According to the Company’s FORM 10-K for the fiscal year ended June 30, 2003, on August 7, 2002 the Court of Appeals, in a two to one decision, denied the plaintiffs’ appeal. On August 20, 2002, the plaintiffs applied for a rehearing by the full Court of Appeals. K-tel filed a response on September 15, 2002 to the plaintiffs’ petition for rehearing at the request of the Court. On October 2, 2002, the Court denied the petition for rehearing. The plaintiffs had until January 1, 2003 to seek a writ of certiorari (a petition asking the Court for a discretionary review of a lower court decision) from the United States Supreme Court, but did not seek this writ. There having been no appeal filed the case has been dismissed with no further recourse available.

As summarized by the same SEC filing, K-tel and certain of its current and former officers and directors were named as defendants in In re K-tel International, Inc. Securities Litigation, No. 98-CV-2480. This action consolidated twenty-three purported class actions that were initially filed in various United States District Courts in November 1998, and were subsequently transferred to, and consolidated in, the United States District Court for the District of Minnesota. On July 19, 1999, the plaintiffs filed an amended consolidated class action complaint that challenged the accuracy of certain public disclosures made by K-tel regarding its financial condition during the period from May 1998 through November 1998. The plaintiffs asserted claims under the federal securities laws and sought damages in an unspecified amount as well as costs, including attorneys’ fees and any other relief the Court deemed just and proper. K-tel moved to dismiss the complaint, and on July 31, 2000, the United States District Court granted the Company’s motion to dismiss. The Court also barred further actions by the plaintiffs and denied plaintiffs’ request to amend the complaint in order to refile the complaint in the future. The plaintiffs appealed to the United States Court of Appeals for the Eighth Circuit, and the Court of Appeals heard the matter in October 2001.

The original complaint alleges that during the Class Period, the defendants artificially inflated K-TEL stock to over $35 per share by making a series of false and misleading statements about K-TEL's compliance with NASDAQs listing requirements for National Market listing. Specifically, the Complaint alleges that the Defendants sought to avoid the specter of delisting and its adverse affect on the liquidity of defendants considerable holdings of K-Tel common stock by orchestrating a campaign to artificially inflate the price of the shares through a series of false and misleading statements while the defendants sought to obtain additional financing before the truth of its inability to comply with NASDAQs listing requirements was revealed. As alleged in the complaint, the defendants’ scheme was successful and caused the price of K-TEL shares to jump from $6.875 to over $35 per share in a matter of days. One week after the public relations blitz ended, the defendants’ scheme unraveled when the truth was finally revealed when K-TEL announced for the first time that it had received a letter from NASDAQ advising defendants that K-TEL no longer met the net tangible asset requirements for continued listing on NASDAQ. By the close of trading on November 17, 1998, K-TEL shares had plummeted to just $12 per share, 1/3 of its perceived value only days before.

Similar purported class action complaints have also been filed in the U.S. District Courts for the Central District of California and Southern District of New York.