions as of this date.

|                           |  |      |         |      |  |   |         | 
|-------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                           |  | 2002 |         | 2001
|                           |  |      |         |     
|Revenue                    |  | $    | 286,878 |      |  | $ | 222,545 | 
|Total costs and expenses   |  | $    | 252,130 |      |  | $ | 188,648 | 
|Net income                 |  | $    | 16,155  |      |  | $ | 18,641  | 
|Basic earnings per share   |  | $    | 0.51    |      |  | $ | 0.60    | 
|Diluted earnings per share |  | $    | 0.47    |      |  | $ | 0.55    | 

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 wholly-owned subsidiaries, Thane Distribution Group,
Inc., West Coast Direct Marketing, Inc., La Quinta Services
Corp., Thane Products Group, Thane Direct, Inc., Xebec
Productions, Inc., Time Prophets, Inc., TrendPro, Tradewinds,
Krane Holdings, Inc. and majority-owned subsidiaries, Clinical
Results, Pan European, Pan Latino and Fox Marketing, Inc. All
significant intercompany balances and transactions have been
eliminated.

32



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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


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 2001 and 2000 have been
reclassified to conform with the 2002 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).

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, 2002, 2001 and
2000, revenue from international customers was approximately
35%, 11%, and 22% 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.

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.

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.

Costs Associated with Infomercials

Television advertisement of products comprise 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 includes 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.

33



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


Prepaid Advertising

Prepaid advertising includes payments made for
media, which are expensed when the infomercial is aired and
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
$53,861, $43,250 and $18,500 for the years ended March 31,
2002, 2001 and 2000, 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.

Other Assets

Other current assets primarily include amounts
receivable for membership referral fees earned. Other noncurrent
assets primarily include prepaid acquisition costs (Note 11).

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. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. FAS No. 121 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,
2002, the Companys review of long-lived assets showed no
indications of loss or impairment. Accordingly, no impairment
loss was recorded in 2002, 2001 or 2000.

34



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


Accrued Expenses

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

|                                                 |  |      |        |      |  |   |       | 
|------------------------------------------------ |  | ---- | ------ | ---- |  | - | ----- | 
|                                                 |  | 2002 |        | 2001
|                                                 |  |      |        |     
|Accrual for management and employee compensation |  | $    | 3,660  |      |  | $ | 2,710 | 
|Deferred revenue                                 |  |      | 2,588  |      |  |   | 187   | 
|Royalties and profit participation               |  |      | 3,852  |      |  |   | 488   | 
|Accrued acquisition costs                        |  |      | 1,210  |      |  |   |      | 
|Other                                            |  |      | 3,445  |      |  |   | 2,604 | 
|                                                 |  |      |        |      |  |   |       | 
|                                                 |  | $    | 14,755 |      |  | $ | 5,989 | 
|                                                 |  |      |        |      |  |   |       | 

Revenue Recognition

Revenue is recorded 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.

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.

Stock Based Compensation

The Company accounts for stock-based awards to
employees in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees(APB 25), as amended by FASB Interpretation No.
(FIN) 44, Accounting for Certain Transactions Involving
Stock Compensation  An Interpretation of APB Opinion
No. 25(FIN 44). FIN 44 clarifies the
definition of an employee for purposes of applying APB 25, the
criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or
award, and the accounting for an exchange for stock compensation
awards in a business combination. The Company has adopted the
disclosure-only alternative of FAS No. 123, Accounting for
Stock-Based Compensation.

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.The
carrying amount approximates fair value based on the current
rates offered to the Company for debt of the same remaining
maturities.

35



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


Accounts Receivable.The carrying amount approximates fair value.

Accounts Payable.The carrying amount approximates fair value.

Earnings Per Share

The computation of basic and diluted income 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, 2002
|                              |                                                                      |                                  
|                              |                                                                      | Income                            |   | Shares        |  | Per-Share
|                              |                                                                      | (Numerator)                       |   | (Denominator) |  | Amount   
|                              |                                                                      |                                   |   |               |  |          
|Basic Income Per Share        |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     
|                              | Income available to common stockholders                              |                                   | $ | 9,860         |  |           |  | 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         |  |           |  | 35,064,425 |  |  | $ | .028 | 
|                              |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     

|                                 |                                                                      |                                   |   |               |  |           |   |            |  |  |   |      | 
|-------------------------------- | -------------------------------------------------------------------- | --------------------------------- | - | ------------- |  | --------- | - | ---------- |  |  | - | ---- | 
|                                 |                                                                      |                                  
|                                 |                                                                      | 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        |  |           |   | 32,079,968 |  |  | $ | 0.50 | 
|                                 |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|Effective of Dilutive Securities |                                                                      |                                   |  |               |  |           |  |            |  |  |   |     
|                                 |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|Diluted Income Per Share         |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|                                 | Income available to common stockholders plus
    assumed conversions |                                   | $ | 15,992        |  |           |   | 32,079,968 |  |  | $ | 0.50 | 
|                                 |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     

|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |      | 
|----------------------------- | -------------------------------------------------------------------- | --------------------------------- | - | ------------- |  | --------- | - | ---------- |  |  | - | ---- | 
|                              |                                                                      |                                  
|                              |                                                                      | For the Year Ended March 31, 2000
|                              |                                                                      |                                  
|                              |                                                                      | Income                            |   | Shares        |  | Per-Share
|                              |                                                                      | (Numerator)                       |   | (Denominator) |  | Amount   
|                              |                                                                      |                                   |   |               |  |          
|Basic Income Per Share        |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|                              | Income available to common stockholders                              |                                   | $ | 4,210         |  |           |   | 27,382,486 |  |  | $ | 0.15 | 
|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|Effect of Dilutive Securities |                                                                      |                                   |  |               |  |           |  |            |  |  |   |     
|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|Diluted Income Per Share      |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|                              | Income available to common stockholders plus
    assumed conversions |                                   | $ | 4,210         |  |           |   | 27,382,486 |  |  | $ | 0.15 | 
|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     

Recent Accounting Pronouncements

In June 2001, the FASB issued FAS No. 141,
Business Combinations(FAS 141), and FAS
No. 142, Goodwill and Other Intangible Assets(FAS 142), effective for fiscal years beginning after
December 15, 2001. Under these new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be

36



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be
amortized over their estimated useful lives. FAS 142 is
immediately applicable to any acquisitions made after
June 30, 2001.

In June 2001, the FASB issued FAS No. 143,
Accounting for Asset Retirement Obligations.FAS
No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation when an existing
law or contract requires that the obligation be settled. The
statement requires that the amount recorded as a liability be
capitalized by increasing the carrying amount of the related
long-lived asset. The capitalized cost is depreciated over the
useful life of the related asset. FAS No. 143 will be
effective for financial statements beginning after
January 1, 2003, with earlier application encouraged. The
Company is currently evaluating the impact on its consolidated
financial statements of adopting this statement.

In October 2001, the FASB issued FAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(FAS 144), which supersedes prior
accounting standards concerning the financial accounting and
reporting for the impairment or the disposition of the
long-lived assets and for the disposition of a segment of a
business. FAS 144 is effective for fiscal years beginning
after December 15, 2001. The Company expects to adopt
FAS 144 as of April 1, 2002 and has not yet determined
the effect, if any, the adoption of FAS 144 will have on
its results of operations and financial condition.

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 and in accordance with
FAS 142 goodwill has not been amortized.

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 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 under a new five-year agreement expiring
January 2007. This payment will be made after the closing of the
Reliant Interactive Media Corp. (Reliant) transaction
(Note 11) and when the Company raises additional capital.
The Company is currently accruing $25 per month related to this
fee. Upon payment, the balance of the fee will be capitalized
and amortized over the remaining term of the new agreement.

Included in general and administrative expenses
are management fees paid to the Companys venture capital
group. The Company incurred approximately $187 and $451 in
management fees for fiscal 2002 and 2001, respectively, and no
amounts were incurred for 2000.

During the year ended March 31, 2002, the
Company purchased inventory of approximately $2,365 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.

37



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


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 per month, plus
maintenance, insurance and costs. The company also leases, on a
month-to-month basis, an automobile from this entity for
approximately $2 per month.

The Company leases a residential property from
two of its stockholders on a month-to-month basis for
approximately $4 per month.

The Company leases an office building under a
capital lease from two of its stockholders (Note 7).

During acquisition negotiations with Reliant
Interactive Media Corp. (Note 11), 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 $3,156 receivable from Reliant and had recognized
$96 in other revenues related to this agreement.

5.     Long-Term Debt
and Line of Credit



| |                    
| | -------------------
| | New Credit Facility

In March 2002, the Company entered into a new
credit facility that provides for a $20,000 senior secured
revolving credit facility and an aggregate of $14,000 in
subordinated term loans. This new credit facility was used to
refinance the Companys prior credit facility, to pay
certain fees related to the Reliant (Note 11) and Krane
acquisitions and to provide funds for working capital purposes.

The revolving credit facility bears interest at
the prime rate plus one-half of one percent. The line is secured
by substantially all of the assets of the Company and is limited
by a borrowing base calculation. As of March 31, 2002, the
Company had not borrowed against this line, and any amounts
available under the borrowing base calculation have been
reserved for other transactions, such as the acquisition of
Reliant Interactive Media Corp. (Note 11).



| |              
| | -------------
| | 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 new credit
facility, the lenders entered to an inter-creditor agreement,
whereby, the assets of Krane were pledged solely as collateral
of the Krane debt, and the assets of the remaining consolidated
Company were pledged as security to the new credit facility.

The revolving loan provides maximum borrowings of
$2,500. 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% (5.31% to 6.75% at March 31, 2002).
Interest on the outstanding principal balance is payable
monthly, while the principal balance is due February 2003. The
Company had $1,522 outstanding under the revolving loan at
March 31, 2002.

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 and is being amortized as interest expense over the
remaining term of the debt. For the year ended March 31,
2002, a debt discount of $23 was amortized and recognized as
interest expense.

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.

38



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


Old Credit Facility

The Company has a $22,000 debt facility, which
consists of one term loan in the amount of $19,000 and one
senior subordinated loan in the amount of $3,000. The loans are
collateralized by substantially all of the assets of the
corporation.

Additionally, the facility contains a $5,000 line
of credit, which bears interest at the higher of
(i)  1/2 of 1% in excess of the federal funds rate or
(ii) the banks prime lending rate, plus 2.25% (10.25%
at March 31, 2001). The line is secured by substantially
all of the assets of the Company. On January 12, 2001, the
line of credit was amended and increased to approximately $8,333
with a maturity date of January 12, 2002. At March 31,
2001, the Company had borrowed approximately $8,333 under the
line of credit agreement.

In March 2002, in connection with the refinancing
mentioned above, the Company repaid all outstanding obligations
under the old credit facility.

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

|                                                                                                                                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                                                                                                                                                                       |  | 2002 |        | 2001
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |     
|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, 2002)                                                                                                                                               |  | $    | 10,000 |      |  | $ |       | 
|Term loan B, payable in monthly installments
    of $167 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, 2002)                                                                                                           |  |      | 4,000  |      |  |   |       | 
|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% (5.75% at
    March 31, 2002) |  |      | 7,206  |      |  |   |       | 
|Unsecured loan, net of unamortized discount,
    principal payable in June 2003, interest payable monthly at
    15.00%                                                                                                                                                                                                                |  |      | 1,941  |      |  |   |       | 
|Term loan, payable in quarterly installments of
    $900 commencing on September 30, 1999, and increasing each
    year thereafter through June 30, 2002, interest payable
    quarterly at the higher of (i)  1/2 of 1% in excess of
    the federal funds rate or (ii) the banks prime
    lending rate, plus 2.25%                 |  |      |       |      |  |   | 12,100 | 
|Senior subordinated debt, principal payable in
    June 2003, interest payable quarterly at 12%                                                                                                                                                                                                                                        |  |      |       |      |  |   | 3,000  | 
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 
|                                                                                                                                                                                                                                                                                                                                       |  |      | 23,147 |      |  |   | 15,100 | 
|Less current portion                                                                                                                                                                                                                                                                                                                   |  |      | 9,040  |      |  |   | 4,850  | 
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 
|                                                                                                                                                                                                                                                                                                                                       |  | $    | 14,107 |      |  | $ | 10,250 | 
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |      |  |   |        | 

Future maturities for long-term debt outstanding
as of March 31, 2002 are as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 9,040  | 
|2004 |  |   | 3,941  | 
|2005 |  |   | 10,166 | 
|     |  |   |        | 
|     |  | $ | 23,147 | 
|     |  |   |        | 

Included in interest expense (income), net is
interest expense of approximately $11,700, $2,424 and $1,916 for
2002, 2001 and 2000, respectively.

39



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


The weighted average interest rate on short term
borrowings as of March 31, 2002 and 2001 was 5.57% and
10.25%, respectively.

Both the new credit facility and the acquired
debt require maintenance of certain financial ratios and contain
other restrictive covenants. As of March 31, 2002, the
Company was in compliance with these covenants.

6.     Income
Taxes

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

|          |         |      |        |        |   |      |        |        |   |   |       |       |  
|--------- | ------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ----- | ----- | -
|          |         | 2002 |        | 2001   |   | 2000
|          |         |      |        |        |   |     
|Current:  |         |      |        |        |   |      |        |        |   |   |       |      
|          | Federal |      | $      | 9,025  |   |      | $      | 11,988 |   |   | $     | 1,450 |  
|          | State   |      |        | 871    |   |      |        | 1,196  |   |   |       | 196   |  
|          | Foreign |      |        | 1,220  |   |      |        |       |   |   |       |      |  
|          |         |      |        |        |   |      |        |        |   |   |       |      
|          |         |      | 11,116 |        |   |      | 13,184 |        |   |   | 1,646 |      
|Deferred: |         |      |        |        |   |      |        |        |   |   |       |      
|          | Federal |      |        | (2,110 | ) |      |        | (2,956 | ) |   |       | (127  | )
|          | State   |      |        | (146   | ) |      |        | (175   | ) |   |       | (18   | )
|          |         |      |        |        |   |      |        |        |   |   |       |      
|          |         |      | (2,256 | )      |   |      | (3,131 | )      |   |   | (145  | )    
|          |         |      |        |        |   |      |        |        |   |   |       |      
|          |         | $    | 8,860  |        |   | $    | 10,053 |        |   | $ | 1,501 |      
|          |         |      |        |        |   |      |        |        |   |   |       |      

Income subject to foreign taxes for the year
ended March 31, 2002 was approximately $2,214.

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

|                                              |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                              |  | 2002 |      | 2001 |  | 2000
|                                              |  |      |      |      |  |     
|United States statutory rate                  |  |      | 35.0 | %    |  |      | 35.0 | % |  |  | 34.0 | %
|State income tax, net of federal tax benefits |  |      | 2.3  |      |  |      | 2.3  |   |  |  | 2.3  |  
|Foreign taxes                                 |  |      | 6.4  |      |  |      |     |   |  |  |     |  
|Foreign tax credits                           |  |      | (5.6 | )    |  |      |     |   |  |  |     |  
|Change to cumulative reserves                 |  |      | 7.7  |      |  |      |     |   |  |  | (8.4 | )
|Permanent differences                         |  |      | 0.6  |      |  |      | 0.1  |   |  |  | 0.3  |  
|Other                                         |  |      | 0.9  |      |  |      | 1.2  |   |  |  | (2.0 | )
|                                              |  |      |      |      |  |      |      |   |  |  |      |  
|                                              |  |      | 47.3 | %    |  |      | 38.6 | % |  |  | 26.2 | %
|                                              |  |      |      |      |  |      |      |   |  |  |      |  

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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


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

|                  |  |      |       |      |  |      |        |   |  |   |      |  
|----------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ---- | -
|                  |  | 2002 |       | 2001 |  | 2000
|                  |  |      |       |      |  |     
|Reserves          |  | $    | 5,182 |      |  | $    | 4,026  |   |  | $ | 603  |  
|Deferred revenue  |  |      | 959   |      |  |      | 70     |   |  |   |     |  
|Accrued royalties |  |      | 466   |      |  |      |       |   |  |   |     |  
|Other             |  |      | 838   |      |  |      | 478    |   |  |   | 333  |  
|                  |  |      |       |      |  |      |        |   |  |   |      |  
|                  |  |      | 7,445 |      |  |      | 4,574  |   |  |   | 936  |  
|Media costs       |  |      | (370  | )    |  |      | (1,452 | ) |  |   | (945 | )
|                  |  |      |       |      |  |      |        |   |  |   |      |  
|                  |  | $    | 7,075 |      |  | $    | 3,122  |   |  | $ | (9   | )
|                  |  |      |       |      |  |      |        |   |  |   |      |  

7.     Commitments
and Contingencies

Leases

On June 1, 2001, the Company entered into a
capital lease for its corporate office building with one 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.

The Company leases certain facilities and
equipment under noncancelable operating leases that expire at
various dates.

Future minimum lease commitments under
noncancelable 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 |       | Capital
|                                        |  | Leases    |       | Lease  
|                                        |  |           |       |        
|2003                                    |  | $         | 1,087 |         |  | $ | 277   | 
|2004                                    |  |           | 1,029 |         |  |   | 288   | 
|2005                                    |  |           | 925   |         |  |   | 300   | 
|2006                                    |  |           | 862   |         |  |   | 312   | 
|2007                                    |  |           | 230   |         |  |   | 324   | 
|Thereafter                              |  |           |      |         |  |   | 6,267 | 
|                                        |  |           |       |         |  |   |       | 
|                                        |  | $         | 4,133 |         |  | $ | 7,768 | 
|Less amounts representing interest      |  |           |       |         |  |   | 4,530 | 
|                                        |  |           |       |         |  |   |       | 
|Present value of minimum lease payments |  |           |       |         |  |   | 3,238 | 
|Less current portion                    |  |           |       |         |  |   |      | 
|                                        |  |           |       |         |  |   |       | 
|                                        |  |           |       |         |  | $ | 3,238 | 
|                                        |  |           |       |         |  |   |       | 

Certain agreements require the Company to pay
utilities in addition to lease payments. Total rental expense
for the years ended March 31, 2002, 2001 and 2000 was
approximately $1,124, $643 and $321, respectively, including
rental expense to related parties of approximately $499, $180
and $0, respectively.

41



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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


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, 2002, 2001
and 2000 were approximately $14,534, $2,295 and $2,768,
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 Retail 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, 2002, the Company has not been
subject to regulation by these agencies.

Litigation

The Company is involved with pending litigation,
which has arisen in the ordinary course of business. Although
the outcome of these matters is not presently determinable,
management does not expect that the resolution of these matters
will have a material adverse impact on the financial condition
of the Company.

8.     Stockholders
Equity

On June 10, 1999, prior to the
Recapitalization, all of the then outstanding Series A
Convertible Preferred Stock was repurchased by the Company for
approximately $6,500 and retired. Prior to the repurchase,
250,000 shares of the Series A Convertible Preferred
Stock were converted into an equal amount of common stock.

On June 10, 1999, in connection with the
Recapitalization, the investor group invested $6,000 for
22,656,000 shares of the entity formed and merged with and
into the Company. Management of the Company retained
9,344,000 shares of common stock. All remaining outstanding
shares of the Companys common stock were repurchased by
the Company for $29,500 and retired. Of the $29,500 paid, $3,000
was placed in an escrow account to be allocated no later than
December 2000 based on a valuation of the Company as of the
transaction date. These amounts were paid out equitably in
January 2001.

In connection with the Recapitalization, the
Company granted warrants to purchase approximately 6,048,000
shares of Class A common stock (Class A) to its
majority stockholder. The warrants provide for the purchase of
Class A at a price, currently par value, in accordance with
the agreement and are only exercisable upon the occurrence of
events provided for in the agreement. The warrant expires, if
unexercised, in June 2010. In addition, warrants were granted
individually to two other stockholders and expire, if
unexercised in June 2004. These warrants are only exercisable,
at par value, upon the occurrence of events provided for in the
agreement, and the number of shares of Class A are
determined in accordance with a formula provided in the
agreement in order to minimize dilution of these stockholders.

Finally, and in connection with the
Companys old credit facility, the Company provided
warrants to the bank to purchase approximately 3,964,000 shares
of Class B non-voting common stock (Class B) at a
nominal

42



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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


initial exercise price. The warrants expire, if
unexercised, in June 2009. The number of shares of Class B
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 the bank with a put option, which
requires the Company to purchase the warrants or Class B
received as a result of exercising the warrant at fair market
value at the time of the put. The put option is 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 provides 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 is 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 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 has recorded approximately $9,100 in interest expense.

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 will cancel 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 have
agreed to their cancellation.

9.     Stock
Options

On June 10, 1999, the Board of Directors
approved a stock option plan (the 1999 Plan) for eligible
employees, nonemployee directors, and consultants to the
Company. Options under the 1999 Plan include incentive stock
options. The New 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 issuance. The
Company can repurchase at their 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. As of
March 31, 2001, there were 1,600,000 options issued
and outstanding under the 1999 Plan.

On June 10, 1999, in conjunction with the
Recapitalization, all outstanding options under the
Companys previous stock option plan were exercised and a
percentage of the related shares were reacquired by the Company
shortly thereafter. Accordingly, the Company recorded
compensation expense of approximately $923 in 2000 that is
included in general and administrative expenses in the
accompanying consolidated statements of income.

In July 2001, the Companys board of
directors approved an increase in the number of shares
authorized under the stock option plan to 2,880,000 shares and,
as of March 31, 2002, all of these shares have been issued.
During August 2001 and December 2001, the Company granted a
total of approximately 1,520,000 stock

43



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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


options. Based on the exercise price and the
related terms of the options, no compensation expense was
recorded.

In January 2002, the Company approved a stock
option plan (the 2002 Plan) for eligible employees, nonemployee
directors and consultants to the Company. The Company reserved
1,500,000 shares of its common stock for issuance under the 2002
Plan. As of March 31, 2002, there were no options
outstanding under this plan.

In October 1995, the Financial Accounting
Standards Board issued Financial Accounting Standards Statement
No. 123, Accounting for Stock-Based
Compensation (FAS 123). FAS 123 encourages
companies to recognize expense for stock-based awards based on
their fair value on the date of grant. In accordance with
FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations in accounting for the
stock options. The Company has selected the minimum value method
to estimate the fair value which is dependent upon several
factors at grant date including current value of the underlying
stock, exercise price of the option, expected life of the option
and the risk-free interest rate during the life of the option.
The fair value at grant date for options granted is equal to the
exercise price. Accordingly, no compensation expense was
recorded. If the Company had used the fair value method under
FAS 123, there would have been no material effect on net
income.

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

|                                                                   |  |         |           |           |  |         |      |           |  |         |           |           |  |   |      |  |  |  |          |   |  |   |      | 
|------------------------------------------------------------------ |  | ------- | --------- | --------- |  | ------- | ---- | --------- |  | ------- | --------- | --------- |  | - | ---- |  |  |  | -------- | - |  | - | ---- | 
|                                                                   |  |         |           |           |  |        
|                                                                   |  | 2002    |           | 2001      |  | 2000   
|                                                                   |  |         |           |           |  |        
|                                                                   |  |         |           | Weighted- |  |         |      | Weighted- |  |         |           | Weighted-
|                                                                   |  |         |           | Average   |  |         |      | Average   |  |         |           | Average  
|                                                                   |  |         |           | Exercise  |  |         |      | Exercise  |  |         |           | Exercise 
|                                                                   |  | Options |           | Price     |  | Options |      | Price     |  | Options |           | Price    
|                                                                   |  |         |           |           |  |         |      |           |  |         |           |          
|Outstanding at beginning of year                                   |  |         | 1,600,000 |           |  | $       | 0.81 |           |  |         | 720,000   |           |  | $ | 0.27 |  |  |  | 451,815  |   |  | $ | 1.65 | 
|Granted                                                            |  |         | 1,520,000 |           |  |         | 5.46 |           |  |         | 880,000   |           |  |   | 1.25 |  |  |  | 720,000  |   |  |   | 0.27 | 
|Canceled                                                           |  |         | (240,000  | )         |  |         | 1.25 |           |  |         |          |           |  |   |     |  |  |  |         |   |  |   |     | 
|Exercised                                                          |  |         |          |           |  |         |     |           |  |         |          |           |  |   |     |  |  |  | (451,815 | ) |  |   | 1.65 | 
|                                                                   |  |         |           |           |  |         |      |           |  |         |           |           |  |   |      |  |  |  |          |   |  |   |      | 
|Outstanding at end of year                                         |  |         | 2,880,000 |           |  | $       | 3.23 |           |  |         | 1,600,000 |           |  | $ | 0.81 |  |  |  | 720,000  |   |  | $ | 0.27 | 
|                                                                   |  |         |           |           |  |         |      |           |  |         |           |           |  |   |      |  |  |  |          |   |  |   |      | 
|Options vested and exercisable at year end                         |  |         | 660,000   |           |  | $       | 0.60 |           |  |         | 180,000   |           |  | $ | 0.27 |  |  |  |          |   |  | $ |     | 
|                                                                   |  |         |           |           |  |         |      |           |  |         |           |           |  |   |      |  |  |  |          |   |  |   |      | 
|Weighted average fair value of options granted
    during the year |  |         |           |           |  | $       | 5.46 |           |  |         |           |           |  | $ | 0.50 |  |  |  |          |   |  | $ |     | 
|                                                                   |  |         |           |           |  |         |      |           |  |         |           |           |  |   |      |  |  |  |          |   |  |   |      | 

The remaining average life of exercisable options
at March 31, 2002 was 7.8 years.

44



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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(In thousands, except share and per share
data)


10.     Quarterly
Financial Data (Unaudited)

|                   |                                           |               |       |              |  |             |       |          |  |  |       |        |  |  |        |        |  
|------------------ | ----------------------------------------- | ------------- | ----- | ------------ |  | ----------- | ----- | -------- |  |  | ----- | ------ |  |  | ------ | ------ | -
|                   |                                           |              
|                   |                                           | Quarter Ended
|                   |                                           |              
|                   |                                           | June 30       |       | September 30 |  | December 31 |       | March 31
|                   |                                           |               |       |              |  |             |       |         
|Fiscal 2002:       |                                           |               |       |              |  |             |       |          |  |  |       |        |  |  |        |       
|                   | Net revenues                              |               | $     | 75,519       |  |             | $     | 61,028   |  |  | $     | 59,190 |  |  | $      | 60,034 |  
|                   | Cost of sales, including selling expenses |               |       | 62,599       |  |             |       | 48,412   |  |  |       | 47,363 |  |  |        | 45,308 |  
|                   | Income from operations                    |               |       | 7,742        |  |             |       | 7,095    |  |  |       | 6,875  |  |  |        | 8,882  |  
|Net income (loss)  |                                           |               | 4,357 |              |  |             | 3,990 |          |  |  | 3,981 |        |  |  | (2,468 | )     
|Earnings per share |                                           |               |       |              |  |             |       |          |  |  |       |        |  |  |        |       
|                   | Basic                                     |               |       | 0.14         |  |             |       | 0.11     |  |  |       | 0.12   |  |  |        | (0.07  | )
|                   | Diluted                                   |               |       | 0.13         |  |             |       | 0.11     |  |  |       | 0.11   |  |  |        | (0.07  | )
|Fiscal 2001:       |                                           |               |       |              |  |             |       |          |  |  |       |        |  |  |        |       
|                   | Net revenues                              |               |       | 20,408       |  |             |       | 32,666   |  |  |       | 58,657 |  |  |        | 78,793 |  
|                   | Cost of sales, including selling expenses |               |       | 15,942       |  |             |       | 24,071   |  |  |       | 42,911 |  |  |        | 64,405 |  
|                   | Income from operations                    |               |       | 2,351        |  |             |       | 5,878    |  |  |       | 11,846 |  |  |        | 8,784  |  
|Net income         |                                           |               | 992   |              |  |             | 2,968 |          |  |  | 6,169 |        |  |  | 5,863  |       
|Earnings per share |                                           |               |       |              |  |             |       |          |  |  |       |        |  |  |        |       
|                   | Basic and Diluted                         |               | $     | 0.03         |  |             | $     | 0.09     |  |  | $     | 0.20   |  |  | $      | 0.18   |  

11.     Subsequent
Events

In May 2002, the Company acquired 100% of Reliant
Interactive Media Corporation (Reliant) in exchange for
3,532,446 shares of the Companys common stock, of which
2,214,273 were issued to Reliants three key stockholders.
Each share of Reliant stock was exchanged for approximately
0.3049459 shares of the Companys stock in a transaction
valued at approximately $24,700.

In accordance with the purchase agreement, the
Company loaned $2,500 to Reliants majority stockholders.
In the event that certain thresholds are met in future years,
the loans will be forgiven. Additionally, of the
2,214,273 shares issued to Reliants key stockholders,
442,854 shares have been placed in escrow as collateral on
these loans. The remaining 1,771,419 shares have been
placed in escrow and may be earned in the event that certain
future thresholds are met.

45



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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
13 members divided into three classes: Class I, whose
term expires at the annual meeting of stockholders to be held in
2002; 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 |    | Director Class |  | Director Since
|                   |  |     |    |                |  |               
|William F. Hay     |  |     | 54 |                |  |                | I   |  |  |  | 1990 | 
|Denise DuBarry-Hay |  |     | 45 |                |  |                | I   |  |  |  | 1990 | 
|Mark E. Taylor     |  |     | 42 |                |  |                | I   |  |  |  | 1992 | 
|Dean Belbas        |  |     | 69 |                |  |                | I   |  |  |  | 2002 | 
|John Bolduc        |  |     | 37 |                |  |                | II  |  |  |  | 1999 | 
|Anthony A. Tamer   |  |     | 42 |                |  |                | II  |  |  |  | 2002 | 
|Steven E. Martinez |  |     | 34 |                |  |                | II  |  |  |  | 2002 | 
|J. Robert Swidler  |  |     | 55 |                |  |                | II  |  |  |  | 2002 | 
|Linda A. Goldstein |  |     | 47 |                |  |                | II  |  |  |  | 2002 | 
|Sami W. Mnaymneh   |  |     | 41 |                |  |                | III |  |  |  | 1999 | 
|Kevin Harrington   |  |     | 45 |                |  |                | III |  |  |  | 2002 | 
|Timothy Harrington |  |     | 36 |                |  |                | III |  |  |  | 2002 | 
|Mel Arthur         |  |     | 57 |                |  |                | III |  |  |  | 2002 | 

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.

46



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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.

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.

Class II Directors

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.

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.

Steven E. Martinezhas served as a director of our
company since May 2002. Mr. Martinez joined HIG Capital
Management, Inc. in September 1999. Prior to joining HIG, he was
a Senior Vice President at the Pacesetter Capital Group from
February 1997 to August 1999 and an associate at Nationsbanc
Capital Markets, Inc. from July 1995 to February 1997.
Mr. Martinez holds a Bachelor of Science degree from the
University of Southern California and Master in Business
Administration degree from Dartmouth College.

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.

Linda A. Goldsteinhas served as a director of our
company since May 2002. Ms. Goldstein has been with the law
firm of Hall, Dickler, Kent, Goldstein & Wood, LLP
since July 1982, and has been a partner since 1988. She is
currently the partner-in-charge of the Advertising, Marketing
and Media Department, representing clients in advertising,
intellectual property, and Internet matters. She is a nationally
recognized expert in several distinct industry segments
including promotions, the Internet, direct response marketing
and telemarketing. Ms. Goldstein is Chair Emeritus and head
of the Government and Legal Affairs committee of the Promotion
Marketing Association and Chairman-Elect of the Electronic
Retailing Association.

Class III Directors

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.

Kevin Harringtonhas
served as a director and as Vice Chairman of our company since
May 2002. He also serves as Chairman and Chief Executive Officer
of Reliant Interactive Media Corp., positions he has held

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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.


Timothy Harringtonhas served as a director of our
company and as President of the Thane Direct Response Group
since May 2002. He also serves 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 Arthurhas
served as a director of our company since May 2002. He also
serves as President of AsSeenOnTVPC.com, Inc. and 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.

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     |  |     | 54 |             |  | Chairman of the Board, Chief Executive Officer
    and Director      
|Denise DuBarry-Hay |  |     | 45 |             |  | Chief Creative Officer, President, Xebec
    Productions and Director
|Mark E. Taylor     |  |     | 42 |             |  | President, Chief Operating Officer and Director                      
|Kevin J. McKeon    |  |     | 45 |             |  | Chief Financial Officer                                              
|Kandy Lee Allen    |  |     | 49 |             |  | General Counsel and Secretary                                        
|Joshua Chandler    |  |     | 26 |             |  | Chief Accounting Officer                                             
|Amir Tukulj        |  |     | 42 |             |  | President, Thane Direct, Inc. (International)                        
|Andrew Tobias      |  |     | 41 |             |  | President, Thane USA (Product Sourcing)                              
|Denise Kovac       |  |     | 40 |             |  | President, Thane Distribution Group (Wholesale)                      
|Marty Fahncke      |  |     | 32 |             |  | President, Thane Internet Group                                      
|Kevin Harrington   |  |     | 45 |             |  | Vice Chairman of the Board, Chief Executive
    Officer, Reliant     
|                   |  |     |    |             |  | Interactive Media Corp. and Director                                 
|Timothy Harrington |  |     | 36 |             |  | President, Thane Direct Response Group,
    President, Reliant       
|                   |  |     |    |             |  | Interactive Media Corp. and Director                                 
|Mel Arthur         |  |     | 57 |             |  | President, AsSeenOnTVPC.com, Inc., Executive Vice
    President,     
|                   |  |     |    |             |  | Reliant Interactive Media Corp. and Director                         
|Scott Swank        |  |     | 30 |             |  | Chief Operating Officer, Reliant Interactive
    Media Corp.         

Descriptions of the relevant business experience
for each of William F. Hay, Denise DuBarry-Hay,
Mark E. Taylor, Kevin Harrington, Timothy Harrington and
Mel Arthur 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.

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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.

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. and a director and Chief Executive Officer of
Clinical Results, Inc., each wholly-owned subsidiaries of our
company. 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.

Scott Swankhas
served as the Chief Operating Officer of Thane Direct USA since
May 2000. Prior to joining our company, Mr. Swank served as
the Chief Operating Officer and Vice President of Sales of
Reliant Interactive Media Corp. since its inception in August
1998. He was primarily responsible for overseeing the purchase
of media, inventory, product fulfillment and telemarketing for
Reliant. Prior to joining Reliant, Mr. Swank was the Vice
President of Specialty Marketing, an export company specializing
in beverage exports to South and Central America, from January
1995 through July 1998.




ITEM
11.     EXECUTIVE
COMPENSATION

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

Summary Compensation Table

The following table sets forth summary
information concerning the compensation we paid during fiscal
2002, 2001 and 2000 to our chief executive officer and each of
our other four most highly compensated executive

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officers who were serving as executive officers
at the end of fiscal 2002 and whose compensation exceeded
$100,000 for such fiscal year. We refer to these individuals as
our named executive officers.


|                               |                           |        |      |                     |  |                     |         |              |  |              |         |              |  |   |        |        |  |  |   |   |  |  |   |         | 
|------------------------------ | ------------------------- | ------ | ---- | ------------------- |  | ------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | - | ------ | ------ |  |  | - | - |  |  | - | ------- | 
|                               |                           |        |      |                     |  |                     |         |              |  |             
|                               |                           |        |      |                     |  | Long Term          
|                               |                           |        |      | Annual Compensation |  | Compensation Awards
|                               |                           |        |      |                     |  |                    
|                               |                           |        |      |                     |  |                     |         | Securities  
|                               |                           | Fiscal |      |                     |  | Other Annual        |         | Restricted   |  | Underlying  
|Name and Principal Position(1) |                           | Year   |      | Salary              |  | Bonus               |         | Compensation |  | Stock Awards |         | Options/SARS
|                               |                           |        |      |                     |  |                     |         |              |  |              |         |             
|William F. Hay(2)              |                           |        | 2002 |                     |  | $                   | 520,527 |              |  | $            | 450,000 |              |  | $ | 37,021 |        |  |  |  |   |  |  |  |        
|                               | Chairman of the Board and |        |      | 2001                |  |                     | $       | 405,000      |  |              | $       | 378,755      |  |   | $      | 37,615 |  |  |   |  |  |  |   |        | 
|                               | Chief Executive Officer   |        |      | 2000                |  |                     | $       | 300,000      |  |              |         |             |  |   | $      | 36,751 |  |  |   |  |  |  |   |        | 
|Denise DuBarry-Hay(3)          |                           |        | 2002 |                     |  | $                   | 417,454 |              |  | $            | 400,000 |              |  | $ | 36,050 |        |  |  |  |   |  |  |  |        
|                               | Chief Creative Officer    |        |      | 2001                |  |                     | $       | 354,998      |  |              | $       | 378,755      |  |   | $      | 20,785 |  |  |   |  |  |  |   |        | 
|                               |                           |        | 2000 |                     |  | $                   | 300,000 |              |  |              |        |              |  | $ | 20,824 |        |  |  |  |   |  |  |  |        
|Mark E. Taylor(4)              |                           |        | 2002 |                     |  | $                   | 203,117 |              |  | $            | 171,623 |              |  | $ | 15,320 |        |  |  |  |   |  |  |  |        
|                               | President and Chief       |        |      | 2001                |  |                     | $       | 151,670      |  |              | $       | 258,000      |  |   | $      | 16,230 |  |  |   |  |  |  |   | 320,000 | 
|                               | Operating Officer         |        |      | 2000                |  |                     | $       | 108,756      |  |              | $       | 21,500       |  |   | $      | 13,019 |  |  |   |  |  |  |   | 320,000 | 
|Denise Kovac(5)                |                           |        | 2002 |                     |  | $                   | 177,500 |              |  | $            | 180,000 |              |  | $ | 13,959 |        |  |  |  |   |  |  |  |        
|                               | President, Thane          |        |      | 2001                |  |                     | $       | 122,502      |  |              | $       | 215,000      |  |   | $      | 10,200 |  |  |   |  |  |  |   | 80,000  | 
|                               | Distribution Group        |        |      | 2000                |  |                     | $       | 100,008      |  |              | $       | 20,000       |  |   |        |       |  |  |   |  |  |  |   | 240,000 | 
|Amir Tukulj(6)                 |                           |        | 2002 |                     |  | $                   | 176,500 |              |  | $            | 403,000 |              |  | $ | 12,365 |        |  |  |  |   |  |  |  |        
|                               | President, Thane Direct   |        |      | 2001                |  |                     | $       | 110,502      |  |              | $       | 105,000      |  |   | $      | 7,200  |  |  |   |  |  |  |   |        | 
|                               |                           |        | 2000 |                     |  | $                   | 100,008 |              |  |              |        |              |  | $ | 7,870  |        |  |  |  |   |  |  |  |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, and Timothy Harrington, pursuant to which he serves as
    the 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 at the end our
    fiscal 2002, we have not included information for these
    individuals in this table because no compensation was paid by us
    to any of them during the fiscal year ended March 31, 2002.
    See Employment Contracts and Termination of Employment
    Arrangements for detailed information concerning their
    employment agreements.
|   
|(2) | For Mr. Hay, other annual compensation
    consists of automobile lease payments in the amount of $21,228,
    $22,977 and $22,113 in fiscal 2002, 2001 and 2000, respectively,
    and country club dues in the amount of $15,555 for fiscal 2002
    and $14,370 in each of fiscal 2001 and 2000 and medical
    insurance premiums in the amount of $238 in fiscal 2002. 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.                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | For Ms. DuBarry-Hay, other annual
    compensation consists of automobile lease payments in the amount
    of $29,604, $15,589 and $15,628 in fiscal 2002, 2001 and 2000,
    respectively, and S.A.G. medical insurance premiums in the
    amount of $6,446 in fiscal 2002 and $5,196 in each of fiscal
    2001 and 2000. 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.                                                                                                                                                                                                                                                                                                                                                                          
|   
|(4) | For Mr. Taylor, other annual compensation
    consists of automobile lease payments in the amount of $9,456,
    $10,039 and $7,679 in fiscal 2002, 2001 and 2000, respectively,
    country club dues in the amount of $2,120 in fiscal 2002, $2,670
    in fiscal 2001 and $5,340 in fiscal 2000 and medical insurance
    premiums in the amount of $3,744 in fiscal 2002 and $3,521 in
    fiscal 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) | For Ms. Kovac, other annual compensation
    consists of automobile lease payments in the amount of $12,730
    in fiscal 2002 and $10,200 in fiscal 2001 and medical insurance
    premiums in the amount of $1,229 in fiscal 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|    |                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | For Mr. Tukulj, other annual compensation
    consists of automobile lease payments in the amount of $10,346,
    $7,200 and $7,870 in fiscal 2002, 2001, and 2000, respectively
    and medical insurance premiums in the amount of $2,019 in fiscal
    2002.

Option Grants in Fiscal 2002

There were no options granted to our named
executive officers in fiscal 2002.

Aggregate Option Exercises in Fiscal 2002 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, 2002. There was no public trading
market for our common stock as of March 31, 2002.
Accordingly, the value of unexercised options has been
calculated by subtracting the exercise price from the fair
market value of our common stock. There was not a publicly
traded market for our common stock until May 24, 2002,
following the closing of the Reliant transaction, at which time
the opening price of common stock was $7.00 per share.
Therefore, for purposes of the table below $7.00 per share was
used as the fair market value, multiplied by the number of
shares underlying the option. None of our named executive
officers exercised options in fiscal 2002.

|             |  |          |   |          |  |                            |   |                    |  |             |         |               |  |  |         |  |  |   |           |  |  |   |           | 
|------------ |  | -------- | - | -------- |  | -------------------------- | - | ------------------ |  | ----------- | ------- | ------------- |  |  | ------- |  |  | - | --------- |  |  | - | --------- | 
|             |  |          |   |          |  |                            |   |                    |  |            
|             |  |          |   |          |  |                            |   | Value of          
|             |  |          |   |          |  | Number of Securities       |   | Unexercised In the
|             |  | Shares   |   |          |  | Underlying Unexercised     |   | Money Options     
|             |  | Acquired |   |          |  | Options At Fiscal Year End |   | At Year End       
|             |  | On       |   | Value    |  |                            |   |                   
|Name         |  | Exercise |   | Realized |  | Exercisable                |   | Unexercisable      |  | Exercisable |         | Unexercisable
|             |  |          |   |          |  |                            |   |                    |  |             |         |              
|Mark Taylor  |  |          |  |          |  |                            |  |                    |  |             | 256,000 |               |  |  | 384,000 |  |  | $ | 1,669,691 |  |  | $ | 2,424,293 | 
|Denise Kovac |  |          |  |          |  |                            |  |                    |  |             | 152,000 |               |  |  | 168,000 |  |  | $ | 1,003,518 |  |  | $ | 1,071,970 | 

Compensation of Directors

We issue $10,000 in stock options to our
non-employee 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 $5,000 to the chairperson
of the audit committee and $5,000 to the chairperson of the
compensation committee. Non-employee 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. 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 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. 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

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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 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 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 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
employment agreement with Kevin Harrington 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 an aggregate of 15% of the earnings before
interest, income taxes, depreciation and amortization of our
direct response television group in excess of $7.0 million
in the fiscal year ended March 31, 2003, $9.0 million
in the fiscal year ended March 31, 2004 and
$12.0 million in the fiscal year ended March 31, 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 the
common stock of the Company that

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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
employment agreement with Timothy Harrington 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 an aggregate of 15% of the earnings before
interest, income taxes, depreciation and amortization of our
direct response television group in excess of $7.0 million
in the fiscal year ended March 31, 2003, $9.0 million
in the fiscal year ended March 31, 2004 and
$12.0 million in the fiscal year ended March 31, 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 the
common stock of the Company 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.

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

We did not have a compensation committee or other
board committee performing equivalent functions in fiscal 2002.
Our compensation committee currently consists of
Messrs. Sami W. Mnaymneh, William F. Hay and Dean
Belbas. 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 2002.

|                                                           |  |                         |           |                     |  |                      |          |  |  |  |           |    
|---------------------------------------------------------- |  | ----------------------- | --------- | ------------------- |  | -------------------- | -------- |  |  |  | --------- | ---
|                                                           |  | Number of Securities to |           | Weighted Average    |  | Number of Securities
|                                                           |  | be Issued upon Exercise |           | Exercise Price of   |  | Available for       
|Plan Category                                              |  | of Outstanding Options  |           | Outstanding Options |  | Future Issuance     
|                                                           |  |                         |           |                     |  |                     
|Equity Compensation Plans Approved by Stockholders         |  |                         | 2,880,000 | (1)                 |  | $                    | 3.225694 |  |  |  | 1,500,000 | (2)
|Equity Compensation Plans Not Approved by
    Stockholders |  |                         | 24,243    | (3)                 |  | $                    | 6.187353 |  |  |  | 0         |    
|TOTAL                                                      |  |                         | 2,904,243 |                     |  | $                    | 3.250417 |  |  |  | 1,500,000 |    

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---



|    |                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists 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.                                                                          
|   
|(2) | Includes 1,500,000 shares of common stock
    issuable upon the exercise of options granted pursuant to our
    2002 Stock Option Plan, which is described below.                                                                                   
|   
|(3) | Consists of 24,243 shares of Thane common
    stock issuable upon the exercise of options granted to an
    employee of Krane pursuant to an individual compensation
    arrangement, which were assumed by Thane upon the acquisition of
    Krane.

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
June 28, 2002, options to purchase all of the available
shares of common stock under the 1999 plan were issued and
outstanding. We do not intend to grant any further options under
the 1999 plan. 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 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 June 28, 2002,
there were no options outstanding under this plan.

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.

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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 shall 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.

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 any existing recipient
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 June 28, 2002 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 June 28, 2002 or exercisable within
60 days thereof are deemed outstanding. Except as indicated
in the footnotes to this

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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 June 28, 2002, there were 35,323,820 shares of common
stock outstanding.


|                                                                     |  |                           |            |               |  |  |       |  
|-------------------------------------------------------------------- |  | ------------------------- | ---------- | ------------- |  |  | ----- | -
|                                                                     |  |                          
|                                                                     |  | Shares Beneficially Owned
|                                                                     |  |                          
|Name and Address(1)                                                  |  | Number                    |            | Percentage(2)
|                                                                     |  |                           |            |              
|H.I.G. Direct Marketing Holdings, Inc.(3)(4)                         |  |                           | 19,484,256 |               |  |  | 53.60 | %
|KPI, Inc.(3)(4)                                                      |  |                           | 1,330,953  |               |  |  | 3.66  | %
|William F. Hay(5)                                                    |  |                           | 8,556,504  |               |  |  | 23.54 | %
|Denise DuBarry-Hay(6)                                                |  |                           | 8,556,504  |               |  |  | 23.54 | %
|Mark E. Taylor(7)                                                    |  |                           | 581,760    |               |  |  | 1.60  | %
|Kandy Lee Allen(8)                                                   |  |                           | 64,000     |               |  |  | *     |  
|Amir Tukulj                                                          |  |                           | 640,000    |               |  |  | 1.76  | %
|Andrew Tobias(9)                                                     |  |                           | 120,000    |               |  |  | *     |  
|Denise Kovac(10)                                                     |  |                           | 305,760    |               |  |  | *     |  
|Marty Fahncke(11)                                                    |  |                           | 88,000     |               |  |  | *     |  
|Kevin Harrington                                                     |  |                           | 1,107,138  |               |  |  | 3.05  | %
|Timothy Harrington                                                   |  |                           | 738,092    |               |  |  | 2.03  | %
|Mel Arthur                                                           |  |                           | 369,046    |               |  |  | 1.02  | %
|Scott Swank                                                          |  |                           | 13,967     |               |  |  | *     |  
|Dean Belbas                                                          |  |                           | 9,149      |               |  |  | *     |  
|Sami W. Mnaymneh(12)                                                 |  |                           | 20,815,209 |               |  |  | 57.26 | %
|John Bolduc(12)                                                      |  |                           | 20,815,209 |               |  |  | 57.26 | %
|Anthony A. Tamer(12)                                                 |  |                           | 20,815,209 |               |  |  | 57.26 | %
|Steven E. Martinez(12)                                               |  |                           | 20,815,209 |               |  |  | 57.26 | %
|Directors and executive officers as a group (21
    persons)(13)(14) |  |                           | 12,593,416 |               |  |  | 34.64 | %



---



|  |              
|- | -------------
|* | 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 92258.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Calculated based on 36,351,820 shares of common
    stock outstanding, which includes (i) 35,323,820 shares of
    common stock outstanding as of the date hereof and
    (ii) 1,028,000 shares subject to options exercisable within
    60 days of June 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) | The address of H.I.G. Direct Marketing
    Holdings, Inc. and KPI, 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 and KPI. Mr. Sami W. Mnaymneh currently
    serves as the secretary and as a director of H.I.G. Direct
    Marketing Holdings and KPI. Messrs. Tamer and Mnaymneh
    constitute all of the officers and directors of
    H.I.G. Direct Marketing Holdings and KPI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) | H.I.G. Investment Group II, L.P. is the
    controlling stockholder of each of H.I.G. Direct Marketing
    and KPI. H.I.G. Capital Partners II, L.P. is a
    stockholder of each of H.I.G. Direct Marketing and KPI.
    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 and KPI, be deemed to beneficially
    own the securities held by H.I.G. Direct Marketing and KPI,
    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

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | respective investment interests in
    H.I.G. Direct Marketing and KPI. 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) 4,278,252 shares directly
    owned by Mr. Hay and (ii) 4,278,252 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) 4,278,252 shares directly
    owned by Ms. DuBarry-Hay and (ii) 4,278,252 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) 496,000 shares subject to options
    exercisable by Mr. Taylor within 60 days of
    June 28, 2002. Does not include 144,000 shares subject
    to options not exercisable by Mr. Taylor within
    60 days of June 28, 2002.                                                                                                                                                                                        
|   
|(8) | Includes 64,000 shares subject to options
    exercisable by Ms. Allen within 60 days of
    June 28, 2002. Does not include 96,000 shares subject
    to options not exercisable by Ms. Allen within 60 days
    of June 28, 2002.                                                                                                                                                                                                                                                        
|   
|(9) | Includes 120,000 shares subject to options
    exercisable by Mr. Tobias within 60 days of
    June 28, 2002. Does not include 168,000 shares subject
    to options not exercisable by Mr. Tobias within
    60 days of June 28, 2002.                                                                                                                                                                                                                                                    



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes (i) 45,760 shares directly owned by
    Ms. Kovac and (ii) 260,000 shares subject to options
    exercisable by Ms. Kovac within 60 days of
    June 28, 2002. Does not include 60,000 shares subject
    to options not exercisable by Ms. Kovac within 60 days
    of June 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(11) | Includes 88,000 shares subject to options
    exercisable by Mr. Fahncke within 60 days of
    June 28, 2002. Does not include 72,000 shares subject to
    options not exercisable by Mr. Fahncke within 60 days
    of June 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(12) | Represents (i) 19,484,256 shares directly
    owned by H.I.G. Direct Marketing Holdings, Inc. and
    (ii) 1,330,953 shares directly owned by KPI, Inc.
    Messrs. Mnaymneh, Bolduc, Tamer and Martinez are
    stockholders of each of H.I.G. Direct Marketing and KPI. In
    addition, Messrs. Mnaymneh and Tamer constitute all of the
    officers and directors of H.I.G. GP-II, the ultimate parent
    entity of both H.I.G. Direct Marketing and KPI.
    Messrs. Mnaymneh, Bolduc, Tamer and Martinez may, by virtue
    of their respective relationships with H.I.G. Direct
    Marketing and KPI, be deemed to beneficially own the securities
    held by H.I.G. Direct Marketing and KPI, and to share
    voting and investment power with respect to such securities.
    Messrs. Mnaymneh, Bolduc, Tamer and Martinez each disclaim
    beneficial ownership of the securities, except to the extent of
    his respective investment interests in H.I.G. Direct
    Marketing and KPI. The address of Messrs. Mnaymneh, Bolduc,
    Tamer and Martinez is c/o H.I.G. Capital, LLC,
    1001 South Bayshore Drive, 27th Floor, Miami, Florida
    33131.
|    
|(13) | For purposes of this calculation, we have
    included Kevin J. McKeon, Joshua Chandler, J. Robert
    Swidler and Linda A. Goldstein in the group of director and
    officers. Messrs. McKeon, Chandler, Swidler and
    Ms. Goldstein do not directly own any shares nor do they
    own any shares subject to options exercisable within
    60 days of June 28, 2002. Mr. McKeon owns
    240,000 shares subject to options that are not exercisable
    within 60 days of June 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(14) | Includes 12,593,415 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, Scott
    Swank, Dean Belbas, Kevin J. McKeon, Joshua Chandler,
    J. Robert Swidler and Linda A. Goldstein. Does not
    include 20,815,209 shares deemed to be beneficially held by
    Messrs. Mnaymneh, Bolduc, Tamer and Martinez.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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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.

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.

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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 $29,966 plus routine maintenance, insurance and
costs.

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 $1,769.

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.

We lease 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 $22,362. The lease has a term
of 20-years commencing on June 1, 2001. We believe that
this leasing arrangement is no less favorable to us than could
be obtained in a transaction with an independent third party.

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, Mr. John Bolduc
is a managing director of H.I.G. Capital and
Mr. Steven E. Martinez is an employee of
H.I.G. Capital.




PART IV

ITEM
14.     EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K

14(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,
    2002 and 2001                                                       |  |           | 27 | 
|Consolidated statements of income for the years
    ended March 31, 2002, 2001 and 2000                             |  |           | 28 | 
|Consolidated statements of stockholders
    equity (deficit) for the years ended March 31, 2002, 2001
    and 2000 |  |           | 29 | 
|Consolidated statements of cash flows for the
    years ended March 31, 2002, 2001 and 2000                         |  |           | 30 | 
|Notes to audited consolidated financial statements                                                                  |  |           | 31 | 

14(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.

59



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##### Table of Contents



14(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 |             |  | Warrant Agreement, dated as of June 10,
    1999, by and between Thane International, Inc. and Paribas North
    America, Inc., as amended.(1)                                                                                                                                                                                                                                                                                                                                             
|        | 10.14 |             |  | Warrant Certificate dated June 10, 1999
    issued pursuant to the Warrant Agreement, dated as of
    June 10, 1999, by and between Thane International, Inc. and
    Paribas North America, Inc.(1)                                                                                                                                                                                                                                                                                       
|        | 10.15 |             |  | Warrant Agreement, dated as of June 10,
    1999, by and between Thane International, Inc. and Paribas
    Capital Funding, LLC.(1)                                                                                                                                                                                                                                                                                                                                                        
|        | 10.16 |             |  | Warrant Certificate dated June 10, 1999
    issued pursuant to the Warrant Agreement, dated as of
    June 10, 1999, by and between Thane International, Inc. and
    Paribas Capital Funding, LLC.(1)                                                                                                                                                                                                                                                                                     
|        | 10.17 |             |  | Equityholders Agreement, dated June 10,
    1999, by and among Thane International, Inc. and the several
    stockholders and warrantholders listed in Schedule I
    thereto from time to time.(1)                                                                                                                                                                                                                                                                                        
|        | 10.18 |             |  | Services for Hire Agreement, dated as of
    April 9, 2001 by and between Thane International, Inc. and
    Beau Show Inc.(1)                                                                                                                                                                                                                                                                                                                                                              
|        | 10.19 |             |  | Exclusive Manufacturing and Marketing Agreement,
    dated as of March 24, 2000 by and between Thane and
    Inventors Universe.com, Inc., as amended. (1)                                                                                                                                                                                                                                                                                                                                 
|        | 10.20 |             |  | Services for Hire Agreement, dated as of
    August 24, 2000 by and between Thane International, Inc.
    and Gin Miller Fitness, Inc.(1)                                                                                                                                                                                                                                                                                                                                                  
|        | 10.21 |             |  | Exclusive Marketing Agreement, dated as of
    December 10, 1999 by and between Thane International, Inc.
    and WHJ, Inc.(1)                                                                                                                                                                                                                                                                                                                                                             
|        | 10.22 |             |  | Exclusive Manufacturing and Marketing Agreement,
    dated as of May 23, 2001 by and between Thane
    International, Inc. and Optimum Health Technologies, Inc.(1)                                                                                                                                                                                                                                                                                                                        
|        | 10.23 |             |  | Servicing Agreement dated April 28, 1999 by
    and between Thane Marketing and West Telemarketing
    Corporation.(1)                                                                                                                                                                                                                                                                                                                                                                     

60



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                      
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 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)                                                                                                         
|        | 10.25 |             |  | Employment Agreements, dated as of May 22,
    2002, by and among Thane International, Inc., Reliant
    Interactive Media Corp. and each of Kevin Harrington, Timothy
    Harrington and Mel Arthur.                                                                                
|        | 10.26 |             |  | Credit Agreement, dated as of May 17, 2000,
    by and among Krane Holdings, Inc., Krane Acquisition
    Corporation, LaSalle Bank National Association and the other
    lenders from time to time party thereto, as amended.(1)                                                    
|        | 10.27 |             |  | Note and Warrant Purchase Agreement, dated as of
    May 17, 2000, by and among Prairie Capital Mezzanine Fund,
    L.P., Krane Holdings, Inc. and Krane Products, Inc.(1)                                                                                                           
|        | 10.28 |             |  | Amended and Restated Agreement and Plan of
    Merger, dated as of May 20, 2002, by and among the
    Registrant, Reliant Acquisition Corporation, Reliant Interactive
    Media Corp., and the controlling stockholders of Reliant
    Interactive Media Corp.(2)                   
|        | 10.29 |             |  | Amendment No. 2 to Amended and Restated
    Agreement and Plan of Merger, dated as of December 6, 2001,
    by and among the Registrant, Reliant Acquisition Corporation,
    Reliant Interactive Media Corp. and the controlling stockholders
    of Reliant Interactive Media Corp.
|        | 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).
|(2) | Incorporated by reference to Exhibit 4.1
    filed with the Registrants Registration Statement on
    Form S-4 (Registration No. 333-76224).                    

14(B) Reports on Form 8-K:

None.

61



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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 1, 2002.

|                                         |  |                                                                                                   
|---------------------------------------- |  | --------------------------------------------------------------------------------------------------
|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/ KEVIN HARRINGTONKevin Harrington     |  | Vice Chairman of the Board and Director                                                           
|                                        
|/s/ TIMOTHY HARRINGTONTimothy Harrington |  | President of Thane Direct Response Group and
    Director                                         
|                                        
|/s/ MEL ARTHURMel Arthur                 |  | Director                                                                                          
|                                        
|/s/ SAMI W. MNAYMNEHSami W. Mnaymneh     |  | Director                                                                                          
|                                        
|/s/ JOHN BOLDUCJohn Bolduc               |  | Director                                                                                          
|                                        
|/s/ DEAN BELBASDean Belbas               |  | Director                                                                                          

S-1



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##### Table of Contents



|                                         |  |         
|---------------------------------------- |  | --------
|Signature                                |  | Title   
|                                         |  |         
|                                        
|/s/ J. ROBERT SWIDLERJ. Robert Swidler   |  | Director
|                                        
|/s/ ANTHONY A. TAMERAnthony A. Tamer     |  | Director
|                                        
|/s/ STEVEN E. MARTINEZSteven E. Martinez |  | Director
|                                        
|/s/ LINDA A. GOLDSTEINLinda A. Goldstein |  | Director

S-2



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##### Table of Contents






SCHEDULE II

THANE INTERNATIONAL, INC.

VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

For the years ended March 31, 2000, 2001
and 2002


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

|     |  |            |       |           |  |               |       |         |  |  |      |   |  |  |       | 
|---- |  | ---------- | ----- | --------- |  | ------------- | ----- | ------- |  |  | ---- | - |  |  | ----- | 
|     |  | Balance at |       |           |  |               |       | Balance
|     |  | Beginning  |       |           |  |               |       | at End 
|     |  | of Year    |       | Additions |  | Deductions(1) |       | of Year
|     |  |            |       |           |  |               |       |        
|2000 |  |            | 161   |           |  |               | 201   |         |  |  | (38  | ) |  |  | 324   | 
|2001 |  |            | 324   |           |  |               | 1,687 |         |  |  | (99  | ) |  |  | 1,912 | 
|2002 |  |            | 1,912 |           |  |               | 5,217 |         |  |  | (787 | ) |  |  | 6,342 | 



---



|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(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
|     |  | Beginning  |       |           |  |               |       | at End 
|     |  | of Year    |       | Additions |  | Deductions(1) |       | of Year
|     |  |            |       |           |  |               |       |        
|2000 |  |            | 322   |           |  |               | 146   |         |  |  | (222   | ) |  |  | 246   | 
|2001 |  |            | 246   |           |  |               | 4,112 |         |  |  |       |   |  |  | 4,358 | 
|2002 |  |            | 4,358 |           |  |               | 1,589 |         |  |  | (1,813 | ) |  |  | 4,134 | 



---



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