**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-K/A**


**(Amendment
      No. 2)**




x
            Annual
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




For
      the
      fiscal year ended June 30, 2006




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 0-27471





**RONCO
      CORPORATION**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            **84-1148206**State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization
            Identification
                No.)




**61
      Moreland Road, Simi Valley, California 93065**


(Address
      of Principal Executive Offices)




Registrant’s
      telephone number, including area code: **(805)
      433-1030**




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




**None**




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




**Common
      Stock, par value $.00001 per share**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.




Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act.




Yes o No x




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 x No o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x







Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer.




Large
      Accelerated Filer o Accelerated
      Filer o Non-accelerated
      Filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).




Yes o No x




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the registrant’s most recently completed second
      fiscal quarter was $12,654,210 .




At
      September 30, 2006, the issuer had 2,591,605 shares of common stock, par value
      $.00001 per share, issued and outstanding.




DOCUMENTS
      INCORPORATED BY REFERENCE




**None**

















**RONCO
      CORPORATION******


**INDEX
      TO FORM 10-K/A**




**Page****PART
                II**Item
                6.
            
            Selected
                Financial Data
            4Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            6Item
                8.
            
            Financial
              Statements
              and Supplementary Data
            21Item
                9.
            
            Controls
                and Procedures
            21**PART
                IV**Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            22




2




**Explanatory
      Note**




This
      amendment on Form 10-K/A (Amendment No. 2) is being filed to amend our annual
      report on Form 10-K for the fiscal year ended June 30, 2006, as filed with
      the Securities and Exchange Commission on October 13, 2006, as amended by
      amendment on Form 10-K/A (Amendment No. 1) filed with the Securities and
      Exchange Commission on November 9, 2006 (collectively, the “Original Report”),
      solely for the purpose of making certain corrections and changes. This amendment
      reflects the following changes:




·
            revising
                the disclosure in Item 6 (Selected Financial Data) of Part II to
                remove
                pro forma financial information assuming the predecessor entities
                were
                taxable entities;




·
            including
                an introductory paragraph under the heading entitled Results of Operations
                in Item 7 (Management’s Discussion and Analysis of Financial Condition and
                Results of Operation) of Part II to disclose the reasons for comparing
                the
                results of operation of the successor and predecessor entities for
                the
                periods indicated;


·
              including
                  tabular presentation of results of operations data in Item 7 of
                  Part
                  II;


·
            including
                revised disclosure relating to critical accounting policies in Item
                7 of
                Part II;




·
            including
                a tabular presentation of sources and uses of cash in Item 7 of Part
                II;




·
            revising
                the Consolidated Balance Sheets and consolidated combined statements
                of
                stockholders' and members' equity (deficiency) to reflect the
                elimination of deferred compensation against appropriate equity accounts;




·
            including
                revised disclosure and tabular presentation concerning pro forma
                financial
                information in Note 3 of the Consolidated Financial Statements;




·
            including
                disclosure concerning the net loss attributable to the common stockholders
                and members of the predecessor entities;


·
              including
                  revised disclosure concerning the terms of the notes described
                  in note 14
                  of the Consolidated and Combined Financial
                  Statements;
  ·
              making
                  certain other changes and corrections in the Consolidated and Combined
                  Financial Statements;
  ·
              revising
                    the disclosure concerning controls and procedures in Item 9A
                    (Controls and
                    Procedures) of Part III to clarify management’s conclusions regarding the
                    effectiveness of disclosure controls and procedures; and
 ·
                including
                      new exhibits and revised references in Item 15 (Exhibits and
                      Financial
                      Statement Schedules) of Part IV.




This
      amendment does not reflect events occurring after the filing of the Original
      Report, or modify or update those disclosures affected by subsequent events.
      This Amendment continues to speak as of the date of the Original Report, and
      does not modify or update any other item or disclosures in the Original
      Report.





3




**PART
      II**





**Item
      6.**  **Selected
      Financial Data**





The
      merger on June 29, 2005 was treated for accounting purposes as a reverse
      acquisition of a public shell, and the transaction has been accounted for as
      a
      recapitalization. We accounted for our subsequent acquisition of the
      assets comprising the Ronco business on June 30, 2005 using the purchase method
      of accounting. Therefore, the historical financial statements of the predecessor
      entities are reflected as our historical financial statement. Pro forma
      information has not been presented because the transaction was not a business
      combination with respect to Fi-Tek VII.





The
      following table presents selected historical consolidated and combined financial
      data of the successor as of and for the year ended June 30, 2006 and as of
      and
      for the one day of June 30, 2005 (date of acquisition) and of the predecessor
      entities for the nine months ended June 29, 2005 and September 30, 2004, and
      for
      the years ended December 31, 2003 and 2002, which has been derived from our
      audited consolidated and combined financial statements, and for the year ended
      December 31, 2001, which has been derived from our unaudited combined financial
      statements. Our consolidated and combined financial statements for the year
      ended June 30, 2006, one day June 30, 2005, nine months ended June 29, 2005
      and
      September 30, 2004 were audited by Mahoney Cohen & Company, CPA, P.C. Our
      combined financial statements for the year ended December 31, 2003 were audited
      by VELAH Group LLP, and our combined financial statements for 2002 were audited
      by a former independent accountant. You should read this information together
      with “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” and our consolidated and combined financial statements and related
      notes, which are included elsewhere in this Form 10-K/A. Historical results
      are
      not necessarily indicative of the results to be expected in the
      future.





4




**SUCCESSOR**
            
            **SUCCESSOR**
            
            
            
            **PREDECESSOR****Year
                ended June 30,**
            
            **One
                Day for June 30, 2005(Date of**
            
            
            
            **Nine
                months ended June 29,**
            
            **Nine
                months ended September 30,**
            
            **Year
                ended December 31,****2006**
            
            **Acquisition)**
            
            
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(unaudited)*****(dollars
                in thousands, except per share data and
                percentages)***Income
                Statement Data:Net
                Sales
            
            $
            58,724
            
            $
            —
            
            
            
            $
            68,985
            
            $
            63,245
            
            $
            93,500
            
            $
            98,362
            
            $
            105,420Cost
                of goods sold
            
            
            20,009
            
            
            —
            
            
            
            
            16,844
            
            
            16,842
            
            
            29,274
            
            
            36,153
            
            
            33,517Gross
                profit
            
            $
            38,715
            
            $
            —
            
            
            
            $
            52,141
            
            $
            46,403
            
            $
            64,226
            
            $
            62,209
            
            $
            71,903*Gross
                margin*
            
            
            66
            %
            
            —
            
            
            
            
            76
            %
            
            73
            %
            
            69
            %
            
            63
            %
            
            68
            %Selling,
                general and administrative
            
            
            56,969
            
            
            766
            
            
            
            
            50,446
            
            
            53,217
            
            
            67,653
            
            
            71,937
            
            
            77,825Impairment
                loss on goodwill, intangibles and equipment
            
            
            24,521
            
            
            —
            
            
            
            
            —
            
            
            771
            
            
            —
            
            
            —
            
            
            —Operating
                (loss) income
            
            
            ($42,775
            )
            
            ($766
            )
            
            
            $
            1,695
            
            
            ($7,585
            )
            
            ($3,427
            )
            
            ($9,728
            )
            
            ($5,922
            )*Operating
                exp. (as % of revenue)*
            
            
            139
            %
            
            N/A
            
            
            
            
            73
            %
            
            85
            %
            
            72
            %
            
            73
            %
            
            74
            %Interest
                and other expense(income)
            
            
            1,335
            
            
            —
            
            
            
            
            2,833
            
            
            120
            
            
            (386
            )
            
            (254
            )
            
            (443
            )Pretax
                loss
            
            
            ($44,110
            )
            
            ($766
            )
            
            
            
            ($1,138
            )
            
            ($7,705
            )
            
            ($3,041
            )
            
            ($9,474
            )
            
            ($5,479
            )Income
                taxes (benefit)
            
            
            310
            
            
            (310
            )
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            ($44,420
            )
            
            ($456
            )
            
            
            
            ($1,138
            )
            
            ($7,705
            )
            
            ($3,041
            )
            
            ($9,474
            )
            
            ($5,479
            )Preferred
                stock dividends
            
            
            4,636
            
            
            —
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss attributable to common shareholders
            
            
            ($49,056
            )
            
            ($456
            )
            
            
            
            ($1,138
            )
            
            ($7,705
            )
            
            ($3,041
            )
            
            ($9,474
            )
            
            ($5,479
            )Net
                loss per share
            
            
            ($23.45
            )
            
            ($0.22
            )
            
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/APro
                forma net lossper
                share (unaudited) (1)
            
            
            N/A
            
            
            N/A
            
            
            
            
            ($0.54
            )
            
            ($3.68
            )
            
            ($1.45
            )
            
            ($4.53
            )
            
            ($2.62
            )




**Successor**Balance
                Sheet Data(dollars
                in thousands):
            
            **June
                30, 2006**
            
            **June
                30, 2005**Working
                Capital
            
            $
            (12,867
            )
            $
            8,203Total
                assets
            
            
            28,239
            
            
            63,762Long-term
                liabilities
            
            
            214
            
            
            10,282Stockholders’
                and members’ equity (deficiency)
            
            
            3,865
            
            
            49,943




5




**Notes
      to Summary Financial Data**





**Note
      1: Pro forma loss per share**





We
      used
      the outstanding shares as of June 30, 2005 as the weighted average shares in
      calculating the pro forma loss per share because the predecessor entities were
      privately held companies and comprised of different corporate
      structures.




**Item
      7. Management’s Discussion and Analysis of Financial Condition and Results of
      Operation.**




**Overview**




We
      are a
      provider of proprietary branded consumer products for the kitchen and home,
      sold
      primarily through direct response distribution channels, which include direct
      response television (commonly known as infomercials), online sales through
      our
      website (www.ronco.com), telemarketing, direct mail and our customer service
      department. We also sell products through traditional wholesale/retail channels
      such as wholesale distributors. We develop and market high quality, unique
      and
      affordable products, including small kitchen appliances and accessories, food
      items, cookbooks, personal care products and household items.





6




Before
      June 30, 2005, we operated as Fi-Tek VII, Inc. and we were a “blank check”
company. During that time, we had no significant operations other than the
      search for, and identification and evaluation of, possible acquisition
      candidates. On June 29, 2005, we consummated a reverse merger transaction in
      which Ronco Marketing Corporation became our wholly-owned subsidiary. In
      connection with this transaction, we changed our name to Ronco Corporation
      and
      completed a reverse stock split. On June 30, 2005, we, through Ronco Marketing
      Corporation acquired assets comprising the business of Ronco Inventions, LLC,
      Popeil Inventions, Inc. and RP Productions, Inc. We also acquired certain
      patents and intellectual property rights directly from Mr. Ronald M. Popeil.
      Mr.
      Popeil is the primary beneficiary of the RMP Family Trust, a trust that owns
      and
      controls the predecessor entities. We also issued 13,262,600 shares of Series
      A
      Convertible Preferred Stock, not including four shares of Series A Convertible
      Preferred Stock that were paid for but that had not been issued as of the date
      of this report, to finance the cash portion of the purchase price.




Our
      merger with Ronco Marketing Corporation was accounted for as a recapitalization
      rather than as a business combination. As a result, the historical financial
      statements of the predecessor entities are reflected as our historical financial
      statements. We acquired the assets comprising the Ronco business on the last
      day
      of our fiscal year on June 30, 2005 and did not conduct any business on that
      day. Therefore, our financial statements for June 30, 2005 reflect no revenue
      and only the expenses associated with our status as a “blank check” company. The
      financial statements for the predecessor entities reflect the operations of
      the
      Ronco business before the date we acquired the business.




In
      2004,
      the predecessor entities changed their year-end from December 31 to September
      30. Upon completion of the merger in 2005, we adopted the year end of June
      30, which was the year end of Fi-Tek VII, Inc. (the name of our company was
      changed on June 30, 2005 to Ronco Corporation).




In
      structuring our acquisition of the Ronco business, we did not assume all of
      the
      liabilities of the predecessor entities. For instance, we did not assume
      approximately $39 million in loans made by an affiliate of the predecessor
      entities to the predecessor entities. Accordingly, these liabilities are
      not reflected in our financial statements as of June 30, 2005 and
      2006.




**Components
      of Revenue and Gross Profit**




*Sources
      of Revenue.*




We
      principally derive revenue from the sale of our products directly and indirectly
      to consumers. We market our products to consumers directly through direct
      response television, our website and customer service department. We derive
      the
      majority of our revenue from direct response television sales. We also generate
      revenue through shipping and handling fees for each order shipped by us to
      consumers who purchase our products through our direct response television
      and
      online channels. Management estimates that shipping and handling and extended
      service contracts accounts for approximately 23% of our direct sales. Management
      estimates that 78% of our customers pay for their orders in a single payment,
      and approximately 22% of our customers elect to make multiple
      payments.




We
      also
      derive revenue from sales to our wholesale distribution partners and selling
      directly to retailers. We are re-focusing our existing wholesale distribution
      relationships to target selected smaller or regional retail chains while we
      develop direct relationships with the larger retailers, in an effort to improve
      our gross margins. As part of this strategy, we have selectively re-introduced
      certain of our existing products into retail distribution.




A
      modest
      amount of revenue is derived each year by providing customer lists to third
      parties for a fee as well and from interest income from cash and security
      accounts.




Our
      net
      sales are determined by subtracting an allowance for returns from our gross
      product sales and list sales. Our returns currently average less than 4% of
      our
      gross product sales.




*Costs
      of Goods Sold.*




Cost
      of
      goods sold consists primarily of the costs of the finished goods as received
      by
      us from our third-party manufacturing partners and purchasing and inspection
      costs. In November 2003, we began to source product in China, starting with
      our
      cutlery products. In September 2004, we began to source our ShowtimeTM Rotisserie
      products in China as well. This change reduced our cost of goods sold. In
      addition, our fulfillment and shipping costs are included in selling expenses
      and not in costs of good sold. As a result, our gross profit margins may not
      be
      comparable with those of similar companies. We generate higher gross margins
      on
      products sold through our direct response channels (including television, online
      sales and our customer service department) than through wholesale accounts.
      We
      expect our costs of good sold to increase as the sale of our products through
      our wholesale accounts increase, and our direct response sales decrease, as
      a
      percentage of our total product sales.





7





**Components
      of Operating Expenses and Other Items**




*Selling
      Expenses.*




Our
      selling expenses are the largest component of our cost structure and primarily
      consist of media expenditures, telemarketing and fulfillment costs, personnel
      compensation and associated expenses, license costs and royalties, credit card
      processing, and outbound shipping and logistics costs. Media expenditures
      associated with direct response television comprise the largest portion of
      our
      overall selling expenses.




We
      pay
      per-minute fees to our telemarketing partners for their services in handling
      our
      inbound call traffic as well as certain outbound marketing programs. In
      addition, we also pay commissions, where applicable, to our customer service
      and
      data entry departments to encourage sales. License costs and royalties have
      historically been significant cost items for Ronco; however, as part of our
      purchase of the Ronco business, we acquired substantially all of the
      intellectual property related to these historical expenses. Accordingly, we
      will
      incur only modest royalty expenses in the future, related to the use of
      intellectual property that may be held by third-parties in products we market
      and sell in the future.




In
      addition to media costs and inbound telemarketing fees, we also incur costs
      to
      third party fulfillment centers to store goods and process orders, and we incur
      shipping costs to FedEx and the United States Postal Service. Shipping from
      multiple fulfillment centers has enabled us to reduce our shipping costs and
      speed up delivery of product to our customers. We also pay fees to our credit
      card and electronic check processors for each customer transaction.




Our
      current sales trend is an increase in wholesale sales as a percentage of total
      sales. This trend will result in lower selling expenses, as a percentage of
      sales, in the future because the media costs for direct response is
      significantly greater than the other selling expenses associated with wholesale
      sales.




*General
      and Administrative Expenses.*




Our
      general and administrative expenses consist of compensation and associated
      costs
      for general and administrative personnel, facility costs, as well as certain
      insurance, legal, audit, technology, fulfillment and shipping and miscellaneous
      expenses. We expect that general and administrative expenses will increase
      as we
      hire additional senior management personnel and provide new motivational
      incentive programs for current and future employees, incurring costs related
      to
      the anticipated growth of our business and our operation as a public
      company.




*Interest
      Expense (Income).*




Interest
      expense for the predecessor entities consisted of interest accrued on the loans
      made to the predecessor entities from Ronald M. Popeil and the RMP
      Family Trust. These loans were not assumed by us and, therefore, this interest
      expense is not applicable to us. Also included in the interest expense (income)
      is a modest amount of interest income on cash and security accounts. Interest
      expense for the successor company consisted of interest accrued on a loan made
      by Ronald M. Popeil in connection with the purchase of the Ronco assets and
      interest on our borrowings under Prestige factoring agreement.




*Income
      Taxes.*




Income
      tax expenses is the tax payable or refundable for the period plus or minus
      the
      change during the period in the deferred income tax assets and liabilities.
      We
      record deferred income tax assets and liabilities for differences between the
      financial statements and income tax bases of assets and liabilities. A valuation
      allowance is established, when necessary, to reduce deferred income tax assets
      to the amount expected to be realized. If we are profitable in the future,
      we
      will have significant net operating losses to offset our tax liability. The
      predecessor entities were incorporated as pass-through entities and, therefore,
      did not record income tax expense for federal or state purposes.





**Trends
      that Affect our Business**




Seasonal
      trends have an impact on our business, with the largest portion of revenues
      coming during the six-month period from October through March. This is due
      to
      holiday shopping and increased television viewing habits during periods of
      cold
      weather. The combination of these two factors allows us to purchase a higher
      amount of television media and generate a significantly greater response in
      the
      second and third quarters of our fiscal year, which directly results in higher
      profits in those quarters. In addition, the increased level of television
      exposure also indirectly impacts other channels such as online, customer
      service, and wholesale/retail sales.




Another
      factor that affects our business is the age of a particular infomercial message.
      Typically, the response to an infomercial will decline over time, which in
      turn
      affects response rates and profitability. We monitor response rates on a daily
      basis and as the response rate declines below profitable levels, we will either
      “refresh” the show by editing in a new offer or new footage, or produce a
      completely new show. In this way, we attempt to extend the product line on
      television, and increase the cumulative brand awareness and sell-through at
      retail.




A
      number
      of changes have occurred since we acquired the Ronco businesses that are likely
      to affect the results of operations, capitalization and liquidity of the Ronco
      business. We did not assume certain liabilities of the predecessor entities.
      For
      instance, we did not acquire approximately $39 million of loans to an
      affiliate of the predecessor entities. As a result, we will not have to pay
      principal or interest on this amount. In addition, we acquired the patents
      that
      the predecessor entities licensed in order to operate the Ronco business. As
      a
      result, we did not acquire the product development and license agreements to
      which the predecessor entities were a party, and pursuant to which they paid
      substantial fees, and did not assume the $4.5 million liability associated
      with
      these agreements. On the other hand, we issued notes in connection with the
      acquisition in the adjusted amount of approximately $13.158 million. In
      addition, because the predecessor entities were “pass-thru” entities for tax
      purposes, they did not pay “corporate” federal income taxes. We are subject to
      federal income taxes. We are also incurring additional costs associated with
      compliance with laws applicable to public companies that were not applicable
      to
      the predecessor entities. Finally, we will no longer have the financial
      resources of the stockholder of the predecessor entities available to us for
      borrowings. In September 2005 we borrowed $1.2 million under a revolving line
      of
      credit and entered into a factoring agreement to provide us with liquidity
      and
      act as a partial substitute for the working capital loans we previously obtained
      from the stockholder of the predecessor entities. The factoring agreement
      permits us to sell up to $8 million of our accounts receivable to the factor
      and
      receive between 75% and 80% of the face amount of the account upon assignment
      to
      the factor, with the balance paid (less the factor’s fees) when the account is
      collected. We accounted for this financing as a sale of receivables in
      accordance with SFAS 140. Due to the impact of all of the changes in our
      business that are described above, we do not believe that the historical
      financial statements of the predecessor entities will prove to be a good
      indicator of our future performance, particularly as that performance is
      impacted by our expenses.





8




Our
      future strategy calls for us to place more emphasis on the wholesale market.
      If
      we are successful in increasing sales in this area, our gross margin is likely
      to decline as margins associated with wholesale revenues are typically lower
      than margins associated with direct response revenues. For instance, during
      the year ended June 30, 2006 our gross margin was 66% as compared with 76%
      for the year ended June 30, 2005. Our gross margins declined primarily because
      we increased sales through wholesale accounts from 22% to 38% of our total
      net
      sales. In addition, our advertising expense will also decline as we do not
      incur
      any advertising cost related to wholesale revenues. The growth of our wholesale
      business did not offset the decline in the direct response business during
      the
      year ending June 30, 2006; however, we believe that the wholesale business
      has
      proved to be a successful one for us.




**Recent
      Accounting Pronouncements**




In
      February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Financial Instruments—an amendment of FASB Statements No. 133 and 140,” that
      allows a preparer to elect fair value measurement at acquisition, at issuance,
      or when a previously recognized financial instrument is subject to a
      re-measurement (new basis) event, on an instrument-by-instrument basis, in
      cases
      in which a derivative would otherwise have to be bifurcated. It also eliminates
      the exemption from applying Statement 133 to interests in securitized financial
      assets so that similar instruments are accounted for similarly regardless of
      the
      form of the instruments. This Statement is effective for all financial
      instruments acquired or issued after the beginning of an entity's first fiscal
      year that begins after September 15, 2006. The Company does not anticipate
      that
      the adoption of SFAS No. 155 will have an impact on the Company's overall
      results of operations or financial position.





In
      March
      2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets—an
      amendment of FASB Statement No. 140,” that applies to the accounting for
      separately recognized servicing assets and servicing liabilities. This Statement
      requires that all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable. An entity
      should adopt this Statement as of the beginning of its first fiscal year that
      begins after September 15, 2006. The Company does not anticipate that the
      adoption of SFAS No. 156 will have an impact on the Company's overall results
      of
      operations or financial position.




In
      July
      2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
      in
      Income Taxes. The Interpretation clarifies the way companies are to account
      for
      uncertainty in income tax reporting and filing and prescribes a consistent
      recognition threshold and measurement attribute for recognizing, derecognizing,
      and measuring the tax benefits of a tax position taken, or expected to be taken,
      on a tax return. The Interpretation is effective for fiscal years beginning
      after December 15, 2006, although early adoption is possible. The Company does
      not plan to adopt early and the Company is currently in the process of
      evaluating the impact, if any, the adoption of the Interpretation will have
      on
      the 2007 financial statements.




In
      September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value, and expands disclosures about fair value measurements. This Statement
      shall be effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. Earlier
      application is encouraged, provided that the reporting entity has not yet issued
      financial statements for that fiscal year, including any financial statements
      for an interim period within that fiscal year. The provisions of this statement
      should be applied prospectively as of the beginning of the fiscal year in which
      this Statement is initially applied, except in some circumstances where the
      statement shall be applied retrospectively. The Company is currently evaluating
      the effect, if any, of SFAS 157 on its financial statements.





**Critical
      Accounting Policies**




Included
      in the footnotes to the consolidated and combined financial statements in this
      report is a summary of all significant accounting policies used in the
      preparation of our consolidated and combined financial statements. We follow
      the
      accounting methods and practices as required by accounting principles generally
      accepted in the United States of America, also referred to as GAAP. The
      preparation of financial statements in conformity with GAAP requires management
      to make certain estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and the reported amounts of revenues and expenses.
      Significant accounting policies employed by us, including the use of estimates,
      are presented in Note 1 to our consolidated and combined financial
      statements.





9




Critical
      accounting policies are those that are most important to the portrayal of our
      financial condition and our results of operations, and require management's
      most
      difficult, subjective and complex judgments as a result of the need to make
      estimates about the effect of matters that are inherently uncertain. Our most
      critical accounting policies, discussed below, pertain to revenue recognition,
      our ability to collect accounts receivable, the value of inventories, the
      impairment of goodwill, the useful lives of our other long-lived intangible
      assets, and the recoverability of deferred tax assets. In applying these
      policies, management must use its informed judgments and best estimates.
      Estimates, by their nature, are based on judgments and available information.
      The estimates that we make are based upon historical factors, current
      circumstances and the experience and judgment of our management. We evaluate
      our
      assumptions and estimates on an ongoing basis and may employ outside experts
      to
      assist in our evaluations. Changes in such estimates, based on more accurate
      future information, may affect amounts reported in future periods.




*Revenue
      Recognition*




We
      recognize revenue from the sale of products when the products are shipped to
      the
      customers, provided that the price is fixed, title has been transferred and
      our
      ability to collect the resulting receivable is reasonably assured. Net sales
      include revenue generated from products shipped, shipping and handling fees
      and
      revenue earned on extended service contracts, less returns and sales allowances.
      Revenue from free trial sales is recognized after the trial period is over
      and
      the customer has not returned the product. Returns and sales allowances are
      for
      damaged goods and anticipated customer returns.




Revenue
      from the sale of extended service contracts is recognized on a straight-line
      basis over the life of the extended service contract. Extended service contract
      lives begin after the six-month free warranty period and range from three to
      four years. Amounts received from the sale of extended service contracts before
      revenue is recognized are included in deferred income. Deferred revenue acquired
      as part of our acquisition of the Ronco business was recorded at fair value
      at
      June 30, 2005 in accordance with purchase accounting.





We
      do not
      accrue warranty costs, since such costs have been insignificant. Shipping and
      handling costs are included in selling, general and administrative
      expenses.




*Accounts
      Receivable*




We
      utilize the allowance method for accounting for losses from uncollectible
      accounts. We accrue our estimated product returns and record them as a part
      of
      our allowance for doubtful accounts and returns. Under this method, an allowance
      for doubtful accounts reflects our best estimate of probable losses inherent
      in
      the accounts receivable balance. Management has determined the allowance, based
      on the amount of our accounts receivable, the age of accounts receivable, known
      troubled accounts and historical experience regarding collection of bad debts.
      We also perform ongoing credit evaluations of our wholesale customers. The
      majority of our bad debt allowance and our bad debts arises from the direct
      response business and relates to customers who purchase our products in multiple
      installments and fail to make all of the required payments. Before our
      acquisition of the Ronco business, we determined our allowance for doubtful
      accounts based solely on historical experience regarding collection of bad
      debts.





*Inventories*




Our
      inventories are valued at the lower of cost, determined by the first-in,
      first-out method, or market value. With respect to the acquisition of the Ronco
      business, we accounted for the inventories acquired at fair value in accordance
      with purchase accounting. Inventory costs are comprised primarily of product,
      freight and duty.  We write down inventory for estimated obsolescence equal
      to the difference between the cost of inventory and the estimated market
      value based upon assumptions about future demand and market conditions. To
      date,
      our inventory write-downs related to our core products that represent more
      than 90% of our revenues have not resulted in the market value of the inventory
      falling below the cost of the inventory. This is due, in part, to our practice
      of refurbishing obsolete inventory, which we have been able to sell at prices
      that exceed the cost of the inventory, including the cost of refurbishment.
      Accordingly, we have not adjusted the carrying value of inventory in the past
      due to the application of the lower of cost or market rule.




*Intangible
      Assets and Goodwill*




Intangible
      assets are comprised of patents, customer relationships, consulting agreement
      and trademarks. Goodwill represents acquisition costs in excess of the net
      assets of the businesses acquired. In accordance with SFAS No. 142, "Goodwill
      and Other Intangible Assets," goodwill is no longer amortized; instead goodwill
      is tested for impairment on an annual basis. We assess the impairment of
      identifiable intangibles and goodwill whenever events or changes in
      circumstances indicate that the carrying value may not be recoverable. Factors
      we consider to be important that could trigger an impairment review include
      the
      following:




·
            Significant
                underperformance relative to expected historical or projected future
                operating results;




10




·
            Significant
                changes in the manner of use of the acquired assets or the strategy
                for
                the overall business; and




·
            Significant
                negative industry or economic
                trends.




When
      we
      determine that the carrying value of intangibles and other long-lived assets
      may
      not be recoverable based on the existence of one or more of the above indicators
      of impairment and the carrying value of the asset cannot be recovered from
      projected undiscounted cash flows, we record an impairment charge. We measure
      any impairment based on a projected discounted cash flow method using a discount
      rate determined by management to be commensurate with the risk inherent in
      the
      current business model. Significant management judgment is required in
      determining whether an indicator of impairment exists and in projecting cash
      flows. As
      of
      June 30, 2006, the impact of our impairment testing of goodwill and intangibles
      on our financial position and results of operations was approximately $24.5
      million. The impairment of our goodwill and intangibles was primarily due to
      our
      significant decline in revenues and our lack of capital to develop new products
      and new infomercials.




Patents
      are amortized over 19 years, customer relationships over 1.5 to 10 years and
      a
      consulting agreement over 3 years, utilizing the straight-line
      method.





*Deferred
      Taxes*




Deferred
      tax assets and liabilities are computed annually for difference between the
      financial statements and income tax bases of assets and liabilities. Such
      deferred income tax asset and liability computations are based on enacted tax
      laws and rates applicable to periods in which the differences are expected
      to
      reverse. A valuation allowance is established, when necessary, to reduce
      deferred income tax assets to the amount expected to be realized. The ultimate
      realization of the deferred tax asset is dependent upon the generation of future
      taxable income during the periods prior to the expiration of the related net
      operating losses. If our estimates and assumptions about future taxable income
      are not appropriate, the value of our deferred tax asset may not be
      recoverable.




*Use
      of Estimates*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 revenue and expenses during
      the reporting period. Actual results could differ from those estimates. We
      are
      not aware that any of our significant estimates are reasonably likely to
      change.





**Results
      of Operations**




We
      acquired the Ronco business from the predecessor entities on the last day of
      our
      fiscal year, June 30, 2005. We did not ship any products on that day because
      we
      were conducting our year-end physical inventory and thus we did not earn any
      revenue on that day. Prior to our acquisition of the Ronco business from the
      predecessor entities, we had no operations and generated no revenue.
      Accordingly, since we did not have any operations or generate any revenue prior
      to our acquisition of the Ronco business, the entities from whom we purchased
      the Ronco business are considered to be our predecessor company. Therefore,
      for
      comparative purposes, we show the June 30, 2006 results relative to the results
      of the unaudited combined results of the predecessor company for the year ended
      June 30, 2005. Also, for comparative purposes, we compare the results of
      operations of the predecessor company for the nine months ended June 29, 2005
      and September 30, 2004 to the unaudited results of operations of the predecessor
      company for nine months ended June 30, 2004 and September 30, 2003.




**SUCCESSOR**
              
              **SUCCESSOR**
              
              
              **PREDECESSOR****Year
                  ended**
                **June
                  30,**
              
              **One
                  Day for June 30, 2005**
                **(Date
                  of**
              
              
              **Year
                  ended June 30,**
              
              **Nine
                  months**
                **ended**
                **June
                  29,**
              
              **Nine
                  months**
                **ended**
                **June
                  30,**
              
              **Nine
                  months ended September 30,**
              
              **Nine
                  months ended September 30,****2006**
              
              **Acquisition)**
              
              
              **2005**
              
              **2005**
              
              **2004**
              
              **2004**
              
              **2003**(unaudited)
              
              
              
              (unaudited)
              
              
              
              (unaudited)*******(dollars
                  in millions, except per share data and
                  percentages)***Income
                  Statement Data:Net
                  Sales
              
              $
              58.7
              
              $
              —
              
              
              $
              90.1
              
              $
              68.9
              
              $
              92.8
              
              $
              63.2
              
              $
              42.8Gross
                  profit
              
              $
              38.7
              
              $
              —
              
              
              $
              68.7
              
              $
              52.1
              
              $
              65.5
              
              $
              46.4
              
              $
              28.6*Gross
                  margin*
              
              
              66
              %
              
              —
              
              
              
              76
              %
              
              76
              %
              
              71
              %
              
              73
              %
              
              67
              %Selling,
                  general and administrative
              
              
              57.0
              
              
              0.8
              
              
              
              68.3
              
              
              50.4
              
              
              71.7
              
              
              53.2
              
              
              31.2Impairment
                  loss on goodwill, intangibles and equipment
              
              
              24.5
              
              
              —
              
              
              
              —
              
              
              —
              
              
              —
              
              
              0.8
              
              
              —Operating
                  (loss) income
              
              
              ($42.8
              )
              
              ($0.8
              )
              
              $
              0.4
              
              $
              1.7
              
              
              ($6.3
              )
              
              ($7.6
              )
              
              ($3.3
              )Interest
                    and other expense (income)
              
              
              1.3
              
              
              —
              
              
              
              2.8
              
              
              2.8
              
              
              —
              
              
              0.1
              
              
              (0.2
              )Income
                  taxes (benefit)
              
              
              0.3
              
              
              (0.3
              )
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              
              ($44.4
              )
              
              ($0.5
              )
              
              
              ($2.4
              )
              
              ($1.1
              )
              
              ($6.3
              )
              
              ($7.7
              )
              
              ($3.1
              )
  **Three
                  Months Ended**
                **September
                  30,**
              
              **Three
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**(unaudited)
              
              (unaudited)*(dollars
                  in millions, except per share data and percentages)*Income
                  Statement Data:Net
                  Sales
              
              $
              9.6
              
              $
              13.1Gross
                  profit
              
              $
              4.6
              
              $
              8.6*Gross
                  margin*
              
              
              47
              %
              
              66
              %Selling,
                  general and administrative
              
              
              8.8
              
              
              13.6Operating
                  loss
              
              
              ($4.3
              )
              
              ($4.9
              )Interest
                  and other expense
              
              
              0.4
              
              
              0.3Income
                  tax benefit
              
              
              —
              
              
              (2.1
              )Net
                  loss
              
              
              ($4.6
              )
              
              ($3.1
              )


*Year
      Ended June 30, 2006 Compared with Year Ended June 30, 2005
      (unaudited)*




*Net
      Sales*




Net
      sales
      for the year ended June 30, 2006 was $58.7 million, compared with $90.1 million
      for the year ended June 30, 2005. The decline of $31.4 million, or 34.8%, in
      net
      sales for the year ended June 30, 2006 is primarily due to a decline in direct
      response sales of our rotisserie ovens by approximately $12.7 million, a decline
      in direct response sales of our cutlery product line by $24.2 million, and
      an
      increase of approximately $1.9 million in direct response sales of our other
      products, including Popeil's Pasta Maker, Electric Food Dehydrator, GLH Formula
      Number 9 Hair System and the Pocket Fisherman. This decrease was partially
      offset by an increase of $0.6 million in revenue from list sales and commissions
      from telemarketers of $1.4 million during the year ended June 30, 2006 compared
      with $0.8 million in revenue from list sales and commissions for the year ended
      June 30, 2005. The percentages of revenue from list sales and commissions from
      telemarketers were 2.4% and 0.9% for the years ended June 30, 2006 and 2005,
      respectively. The decrease in direct response sales was partially offset by
      an
      increase in our wholesale sales by approximately $3 million.




Net
      sales
      declined primarily due to the fact that our infomercials for our rotisserie
      and
      our cutlery lines are more than 2 years old and we have not provided our other
      products with any significant marketing support during the last several years.
      Historically our infomercials generate the highest sales in the first six months
      to a year, then decline as the infomercial loses its freshness. Our direct
      response sales declined to $34.9 million or by approximately 50.0% for the
      year
      ended June 30, 2006, compared with direct response sales of $69.9 million for
      the year ended June 30, 2005. Our sales through wholesale accounts increased
      to
      $22.4 million or by approximately 15.6% for the year ended June 30, 2006,
      compared with wholesale sales of $19.4 million for the year ended June 30,
      2005.
      We expect the direct response trend to reverse for our rotisserie and cutlery
      lines as we introduce new versions of these products and produce new
      infomercials. We also expect our wholesale revenues to continue to increase
      as
      we expand our distribution in retail stores and overseas.




*Gross
      Profit and Gross Margin*




Gross
      profit for the year ended June 30, 2006 was $38.7 million as compared with
      $68.7
      million for year ended June 30, 2005. This decrease is primarily due to a
      decrease in our direct response sales and a relative increase in sales, both
      in
      absolute dollars and as a percentage of total sales, through wholesale accounts.
      Wholesale sales represented 38.1% and 21.5% of total sales for the years ended
      June 30, 2006 and 2005, respectively. The increase in cost of goods sold was
      due
      to the increase in wholesale sales relative to direct response sales, because
      the wholesale sales have a higher cost of goods sold. We also increased our
      cost
      of sales by writing down $0.5 million of inventory to market price which was
      lower than the original cost. Our cost of goods sold does not include
      fulfillment and shipping costs, which are included in selling, general and
      administrative expenses. Accordingly, our margins might not be comparable with
      those of other companies in our industry.





11




The
      gross
      margin decreased from 76.3% for the year ended June 30, 2005 to 65.9% for the
      year ended June 30, 2006. Our gross margin decreased primarily because of an
      increase in our revenue from wholesalers, and a corresponding decrease in our
      direct response sales, as a percentage of our overall sales. Revenue from
      wholesalers accounted for approximately 38.1% of our net sales for the year
      ended June 30, 2006 as compared with 21.5% of our net sales for the year ended
      June 30, 2005. Revenue from our direct response sales accounted for 59.5% of
      sales for the year ended June 30, 2006 as compared with 77.6% of sales for
      the
      year ended June 30, 2005. Although we experienced increased cost savings from
      manufacturing during the year ended June 30, 2006 compared with the year ended
      June 30, 2005, these cost savings were offset by discounts that we provided
      to
      mass merchants which resulted in the gross margin percentages decreasing. The
      average gross margin percentage for our direct response business for the year
      ended June 30, 2006 was 80.6%, compared with 81.1% for the year ended June
      30,
      2005. The average gross margin percentage for our wholesale business for the
      year ended June 30, 2006 was 38.4%, compared with 56.8% for the year ended
      June
      30, 2005. The higher gross margin percentages for our direct response business
      during the year ended June 30, 2005 were caused primarily by a backlog of orders
      for our ShowtimeTM Rotisserie product line due to production delays by our
      outsource manufacturers in the year ended June 30, 2005. This in turn meant
      that
      a higher percentage of our direct response sales were from our Six Star+TM
Cutlery product line, which yields a higher gross margin than our ShowtimeTM
product line. The lower gross margin percentages for our wholesale business
      during the year ended June 30, 2006 were caused primarily by our efforts to
      liquidate older inventory to generate cash. For the year ended June 30, 2005,
      the Seller Entities primarily sold wholesalers products through distributors.
      Additionally we generated revenue from list sales and commissions from
      telemarketers, with respect to which we incurred no cost of sales. Accordingly,
      our gross margin from list sales and commissions was 100%, or 3.6% and 1.2%
      of
      total gross margin, for the years ended June 30, 2006 and 2005, respectively.
      Our cost of goods sold does not include fulfillment and shipping costs, which
      are included in selling, general and administrative expenses, and as such,
      our
      margins might not be comparable to other companies in our industry.




*Selling,
      general and administrative expenses*




Selling,
      general and administrative expenses for the year ended June 30, 2006 were $57.0
      million compared with $68.3 million for the year ended June 30, 2005. This
      decrease of approximately $11.3, or 16.5%, was primarily due to a $16.6 million
      reduction in advertising expenses associated with the decreased effectiveness
      of
      infomercials over time, a $1.7 million reduction in credit card fees and
      shipping and handling expense of $2.1 million due to the reduced sales. The
      decline was partially offset by an increase of $3.5 million in professional
      fees
      and salaries and related expenses. Salaries and related expenses were
      approximately $7.2 million for the year ended June 30, 2006 compared with
      approximately $6.1 million for the year ended June 30, 2005. The increase in
      salaries and related expenses was primarily due to the hiring of four additional
      executives and five managers to execute management's long term growth strategy,
      including the expansion of our retail business, international distribution
      and
      the development of new products. Professional fees increased to approximately
      $4.5 million for the year ended June 30, 2006 compared to approximately $2.1
      million for the year ended June 30, 2005. The increase in professional fees
      was
      primarily due to accounting and legal expenses incurred for compliance with
      SEC
      filing requirements and other aspects of the transition from a private company
      to a public company. We also recorded approximately $1.3 million for deferred
      compensation expenses related to amortization of stock based compensation awards
      to our Chief Executive Officer and Chief Financial Officer. We did not have
      any
      deferred compensation expense related to stock based compensation for the year
      ended June 30, 2005. In addition, for the year ended June 30, 2006 we incurred
      additional amortization expense of intangible assets of approximately $6.0
      million related to the acquisition of the Ronco business. Additionally, other
      selling, general and administrative expenses, such as travel, utilities, auto,
      license and royalties and repairs and maintenance, decreased by $1.7
      million.




As
      a
      percentage of revenues, selling, general and administrative expenses increased
      from 75.9% for the year ended June 30, 2005 to 97.0% for the year ended June
      30,
      2006. This increase for the year was primarily due to a decrease in revenue,
      an
      increase in salaries and professional fees, deferred compensation and
      amortization of intangible assets related to the acquisition of the Ronco
      business, with a reduction in advertising expense, credit card fees and shipping
      and handling expense.




*Impairment
      of Goodwill and Intangibles*




Impairment
      of goodwill and intangibles for the year ended June 30, 2006 was approximately
      $24.5 million. The impairment of our goodwill and intangibles was primarily
      due
      to our significant decline in revenues and our lack of capital to develop new
      products and new infomercials. The following is the breakdown of the impairment
      charge for the year ended June 30, 2006.





ImpairmentCustomer
                Relationships
            
            $
            485,546Patents
            
            
            5,187,121Trademarks
            
            
            12,119,036Popeil
                Agreement
            
            
            3,775,733Goodwill
            
            
            2,953,480**Total
                Impairment**
            
            **$**
            **24,520,916**








12




*Operating
      income/loss*




Our
      operating loss for the year ended June 30, 2006 was $42.8 million, compared
      with
      income of $0.4 million for the year ended June 30, 2005. The increase in our
      operating loss of approximately $43.2 million for the year ended June 30, 2006
      compared to the year ended June 30, 2005 are primarily attributable to lower
      sales volume in our direct response business, impairment of our goodwill and
      intangibles partially offset by a reduction in selling general and
      administrative expenses.




*Net
      interest expense*




Our
      net
      interest expense for the year ended June 30, 2006 declined by approximately
      $1.5
      million as compared with the year ended June 30, 2005. This decline was
      primarily due to us not assuming approximately $39 million of debt that the
      Seller Entities borrowed from the RMP Family Trust, which were outstanding
      as of
      June 30, 2005. The interest expense for the year ended June 30, 2005 primarily
      relates to interest payable on a note issued to a shareholder of the Seller
      Entities in exchange for amounts loaned to finance the purchase of patents
      on
      products that the Seller Entity sold.




*Income
      Tax*




The
      Company recorded income tax benefit for the year ended June 30, 2006 as a
      reversal of deferred taxes from the prior year of $0.3 million since we do
      not
      expect to realize the net operating loss in the future. For the year ended
      June
      30, 2005, the predecessor entities did not pay any income taxes as they were
      pass-through entities.




*Net
      loss*




Our
      net
      loss for the year ended June 30, 2006 was $ 44.4 million, compared with a loss
      of $2.4 million for the comparable year ended June 30, 2005. The increase in
      our
      net loss of approximately $42 million for the year ended June 30, 2006 is due
      to
      the decrease in revenue and increase in operating expenses for the reasons
      described above. Our net loss attributable to common stockholders for the year
      ended June 30, 2006 increased by an additional $4.6 million due to dividend
      on
      our preferred stock.




***Ronco
      Corporation - June 30, 2005***





We
      acquired the Ronco business from the predecessor entities on the last day of
      our
      fiscal year. We did not ship any products on that day because we were conducting
      our year-end physical inventory and thus we did not earn any revenue on that
      day. Prior to our acquisition of the Ronco business from the predecessor
      entities, we had no operations and generated no revenue. The selling, general
      and administrative expenses for this single day were primarily made up of
      compensation expense related to cash bonuses of $465,000 paid to our CEO and
      CFO **** and the
      stock issued to our CFO **** in
      connection with the acquisition of the predecessor entities, that constituted
      an
      expense of $300,919.





***Predecessor
      Entities - Nine Months Ended June 29, 2005 Compared to Nine Months Ended June
      30, 2004 (unaudited)***




*Net
      Sales* .





Net
      sales
      for the nine months ended June 29, 2005 were approximately $68.9 million, a
      decrease of $23.9 million, or 26%, from approximately $92.8 million for the
      nine
      months ended June 30, 2004. The decline in net sales consisted of a decline
      of
      $19.5 million from the direct response business due to the age of our
      infomercials, and a decline of $4.6 million from our wholesale business in
      the
      first half of 2005 as we transitioned a portion of our wholesale business from
      distributorship arrangements to direct relationships with larger retailers **.** Net
      sales of our ShowtimeTM Rotisserie oven products decreased by approximately 54%
      during the nine months ended June, 29 2005, also due to the age of our
      infomercials, and net sales of our cutlery product line increased by
      approximately 67% during this same period. The infomercial for our cutlery
      products began airing in November 2003, so sales for this product were strong
      during the period compared to sales of our ovens, for which our newest
      infomercial began airing in July 2003. Sales of our cutlery products were also
      higher compared to the comparable period in 2004 because we only introduced
      this
      line of products in November 2003, and thus sales of cutlery products were
      not
      included for the full nine months ended June 30, 2004.








13


*Gross
      Profit and Gross Margin* .





Gross
      profit for the nine months ended June 29, 2005 was $52.1 million, a decrease
      of
      $13.4 million, or 20%, compared to the nine months ended June 30, 2004. Gross
      profit for the nine months ended June 29, 2005 declined compared to the
      comparable period in 2004 due to the reduction in net sales, which decline
      was
      partially offset by a reduction in costs of goods sold from $65.5 million for
      the nine months ended June 30, 2004, to $52.1 million in the comparable period
      in 2005. Gross margin for the nine months ended June 29, 2005 was 76% as
      compared to 71% for the nine months ended June 29, 2004. This increase in gross
      margin is primarily due to better pricing from our suppliers due to the
      migration of most of our outsourced production activities from Korea to China,
      which is a lower cost environment. Our cost of goods sold includes purchasing
      and inspection costs, but does not include fulfillment and shipping costs,
      which are included in selling, general and administrative expenses. As such,
      our
      gross margin might not be comparable to other companies in our
      industry.





*Selling,
      General and Administrative Expenses* .





Selling,
      general and administrative expenses for the nine months ended June 29, 2005
      were
      $50.4 million, a decline of $21.3 million, or 30%, compared to the nine months
      ended June 30, 2004. This decline occurred primarily because our royalty
      expense was reduced to $0.1 million for the nine months ended June 29, 2005,
      from approximately $7.6 million for the nine months ended June 30, 2004.
      Selling, general and administrative expenses also declined for the nine months
      ended June 29, 2005, due to a reduction in fulfillment and shipping costs from
      $10.5 million in 2004 to $7.6 million in 2005, which was due to the decline
      in
      net sales. In addition, our media expense declined in 2005 by $9.5 million
      because we purchased fewer television spots. We purchased fewer television
      spots
      because we anticipated a lower response rate to our infomercials due to their
      age. A lower response rate increases the per sale cost of our infomercials,
      which reduces the price we can pay for television spots and remain
      profitable.  When the price we can pay is reduced and we can only purchase
      less expensive television spots, we cannot generally purchase as many television
      spots as we would otherwise purchase. Our bad debt expense also declined by
      $1.5
      million primarily due to our hiring during this period of an independent
      consultant dedicated to managing our collection of multi-pay account
      receivables. As a percentage of net sales, selling, general and administrative
      expenses for the nine months ended June 29, 2005 were 73% as compared to 77%
      for
      the nine months ended June 30, 2004. This improvement was primarily due to
      the
      elimination of our royalty expense, but was partially offset by an increase
      in
      advertising as a percentage of revenues from 40% to 43% in 2005 due to the
      declining response from our aging infomercials. We will not have to pay such
      royalties in the future because we acquired the applicable patents as part
      of
      our purchase of the Ronco business.





*Operating
      Income (Loss)* .





Our
      operating income for the nine months ended June 29, 2005 was $1.7 million as
      compared to an operating loss of ($6.3) million for the nine months ended June
      30, 2004. The increase in operating income was primarily due to the 5%
      improvement in our gross margin and a 30% improvement in selling, general and
      administrative expenses, which was partially offset by the $23.9 million
      decrease in sales described above.





*Net
      Loss* .





Our
      net
      loss for the nine months ended June 29, 2005 decreased to ($1.1) million as
      compared to ($6.3) million for the nine months ended June 30, 2004. The decrease
      in net loss was primarily due to the 5% improvement in our gross margin and
      a
      30% improvement in selling, general and administrative expenses, partially
      offset by a $23.9 million decrease in sales. This was also offset by interest
      expense of approximately $2.9 million for the nine months ended June 29, 2005
      related to a loan from Ron Popeil, his affiliated entities and the RMP Family
      Trust. These loans were not assumed by us when we acquired the Ronco
      business.





***Predecessor
      Entities - Nine Months Ended September 30, 2004 Compared to Nine Months Ended
      September 30, 2003 (unaudited)***





*Net
      Sales* .





Net
      sales
      for the nine months ended September 30, 2004 were approximately $63.2 million,
      compared to $42.8 million for the nine months ended September 30, 2003. The
      increase in net sales for the nine months ended September 30, 2004 was primarily
      due to the introduction of a new cutlery product line in November 2003, which
      accounted for approximately $27.1 million of such increase, and $2.8 million
      in
      other sales. The cutlery product line was not offered during the comparable
      nine
      month period in 2003. The increase was potentially offset by a decrease in
      sales
      of our ShowtimeTM Rotisserie products of approximately $9.5 million in 2004
      compared to the same period ended in 2003. The decrease in sales from our
      ShowtimeTM Rotisserie products is due to the shift in television media from our
      ShowtimeTM Rotisserie product line to our cutlery product line.





*Gross
      Profit and Gross Margin* .





Gross
      profit for the nine months ended September 30, 2004 was $46.4 million, an
      increase of $17.8 million, or 62%, compared to the nine months ended September
      30, 2003. This increase was primarily due to the increase in net sales and
      proportionately smaller increase in costs of goods sold. **** Gross
      margin for the nine months ended September 30, 2004 was 73% as compared to
      67%
      for the nine months ended September 30, 2003. This increase in gross margin
      is
      primarily due to a change in product mix with the introduction of our cutlery
      product line in November 2003. The gross margin on our rotisserie ovens ranges
      from 65% to 75% whereas the gross margin on our cutlery products averages about
      76%. Our cost of goods sold includes purchasing and inspection costs, but does
      not include fulfillment and shipping costs, which are included in selling,
      general and administrative expenses. As such, our margins might not be
      comparable to other companies in our industry.







14




*Selling,
      General and Administrative Expenses* .





Selling,
      general and administrative expenses for the nine months ended September 30,
      2004
      were $53.2 million, an increase of $22 million, or 71%, compared to the nine
      months ended September 30, 2003. This increase occurred primarily because of
      the
      higher net sales, described above, and the increase in advertising expenses
      from
      $13.1 million for the nine months ended September 30, 2003, to $31.1 million
      for
      the comparable period in 2004. As a percentage of net sales, selling, general
      and administrative expenses for the nine months ended September 30, 2004 were
      84% as compared to 74% for the nine months ended September 30, 2003. Selling,
      general and administrative expenses increased as a percentage of net sales
      for
      the nine months ended September 30, 2004, due to the increase in advertising
      expenses, which occurred due to the declining response achieved from our aging
      infomercials. Selling, general and administrative expenses also included $8.1
      million and $4.9 million of fulfillment, and shipping cost for the nine months
      ended September 30, 2004 and the nine months ended September 30, 2003,
      respectively.





*Impairment
      Loss on Tooling* .





The
      impairment loss on tooling for the nine months ended September 30, 2004 was
      approximately $771,000, compared to no impairment loss for the nine months
      ended
      September 30, 2003. This impairment loss represented a write-off of out-of-date
      production tooling we previously used in connection with our current product
      lines.





*Operating
      Loss* .





Our
      operating loss for the nine months ended September 30, 2004 was ($7.6) million
      as compared to a ($3.3) million operating loss for the nine months ended
      September 30, 2003. The higher loss for 2004 is primarily attributable to the
      increase in advertising expenses during the nine months ended September 30,
      2004.





*Net
      Loss* .





Our
      net
      loss for the nine months ended September 30, 2004 increased to ($7.7) million
      as
      compared to ($3.1) million for the nine months ended September 30, 2003. The
      higher loss for 2004 is primarily attributable to the increase in advertising
      expenses during the nine months ended September 30, 2004.





***Year
      Ended December 31, 2003 Compared to Year Ended December 31,
      2002***





*Net
      Sales* .





Net
      sales
      were $93.5 million for 2003 compared to $98.4 million in 2002, a decrease of
      5%.
      Substantially all of this revenue was generated from sales of our ShowtimeTM
Rotisserie line of products, as we only introduced our cutlery line of products
      in November 2003. ShowtimeTM Rotisserie product prices remained flat during both
      years. Of the ShowtimeTM Rotisseries, our compact rotisserie generated $26.1
      million in net sales and our standard rotisserie generated $61.3 million in
      net
      sales in 2003. In 2002, substantially all of our net sales were derived from
      sales of the compact rotisserie. Our cutlery products contributed $3.5 million
      in net sales during 2003. The decrease in net sales in 2003 resulted from
      management’s decision to reduce media expenditures associated with its ShowtimeTM
Rotisseries ovens during the first seven months of 2003 in order to reduce
      the
      number of poor performing air dates, thereby increasing overall
      profitability.




*Gross
      Profit and Gross Margin* .





Gross
      profit for the twelve months ended December 31, 2003 increased by 3% to $64.2
      million from $62.2 million for the same period of 2002. Gross margin was 69%
      in
      2003 compared to 63% in 2002. This increase is attributed to the addition of
      our
      standard rotisserie to our oven product line and the introduction of our cutlery
      product line in November 2003. Our margins on our standard rotisserie are
      approximately 75% and on our cutlery product line are approximately 76%, which
      are higher than the 65% margins we achieve on our compact rotisserie. Our cost
      of sales includes purchasing and inspection costs, but does not include
      fulfillment and shipping costs, which are included in selling, general and
      administrative expenses. As such, our margin might not be comparable to other
      companies in our industry.







15


*Selling,
      General and Administrative Expenses* .





Selling,
      general and administrative expenses for the twelve months ended December 31,
      2003 decreased by approximately 6% to $67.7 million from $71.9 million for
      the
      twelve months ended December 31, 2002. The decrease in selling, general and
      administrative expenses was primarily due to a $4.1 million decrease in media
      expenses. The decline in media expenses was based on management’s decision to
      reduce media expenditures associated with the ShowtimeTM Rotisserie ovens to
      reduce the number of poor performing air dates and increase overall
      profitability. As a percentage of net sales, selling, general and administrative
      expenses were 72% and 73% for the twelve months ended December 31, 2003 and
      December 31, 2002, respectively. Selling, general and administrative expenses
      also included $8.5 million and $7.3 million of fulfillment and shipping costs
      for the twelve months ended December 31, 2003 and 2002, respectively.
      Fulfillment and shipping cost increased for the twelve months ended December
      31,
      2003 compared to 2002 because we changed our shipper from the U.S. postal
      service to FedEx. Although the cost of FedEx was greater than the U.S. postal
      service, the use of FedEx resulted in faster delivery times, which reduced
      our
      returns. Fulfillment costs also increased in 2003 with the introduction of
      our
      cutlery product line in November 2003 because such costs are fixed per unit
      shipped regardless of the unit price. Thus, our fulfillment costs per order
      for our cutlery product line were higher than our cost per order for our
      rotisserie line.





*Operating
      Loss* .





Our
      operating loss for the twelve months ended December 31, 2003 decreased to ($3.4)
      million from ($9.7) million for the same period of 2002. The decrease in
      operating loss was due primarily to the 6% increase in gross margin and a $4.3
      million decrease in selling, general and administrative expenses.





*Net
      Loss* .





Our
      net
      loss was ($3.0) million for the twelve months ended December 31, 2003 compared
      to a net loss of ($9.5) million for the twelve months ended December 31, 2002.
      This reduction in our net loss was due primarily to the 6% increase in gross
      margin and a $4.3 million decrease in selling, general and administrative
      expenses.





**Liquidity
      and Capital Resources**





Historically,
      the predecessor entities funded operations primarily through cash flow from
      operations and borrowings from the shareholder of the predecessor entities.
      Principal liquidity needs have been for television media, the majority of which
      is required to be prepaid two to four weeks in advance of the air date, and
      for
      cost of goods. Since our acquisition of the Ronco business, we no longer have
      the ability to borrow from the shareholder of the predecessor entities, so
      we
      have had to identify alternative sources of financing to replace this prior
      source of financing. In addition, during the year ended June 30, 2006, we
      increased the volume of wholesale sales whereby we give extended payment terms
      to our customers, which increased our receivable collection time and thus
      increased our liquidity needs. This liquidity need is likely to increase as
      our
      wholesale business continues to grow. Our cost for television has declined
      and
      will continue to do so if our direct response business continues to decline,
      which we expect will reduce our need for liquidity. However, we expect the
      impact of this on our liquidity will be offset by our need to purchase more
      inventory to support our wholesale business.





Based
      on
      our new strategy and the anticipated growth in our wholesale business, we
      believe that our liquidity needs will increase. The amount of such increase
      will
      depend on many factors, such as the establishment of a research and development
      program, whether we upgrade our technology, and the amount of inventory required
      for our expanding wholesale and international business.





As
      of
      June 30, 2006, our total working capital deficit was $12.9 million as compared
      with a working capital surplus of $8.2 million as of June 30, 2005. Our June
      30,
      2006 negative working capital included all of our debt to the Seller Entities
      and Sanders Morris Harris totaling $14.5 million. As of June 30, 2006, we could
      be considered to have had an incident of default on both loans. In order to
      assist in meeting our liquidity needs, we entered into a factoring agreement
      in
      October 2005 to fund our working capital needs. We also reached agreements
      with
      some of our principal factories who produce our products to extend our payment
      terms from 30 days to 60 days. Despite these developments, our cash flow from
      operations, and advances under our factoring agreement are not sufficient to
      meet our current and future working capital needs. As a result, we are seeking
      additional sources of capital to assure that our working capital needs are
      met.
      Specifically, we are seeking a term loan and/or line of credit and/or equity
      of
      between $10 and $15 million. We are in negotiations with a lender regarding
      such
      a facility but have not yet been able to secure a credit facility on acceptable
      terms. On October 6, 2006, we signed a loan agreement with Crossroads Financial
      on a $4 million credit facility. We made changes in our business strategy in
      order to conserve cash, such as delaying further expansion of our wholesale
      business, delaying the development and marketing of new products, delaying
      the
      expansion of our international sales, delaying the development of new
      infomercials. Although we obtained financing through Crossroads if we do not
      close a financial facility of over $10 million by January 31, 2007, we may
      need
      to make further changes in our business strategy in order to conserve cash,
      such
      as delaying further expansion of our wholesale business and/or reducing
      advertising directed toward our direct response business.







16




***Sources
      and Uses of Cash***





The
      following tables sets forth cash flow for the periods presented:




**Successor**
                
                **Predecessor**
                
                **Successor**
                
                **Predecessor**
                
                **Predecessor**
                
                **Predecessor****Year
                    ended**
                
                **Year
                    ended**
                
                **Period
                    for One Day (Date of Acquisition)**
                
                **Nine
                    months ended**
                
                **Nine
                    months ended**
                
                **Year
                    ended****June
                    30, 2006**
                
                **June
                    30, 2005**
                
                **June
                    30, 2005**
                
                **June
                    29, 2005**
                
                **September
                    30, 2004**
                
                **December
                    31, 2003**Net
                    cash (used in) operating activities
                
                
                (1,032,920
                )
                
                (41,862,660
                )
                
                (675,538
                )
                
                (2,383,605
                )
                
                (41,227,132
                )
                
                659,443Net
                    cash provided by (used in)
                  investing
                    activities
                
                
                (12,802
                )
                
                493,761
                
                
                (44,934,093
                )
                
                146,481
                
                
                256,919
                
                
                (554,842
                )Net
                    cash provided by (used in)
                  financing
                    activities
                
                
                636,509
                
                
                39,282,801
                
                
                46,443,989
                
                
                12,339
                
                
                39,068,564
                
                
                (363,400
                )Net
                    increase (decrease) in cash
                
                
                (409,213
                )
                
                (2,086,098
                )
                
                834,358
                
                
                (2,224,785
                )
                
                (1,901,649
                )
                
                (258,799
                )Cash
                    and cash equivalents, beginning
                  of
                    period
                
                
                834,358
                
                
                2,920,456
                
                
                -
                
                
                2,421,984
                
                
                4,323,633
                
                
                4,582,432Cash
                    and cash equivalents, end
                  of
                    period
                
                
                425,145
                
                
                834,358
                
                
                834,358
                
                
                197,199
                
                
                2,421,984
                
                
                4,323,633


***Cash
      Flows - Year Ended June 30, 2006 Compared with Year Ended June 30,
      2005***





For
      the
      year June 30, 2006, we used approximately $1 million in cash to fund our
      operations. This was primarily due to our net loss of approximately $44.4
      million. This was partially offset by a decrease in net accounts receivable
      of
      $1 million and prepaid expenses and other current assets of $1.9 million due
      to
      reduced sales during the fourth quarter of the year. Accounts payable and
      accrued expenses increased by $5.1 million due to obtaining an extension in
      the
      payment terms from our factories in China and generally paying our other vendors
      later. There was also a decrease in inventory by $.6 million due to reduced
      purchasing in the fourth quarter. Deferred income increased by $.7 million
      primarily because on June 30, 2005 due to purchase accounting we wrote off
      most
      of our deferred revenues. Our current deferred revenue balance represents cash
      we collected for products that we had not shipped by June 30, 2006. We also
      recorded an impairment loss of $24.5 million related to our goodwill and
      intangibles, which was primarily due to our substantial decline in sales, our
      lack of capital to invest in new products and infomercials, and the projected
      revenue generated from the intangible assets that were purchased. We recorded
      depreciation and amortization expense of $6.4 million, bad debt of $.5 million,
      $1.2 million of non-cash interest expense on notes to Seller Entities and non
      cash compensation expense of $1.3 million, for the year ended June 30,
      2006.





For
      the
      year ended June 29, 2005, we used approximately $41.9 million in cash to fund
      our operations. This was primarily attributable to net loss of $2.4 million,
      a
      decrease in royalty payables of $38.5 million, a $2.5 million decrease in
      deferred revenues, a decrease in accrued expenses and accounts payable totaling
      $1.2 million and a build up of inventory of $1.4 million. The impact of this
      was
      partially offset by a decrease of $2.4 million in prepaid expenses and other
      current assets, depreciation and amortization expense of $.9 million and bad
      debt expense of $.9 million.





For
      the
      year ended June 30, 2006, we used approximately $13,000 in investing activities.
      We paid approximately $0.5 million to purchase equipment, including software,
      and used approximately $0.5 million for the purchase of short term investments
      set aside as a credit card reserve for Wells Fargo Market Services, our credit
      card processor. In addition, we received approximately $1.0 million from the
      redemption of investments in securities.





For
      the
      year ended June 29, 2005, we generated $.5 million from investing activities.
      We
      received approximately $1 million from redemption of investment securities,
      and
      $.1 million as a deposit on the purchase of the Ronco business. This was
      partially offset by the purchase of $.6 million of equipment including
      software.





For
      the
      year ended June 30, 2006, we generated approximately $.6 from our financing
      activities. In September 2005 we received net proceeds of approximately $1.2
      million from a line of credit, which we used for working capital of which we
      repaid approximately $0.8 million in October 2005 leaving a total outstanding
      at
      June 30, 2006 of approximately $0.4 million; and $45,000 from a long-term loan
      in September 2005 of which we repaid approximately $7,000 through the fourth
      quarter leaving a balance of approximately $38,000 as of June 30, 2006, which
      we
      used to acquire a vehicle. In June 2006, we borrowed $1.5 million from Sanders
      Morris Harris to fund working capital. During the year ended June 30, 2006,
      we
      also paid approximately $1.3 million to the seller entities in connection with
      our acquisition of the Ronco business.





During
      the year ended June 30, 2005, loans from the predecessor entities accounted
      for
      $39.3 million, the proceeds of which were used primarily to pay license and
      royalty fees of $38.5 million.




***Cash
      Flows - Nine Month Periods***





For
      the
      one-day period of June 30, 2005, we did not generate any revenues, as we had
      just acquired the Ronco business and had not yet conducted any business. As
      a
      result, the $676,000 of cash used in operating activities was used primarily
      to
      compensate our management. For the nine months ended June 29, 2005 and September
      30, 2004, we used approximately $2.4 and $41.2 million in cash, respectively,
      to
      fund our operations. Substantially all of the amounts expended during the nine
      months ended September 30, 2004, were used to pay accrued royalty expenses
      on
      patents relating to our core products. We will no longer incur these expenses
      as
      we have acquired all rights to these patents. We used cash during the nine
      months ended June 29, 2005 primarily to fund operating losses and for our
      working capital needs. Specifically, we used cash to reduce accounts payable
      net
      of accrued expenses ($2.2 million), deferred income ($3.4 million), inventories
      ($2.5 million) and accounts receivable ($1.2 million). Inventory and accounts
      receivable decreased during the nine months ended June 25, 2005 because this
      period includes our slowest sales months, compared to the increase in inventory
      for the nine months ended September 30, 2004, which reflects our preparation
      for
      the busy holiday sales season. The decline in accounts receivable for this
      same
      period occurred because holiday sales had not yet begun. At the same time,
      accounts payable declined during the nine months ended June 29, 2005, because
      we
      had not yet begun buying inventory or advertising in anticipation of the holiday
      season. Deferred revenue declined during the nine months ended June 29, 2005
      compared to the nine months ended September 30, 2004 because such deferred
      revenue was unusually high during the nine months ended September 30, 2004
      due
      to backorders we experienced with respect to our ShowtimeTM Rotisserie
      ovens.





For
      the
      one-day period of June 30, 2005, we used approximately $45 million from
      investing activities to acquire the Ronco business. For the nine months ended
      June 29, 2005 and September 30, 2004, our investing activities provided us
      with
      approximately $146,000 and $257,000 of cash, respectively. In 2005, this amount
      represents approximately $500,000 from our investment in securities, which
      represents an asset that we acquired when we acquired the Ronco business. This
      was partially offset by office equipment purchases of approximately $453,000.
      Our investment proceeds in 2004 were approximately the same as in 2005, which
      represented the proceeds from the redemption of investment securities, but
      were
      offset in part by office equipment purchases of approximately
      $243,000.







17




For
      the
      one-day period of June 30, 2005, our financing activities provided approximately
      $46.4 million. This represents the proceeds from the issuance of our Series
      A
      Convertible Preferred Stock, less approximately $3.6 million of issuance costs.
      For the nine months ended June 29, 2005 and September 30, 2004, our financing
      activities provided approximately $12,000 and $39.1 million of cash,
      respectively. In 2005, this amount represented an advance from an affiliate,
      and
      in 2004, this amount represented the proceeds of a loan from one of the
      predecessor entities and its stockholder. The predecessor entities used the
      proceeds from this loan to repay accrued royalty expenses on patents relating
      to
      our core products. We acquired these patents in connection with our acquisition
      of the Ronco business so we will no longer incur these expenses.




***Acquisition
      of the Ronco Business***





On
      June
      30, 2005, we acquired the Ronco business. In connection with the acquisition,
      we
      sold $50 million of our Series A Convertible Preferred Stock. The proceeds
      from
      the stock sale were $46.4 million, which excludes $3.6 million in offering
      costs. We used approximately $40.2 million to pay the cash portion of the
      purchase price for the Ronco business and $4.7 million to pay transaction costs.
      We used the remaining proceeds as follows: approximately $0.4 million was used
      to repay debt due to investors in Ronco Marketing Corporation and approximate
      $1.1 million was used for working capital.




***The
      Notes***





In
      connection with our purchase of the Ronco business, we issued promissory notes
      to the predecessor entities and Ronald M. Popeil. The aggregate principal amount
      of the notes is $16.3 million, which may be adjusted pursuant to the terms
      of
      the purchase agreement. The aggregate principal amount of the notes was based
      on
      the estimated net value of the Ronco business. The amount of the notes may
      be
      increased if the actual net value of the Ronco business exceeds the estimated
      amount, and decreased if the actual net value is less than the estimated amount,
      as provided in the notes. We completed an accounting after the closing of the
      acquisition to determine the actual net value of the Ronco business as of the
      closing date. According to our calculations, the actual net value is lower
      than
      the estimated value specified in the purchase agreement, and we expect the
      aggregate principal amount of the promissory notes will be reduced to
      approximately $13.158 million. If the predecessor entities and Mr. Popeil
      disagree with our calculations, they could contest the reduction of the
      principal amount of the promissory notes. Any dispute over the adjustment of
      the
      principal amount of the notes would be resolved through arbitration, pursuant
      to
      the asset purchase agreement.





The
      promissory notes bear simple interest at a rate equal to 9.5% per annum. The
      principal payments due with respect to the promissory notes in any period will
      be determined by applying a per-unit dollar amount to the volume of our products
      that are shipped within such period. As of June 30, 2006, Mr. Popeil contends
      that we owe payments on the promissory notes of $1.3 million. We believe that
      the amount due at June 30, 2006, is approximately $400,000. We are in
      negotiations with Mr. Popeil to change the payment schedule under the notes,
      but
      to date we have not reached an agreement. In light of the fact that we have
      not
      made the required payments, either by our calculations or Mr. Popeil’s, we are
      considering the entire note due within the current period. Any outstanding
      principal amount and any accrued but unpaid interest will become due and payable
      in full on June 29, 2010. There is no pre-payment penalty on the promissory
      notes.





Upon
      occurrence of an event of default that is not cured by the time period set
      forth
      in the promissory notes, the interest rate on the notes will increase to 11%
      per
      annum and any unpaid principal and interest will become immediately due and
      payable. In addition, Mr. Popeil will have the right to reclaim any ownership
      interest in his name and likeness previously sold or licensed to us and will
      receive a right of first refusal to purchase the intellectual property rights
      we
      acquired as part of our acquisition of the Ronco business before these rights
      may be sold or transferred to any other party.





***Revolving
      Line of Credit***





On
      September 21, 2005, we borrowed $1,234,000 from Wells Fargo Bank, National
      Association, under a revolving line of credit note. Interest is payable monthly
      and the outstanding balance is due and payable on September 20, 2006. This
      facility is collateralized by our corporate investment bonds. The borrowings
      bear interest at 1% above LIBOR or 1⁄2% below prime, at the Company’s option. The
      Company was paying a rate of 6.375% at June 30, 2006. There is no prepayment
      penalty on this revolving line of credit. In October 2005, we repaid $850,000
      of
      the borrowings because $1,000,000 of our corporate investment bonds, which
      were
      collateral for the loan, was called. The outstanding balance at June 30, 2006
      was $384,000, with the loan being fully repaid and the line terminated by August
      31, 2006.




***Sanders
      Morris Harris Inc. Loan***





On
      June
      9, 2006, we entered into to a letter loan agreement with Sander Morris Harris
      (SMH). Under the terms of the loan agreement, we also assigned proceeds under
      a
      life insurance policy for $15 million on the life of Ron Popeil to SMH, as
      a
      lender and as agent for the other lenders under the loan agreement. As
      consideration for the loan, we issued to SMH a subordinated promissory note
      in
      the principal amount of $1,500,000. As of June 9, 2006, A. Emerson Martin,
      II
      and Gregg A. Mockenhaupt were members of our Board of Directors and managing
      directors of SMH.







18




Pursuant
      to the loan agreement, SMH agreed to loan us an additional $1,500,000 subject
      to
      certain closing conditions, including the mailing of an offer by us to each
      of
      the holders of our Series A Convertible Preferred Stock to participate in a
      rights offering based on their pro rata ownership of outstanding Series A
      Convertible Preferred Stock and our closing on a credit agreement for a facility
      of not less than $15 million. This facility did not close within the stated
      time
      frame specified in the note but management believes that SMH will extend the
      additional $1.5 million if the credit agreement specified above closes by
      October 31, 2006.




The
      loans
      under the loan agreement bear interest at a rate of 4.77% per annum. Interest
      will be due and payable on the first and second anniversary of the issuance
      of
      the notes and at the maturity date.





The
      principal and interest payable on the notes issued under the loan agreement
      are
      convertible into shares of our common stock at conversion price based on the
      weighted average of the stock sale price for the forty days after the
      registration is effective. We filed a registration statement covering the resale
      of shares issuable upon conversion of these notes. To date, however, our
      registration statement has not been declared effective. Accordingly, the notes
      cannot be converted into shares.





Under
      the
      terms of the loan agreement, we agreed to retain Richard F. Allen, Sr. as our
      Chief Executive Officer. On August 9, 2006, we terminated Richard F. Allen,
      Sr.
      as President and Chief Executive Officer of our company, at which point we
      have occurence of default of our obligations under the loan
      agreement.




***Factoring
      Agreement***





On
      October 25, 2005, we entered into a purchase and sale agreement with Prestige
      Capital Corporation ("Prestige") , pursuant to which Prestige agreed to buy
      and
      accept, and we agreed to sell and assign, certain accounts receivable owing
      to
      us with recourse except for payment not received due to insolvency. This
      agreement provides that upon the receipt and acceptance of each assignment
      of
      accounts receivable, Prestige will pay us 75% of the face amount of the accounts
      so assigned. Under the agreement, Prestige agreed to purchase accounts with
      a
      maximum aggregate face amount of $8,000,000. The fee payable by us to Prestige
      under the agreement ranges from 2% to 5.75% of the face amount of assigned
      accounts if the receivable is collected within 15 to 75 days. Thereafter, the
      rate goes up by 1% for each additional fifteen day period following the 75
      day
      period until the account is paid. There is no maximum rate. In addition,
      Prestige may require us to repay the amount it has advanced to us, in certain
      cases, if the receivable is not paid within 90 days. In such case Prestige
      would
      not retain the account receivable. If an account receivable is not paid due
      to
      the bankruptcy of the customer, or due to certain similar events of insolvency,
      we will not be required to repay the cash advance to Prestige.  The initial
      terms of the agreement expired on May 1, 2006, and we gave notice not to renew
      the agreement for another one-year term. Prestige agreed to extend the term
      on a
      month to month basis. We accounted for this agreement with Prestige as a sale
      of
      receivables in accordance with SFAS 140, "Accounting for Transfers and Servicing
      of Financial Assets and Extinguishment of Liabilities." On October 6, 2006
      we
      extended the term of our agreement with Prestige until October 1, 2007. There
      was no prepayment penalty associated with this extension.





Pursuant
      to the terms of the agreement, we granted to Prestige a continuing security
      interest in our tangible and general intangible assets to secure our obligations
      under the agreement. If a receivable is not paid within 90 days, Prestige has
      the right to charge back our company.





We
      accounted for this agreement with Prestige as a sale of receivables in
      accordance with SFAS 140, "Accounting for Transfers and Servicing of Financial
      Assets and Extinguishment of Liabilities." As of June 30, 2006, we had no
      outstanding borrowings under the agreement.





***Crossroads
      Financial, LLC***





On
      October 6, 2006 we entered into a Loan and Security Agreement with Crossroads
      Financial, LLC, as the lender.  This facility consists of a revolving loan
      facility of up to $4,000,000 of which we borrowed $4,000,000 at the initial
      funding, to be used to pay certain existing indebtedness and fund general
      operating and working capital needs. This credit facility has a term
      expiring September 1, 2007 at which time all amounts due under the facility
      become due and payable, but is automatically renewed for consecutive one year
      terms unless terminated by written notice of either party 60 days prior to
      the
      end of the initial term or any renewal term.  The amount our
      Company may borrow under this credit facility is determined by a percentage
      of the cost of eligible inventory, up to a maximum of
      $4,000,000.  Interest under this facility is payable monthly, commencing
      October 1, 2006, with the interest rate equal to 18% per year.  We
      authorized the lender to collect all payments of interest, monthly monitoring
      fees, principal payments and any over advance (as defined in the Loan and
      Security Agreement) directly from our factor, Prestige Capital Corporation,
      which provides an accounts receivable factoring facility for our Company. 
In connection with the transactions contemplated by the loan agreement, we
      entered into a pledge agreement and Ronco Marketing Corporation executed a
      guaranty in favor of Crossroads Financial. Under these agreements, our
      obligations under this facility are secured by a lien on substantially all
      the
      assets of our Company including a pledge of the equity interests of its
      subsidiary, Ronco Marketing Corporation, and a secured guaranty by Ronco
      Marketing Corporation. This facility contains limited covenants, including
      covenants that we not sell or dispose of assets or properties
      other than inventory sold in the ordinary course of business, and that
      we keep the collateral free and clear of liens, except certain permitted
      liens. This facility includes customary default provisions, and all
      outstanding obligations may become immediately due and payable in the event
      of a
      default.  The loan can be prepaid upon payment of a prepayment penalty of
      $12,000 per month for each month remaining in the prepayment period (which
      includes the number of months remaining in the term at the time of the
      prepayment), with a minimum prepayment penalty of $100,000.







19




***Going
      Concern***




We
      incurred net losses of approximately $44.4 million for the year ended June
      30,
      2006, and had a working capital deficiency of approximately $12.9 million as
      of
      June 30, 2006. We have suffered significant losses from continuing operation
      and
      have negative cash flows from operation. These conditions raise substantial
      doubt about our ability to continue as a going concern.





We
      currently plan to raise additional capital through one or more debt or equity
      financing transactions. On October 6, 2006, we closed a debt financing
      transaction with Crossroads Capital relating to a credit facility of up to
      $4.0
      million. However, funds available through this facility with Crossroads Capital
      may not be sufficient to finance our working capital requirements, and we may
      need to obtain additional funds in the immediate future. The additional funding
      we require may not be available on acceptable terms or at all and, if obtained
      through an equity financing transaction, could result in significant
      dilution.





If
      we are
      unable to obtain adequate funding or sufficiently increase our revenues from
      the
      sale of our products to support our working capital needs, we could be required
      to significantly curtail or even shutdown our operations.




***Capital
      Resources***




We
      have
      not incurred any significant capital expenses during the periods presented
      and
      do not have any significant anticipated capital expenditures for the coming
      year. If capital needs should arise, we will fund them from cash from operations
      or will obtain financing in connection with their acquisition.





***Off-Balance
      Sheet Arrangements***





We
      do not
      have any off-balance sheet arrangements.




**Contractual
      Obligations and Commercial Commitments**





The
      following table illustrates our contractual obligations and commercial
      commitments as of June 30, 2006 and include the effects of our acquisition
      of
      the Ronco business.




**Contractual
                Obligations**
            
            **Payments
                due by period****Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than 5 years**Long-Term
                Debt Obligations (1)
            
            
            45,613
            
            
            10,947
            
            
            21,894
            
            
            12,772
            
            
            —Long-Term
                Debt Obligations, reclassified
              as
                Current Debt (2)
            
            
            15,131,724
            
            
            15,131,724
            
            
            —
            
            
            —
            
            
            —Estimated
                Future Interest on Debt (3)
            
            
            1,300,000
            
            
            1,300,000
            
            
            —
            
            
            —
            
            
            —Operating
                Lease Obligations
            
            
            7,351,532
            
            
            495,605
            
            
            1,379,393
            
            
            1,464,408
            
            
            4,012,126Purchase
                Obligations (4)
            
            
            5,867,494
            
            
            5,867,494
            
            
            —
            
            
            —
            
            
            —Total
            
            
            29,696,363
            
            
            22,805,770
            
            
            1,401,287
            
            
            1,477,180
            
            
            4,012,126







(1)
            Excludes
                contractual obligations with a term of 30 days or less.(2)
            Includes
                promissory notes to Seller Entities of $13,026,85, the Wells Fargo
                line of credit of $384,000 and the loan from Sanders, Morris Harris
                of $1,540,185 that may have an occurence of default, and are
                classified as current on the financial statements.(3)
            The
                future interest for the Seller Note was only calculated for one year
                because the debt is shown as current on the financial
                statements.(4)
            $5,867,494
                are purchase orders for future
                sales.




Our
      principal executive offices are located at 61 Moreland Road, Simi Valley, CA
      93065, where we lease office space and a storage facility for approximately
      $56,000 per month.




**Effects
      of Inflation and Foreign Currency Fluctuations**





We
      do not
      believe that foreign currency fluctuations significantly affected our financial
      position and results of operations as of and for the fiscal year ended June
      30,
      2006.







20




We
      do not
      believe that inflation or changing prices has had a material impact on our
      net
      sales, revenues or income from continuing operations for the year ended June
      30,
      2006.




Item
      8. Financial Statements and
      Supplementary Data




See
      pages F-1 through F-25 at the end of this
      Amendment.





**Item
      9A. Controls and Procedures**




The
      Company establishes and maintains disclosure controls and procedures (as defined
      in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934), that
      are
      designed to provide reasonable assurance that information required to be
      disclosed by the Company in the reports it files under the Securities Exchange
      Act of 1934 is recorded, processed, summarized and reported within the time
      periods specified in the SEC’s rules and forms. Disclosure controls are also
      designed to provide reasonable assurance that such information is accumulated
      and reported to management, including the Chief Executive Officer and the Chief
      Financial Officer, to allow timely decisions regarding required disclosure.




Our
      management, including our CEO and CFO, does not expect that our disclosure
      controls and procedures will prevent all errors and all fraud. A control system,
      no matter how well designed and operated, can provide only reasonable, not
      absolute, assurance that the objectives of the control system are met. Further,
      the design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs. Because of the inherent limitations in control systems, misstatements
      due
      to error or fraud may occur and not be detected. These limitations include
      the
      circumstances that breakdowns can occur as a result of error or mistake, the
      exercise of judgment by individuals or that controls can be circumvented by
      acts
      of misconduct. Also, projections of any evaluation of effectiveness to future
      periods are subject to the risk that controls may become inadequate because
      of
      changes in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.




As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of our management, including the
      Chief Executive Officer and the Chief Financial Officer, of the effectiveness
      of
      the design and the operation of our disclosure controls and procedures pursuant
      to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934.




Based
      on
      their evaluation, as of June 30, 2006, the Chief Executive Officer and the
      Chief
      Financial Officer, have concluded that our disclosure controls and procedures
      were not effective at the reasonable assurance level. This conclusion is based
      on our identification of three weaknesses in our internal controls over
      financial reporting as of June 30, 2006. The material weaknesses are:




**Accounts
      Receivables and Sales**




We
      have
      inadequately designed processes to properly account for our direct response
      sales and account receivables balance on a timely basis.




Our
      reporting system includes free trials in sales and accounts receivable when
      the
      free trial order is shipped. In addition, for items shipped as free trial
      offers, if upon 30 day free trial period expiration the product was not
      returned, and the credit card could not be charged because it was cancelled,
      the
      reporting system will recognize the amount in accounts receivable but not in
      the
      sales reports.




For
      some
      multiple payment customers with orders with multiple ship dates, it was noted
      that while the unearned revenue is properly recorded for the unshipped portion
      at the time of the first shipment, accounts receivable due shows the entire
      balance of the order, shipped or unshipped. While this error is automatically
      fixed when the entire order is shipped, it may impact sales cut-off at the
      end
      of a reporting period.




We
      are in
      the process of upgrading the reporting capabilities on our direct response
      sales
      and accounts receivable database and expect to have this issue resolved by
      December 31, 2006.




**Journal
      Entries**





We
      have
      inadequately documented the journal entries made to our general
      ledger.




During
      our year end audit our independent auditors upon their review of our general
      journal entries revealed that the explanations accompanying the entries were
      inadequate in many instances.




We
      have
      instituted revised documentation policies relating to routine and non- routine
      journal entries, and as of October 12, 2006, believe that these issues have
      been
      resolved.





**Inventory**





We
      have
      inadequately designed processes to properly account for our inventory balance
      on
      a timely basis.




Our
      perpetual inventory records are maintained on spreadsheets through a
      collaborative effort of the sales and purchasing departments. The individual
      SKU’s in the spreadsheets are then assigned values obtained through the
      Inventory Great Plains Accounting system landed cost module. The module tracks
      goods received and shipments of inventory to wholesale customers but is not
      integrated with the accounts receivable system for direct response orders.
      There
      is also no automated or integrated warehouse management system in place to
      track
      shipments, receipts and returns.




In
      addition, it is the Company’s current practice to dispose of the signed and
      dated inventory pick tickets once the shipping information is entered into
      the
      accounts receivable system for direct response by customer service. Documents
      requesting inventory shipment are being prepared but there is no consistent
      documentation that the items were actually shipped.




We
      are
      currently evaluating and researching various warehouse software solutions to
      determine which one best fits our business. We expect to complete our evaluation
      and implementation by June 30, 2007. In addition, we are currently implementing
      procedures to keep all inventory pick tickets and creating a standardize
      document for shipped items. We expect to have this fully implemented by March
      31, 2007.




These
      matters have been discussed among management, the audit committee and our
      independent registered public accountants.




As
      a
      result of this determination and as part of the work undertaken in connection
      with this report, we have applied compensating procedures and processes as
      necessary to ensure the reliability of our financial reporting. Accordingly,
      management believes, based on its knowledge, that (i) this report does not
      contain any untrue statement of a material fact or omit to state a material
      fact
      necessary to make the statements made, in light of the circumstances under
      which
      they were made, not misleading with respect to the period covered by this report
      and (ii) the financial statements, and other financial information included
      in
      this report, fairly reflect the form and substance of transactions and fairly
      present in all material respects our financial condition, results of operations
      and cash flows as at, and for, the periods presented in this report.







21





**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**





The
      following documents are filed as part of this report:





(1)
            Financial
                Statements and Schedules.







FINANCIAL
      STATEMENT SCHEDULES




RONCO
      CORPORATION


Schedule
      II - Valuation and Qualifying Accounts





Description
            
            Balance
                at
              beginning
                of period
            
            Additions
                Charged
              to
                costs and expenses
            
            Deductions
            
            Balance
                at end of  periodAllowance
                for doubtful accounts and sales returnsSuccessor:Year
                ended June 30, 2006 (a)
            
            $
            —
            (b)
            $
            4,868,944
            (c)
            $
            (4,505,427
            )(d)
            $
            363,517Predecessor:Nine
                months ended June 29, 2005
            
            $
            1,480,000
            
            $
            —
            
            $
            (1,180,000
            )(d)
            $
            300,000Nine
                months ended September 30, 2004
            
            $
            5,526,430
            
            $
            1,474,147
            
            $
            (5,520,577
            )(d)
            $
            1,480,000Year
                ended December 31, 2003
            
            $
            1,835,421
            
            $
            3,691,009
            
            $
            —
            
            $
            5,526,430Year
                ended December 31, 2002
            
            $
            1,075,385
            
            $
            760,036
            
            $
            —
            
            $
            1,835,421




Notes:




(a)
            Prior
                to June 30, 2005, the Predecessor did not track allowance for bad
                debt and
                sales returns separately. Since June 30, 2005, the Successor has
                tracked
                bad debt and sales returns separately.(b)
            In
                accordance with purchase accounting, accounts receivable have been
                recorded at fair value at June 30, 2005 and accordingly no allowance
                for
                doubtful accounts and sales returns have been provided.(c)
            Includes
                $502,517 of bad debt expenses and $4,366,427 of sales
                returns.(d)
            Accounts
                written-off against the allowance net of
                recoveries.




(2)
      See
      Exhibit Index.







22





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this amended report to be signed on its
      behalf by the undersigned, thereunto duly authorized.




Date:
                January 3, 2007**RONCO
                CORPORATION**By:
            /
                s/ Paul KabashimaPaul
                Kabashima .
              Chief
                Executive Officer






23





**EXHIBIT
      INDEX**





Exhibit
                No.
            
            Description2.1
            
            Agreement
                and Plan of Merger dated May 20, 2005, among Ronco Corporation (fka
                Fi-Tek
                VII, Inc.), the "FTK Insiders", Ronco Acquisition Corporation and
                Ronco
                Marketing Corporation.(4)2.2
            
            Asset
                Purchase Agreement dated December 10, 2004, as amended, among Ronco
                Marketing Corporation and Ronco Inventions, LLC, Popeil Inventions,
                Inc.,
                RP Productions, Inc., RMP Family Trust and Ronald M.
                Popeil.(4)3.1(i)
            
            Certificate
                of Incorporation of Ronco Corporation (fka Fi-Tek VII, Inc.), as
                amended.(4)3.1(ii)
            
            Bylaws
                of Ronco Corporation (fka Fi-Tek VII, Inc.). (4)4.1
            
            Certificate
                of Designation of Powers, Preferences and Rights of the Series A
                Convertible Preferred Stock of Ronco Corporation. (4)4.1.1
            
            Amended
                and Restated Designation of Powers.(5)4.2
            
            Warrant
                between Ronco Corporation and Sanders Morris Harris Inc.
                (3)4.3
            
            Form
                of Registration Rights Agreement between Ronco Corporation, the parties
                set forth on the signature page and Exhibit A thereto and other
                stockholders of the Company. (1)10.1
            
            Promissory
                Note dated June 30, 2005 between Ronco Marketing Corporation and
                Ronco
                Inventions, LLC. (5)10.2
            
            Lock-Up
                Agreement for Copper Beech Equity Partners dated June 29, 2005.
                (4)10.3
            
            Lock-Up
                Agreement for Content Holding LLC dated June 28,
                2005.(4)10.4
            
            Assignment
                and Assumption Agreement dated June 30, 2005, between Ronco Marketing
                Corporation and Ronald M. Popeil. (4)10.5
            
            Promissory
                Note dated June 30, 2005 between Ronco Marketing Corporation and
                Popeil
                Inventions, Inc. (5)10.6
            
            Consulting
                and Advisory Services Agreement dated June 30, 2005 between Ronco
                Marketing Corporation and Ronald M. Popeil. (4)10.7
            
            Trademark
                Co-Existence Agreement dated June 30, 2005 between Ronco Marketing
                Corporation and Ronald M. Popeil. (4)10.8
            
            New
                Product Development Agreement dated June 30, 2005 by and among Ronald
                M.
                Popeil and Ronco Marketing Corporation. (5)10.9
            
            Placement
                Agent Agreement dated May 26, 2005, between Ronco Marketing Corporation
                and Sanders Morris Harris. (4)10.10
            
            Advisory
                Agreement dated May 20, 2005, between Ronco Marketing Corporation
                and
                Copper Beech LLC, Copperfield Equity Partners LLC, Coll International
                LLC,
                and Content Holding LLC. (4)10.11
            
            Revolving
                Line of Credit Note dated September 20, 2005 between Ronco Corporation
                and
                Wells Fargo Bank, National Association. (5)10.12
            
            Securities
                Agreement Securities Account dated September 20, 2005 between Ronco
                Corporation and Wells Fargo Bank National Association.
                (5)10.13
            
            Employment
                Agreement between Ronco Corporation and Richard F. Allen, Sr.
                (4)10.14
            
            Employment
                Agreement between Ronco Corporation and Evan J. Warshawsky.
                (4)













10.15
            
            Restricted
                Stock Purchase Agreement between Ronco Corporation and Richard F.
                Allen,
                Sr. dated June 28, 2005. (4)*10.16
            
            Restricted
                Stock Purchase Agreement between Ronco Corporation and Evan Warshawsky
                dated June 29, 2005. (4)*





10.17
            
            Purchase
                and Sale Agreement by and between Prestige Capital Corporation and
                Ronco
                Corporation dated as of October 25, 2005 (2)10.18
            
            Restricted
                Stock Purchase Agreement between Ronco Corporation and Gilbert Azafrani
                dated June 28, 2005. (4)*10.19
            
            Letter
                Loan Agreement dated June 9, 2006 between Ronco Corporation and Sanders
                Morris Harris, Inc. (5)10.20
            
            Subordinated
                Promissory Note dated June 9, 2006 issued to Sanders Morris Harris,
                Inc.
                in the principal amount of $1,500,000 (5)10.21
            
            Security
                Agreement dated June 9, 2006 by Ronco Corporation in favor of Sanders
                Morris Harris, Inc. (5)10.22
            
            Assignment
                of Life Insurance Policy dated June 9, 2006 by Ronco Corporation
                in favor
                of Sanders Morris Harris, Inc. (5)14.1
            
            Code
                of Business Conduct and Ethics (4)21.1
            
            Subsidiaries
                of Ronco Corporation (4)31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act (6)31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act (6)32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act (6)32.2
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act (6)





(1)
            Incorporated
                by reference from Exhibits 10.10 to Form 8-K filed July 1,
                2005.





(2)
            Incorporated
                by reference from Exhibit 10.1 to Form 8-K filed October 31,
                2005.





(3)
            Incorporated
                by reference from exhibit 10.11 to the Form 10-K filed on November
                4,
                2005.





(4)
            Incorporated
                by reference from the corresponding exhibit to the Form 10-K filed
                on
                November 4, 2005.





(5)
            Previously
                Filed.(6)
            Filed
                herewith.




*
      Management Compensation Plan or Arrangements








**INDEX
        TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS**
 **AND
        FINANCIAL STATEMENT SCHEDULE**
  Report
                  of Independent Registered Public Accounting Firm, Mahoney Cohen
&
                  Company, CPA, P.C.
              
              F-2
                  - F-3Independent
                  Auditors' Report, VELAH Group LLP
              
              F-4Consolidated
                  Balance Sheets at June 30, 2006 and 2005
              
              F-5Consolidated
                  and Combined Statements of Operations for the year ended June 30,
                  2006,
                  June 30, 2005 (Date of Acquisition) (Successor), for the nine months
                  ended
                  June 29, 2005 and September 30, 2004, and for the year ended December
                  31,
                  2003 (Predecessor)
              
              F-6Consolidated
                  and Combined Statements of Stockholders' and Members' Equity (Deficiency)
                  for the year ended June 30, 2006 (Successor), October 15, 2004
                  (Date of
                  Inception) to June 30, 2005 (Successor), for the nine months ended
                  June
                  29, 2005 and September 30, 2004, and for the year ended December
                  31, 2003
                  (Predecessor)
              
              F-7Consolidated
                  and Combined Statements of Cash Flows for the year ended June 30,
                  2006
                  (Successor), June 30, 2005 (Date of Acquisition) (Successor) for
                  the nine
                  months ended June 29, 2005 and September 30, 2004 and the year
                  ended
                  December 31, 2003 (Predecessor)
              
              F-8
                  - F-9Notes
                  to Consolidated and Combined Financial Statements
              
              F-10
                  - F-25Index
                  to Interim Financial Statements for the three months ended September
                  30,
                  2006 and 2005
              
              F-26The
                  following consolidated and combined financial statement schedule
                  is
                  included in Item 15:Schedule
                  II - Valuation and Qualifying Accounts
  F-1
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Board of Directors
 Ronco
        Corporation and Subsidiary
  We
        have
        audited the accompanying consolidated balance sheets of Ronco Corporation
        and
        subsidiary (the “Successor” or “Company”) as of June 30, 2006 and 2005 and the
        related consolidated statements of operations and cash flows for the year
        ended
        June 30, 2006 and for the one day June 30, 2005 (Date of Acquisition) and
        stockholders' equity for the year ended June 30, 2006 and for the period
        October
        15, 2004 (Date of Inception) to June 30, 2005. Our audits also included the
        financial statement schedule listed in the index as Item 15 for the year
        ended
        June 30, 2006. These financial statements and financial statement schedule
        are
        the responsibility of the Company's management. Our responsibility is to
        express
        an opinion on these financial statements and financial statement schedule
        based
        on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (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. The Company has determined
        that it
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. 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 financial position of Ronco Corporation and
        subsidiary as of June 30, 2006 and 2005, and the results of their operations
        and
        their cash flows for the year ended June 30, 2006 and for the one day June
        30,
        2005 (Date of Acquisition) in conformity with accounting principles generally
        accepted in the United States of America. Also, in our opinion, such financial
        statement schedule for the year ended June 30, 2006, 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.
  The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 2 to the financial
        statements, the Company’s net loss of approximately $44,420,000 and working
        capital deficiency of approximately $12,867,000 raise substantial doubt about
        its ability to continue as a going concern. Management’s plans regarding these
        matters are also described in Note 2. The financial statements do not include
        any adjustments to reflect the possible future effects on the recoverability
        and
        classification of assets or the amounts and classification of liabilities
        that might result from the outcome of this uncertainty.
  /s/
        Mahoney Cohen & Company, CPA, P.C.
  New
        York,
        New York
 September
        22, 2006, except for Note 22, for which the date is October 6, 2006
  F-2
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Members and Stockholders
 Ronco
        Inventions, LLC and Affiliated Companies
  We
        have
        audited the accompanying combined statements of operations, stockholders'
        and
        members' deficiency and cash flows of Ronco Inventions, LLC and Affiliated
        Companies (the “Predecessor” or the “Company”) for the nine months ended June
        29, 2005 and September 30, 2004. Our audits also included the financial
        statement schedule listed in the index as Item 15 for the nine months ended
        June
        29, 2005 and September 30, 2004. These financial statements and financial
        statement schedule are the responsibility of the Company's management. Our
        responsibility is to express an opinion on these financial statements and
        financial statement schedule based on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (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. The Company has determined
        that it
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. 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 combined statements of operations, stockholders' and members'
        deficiency and cash flows of Ronco Inventions, LLC and Affiliated Companies
        referred to above present fairly, in all material respects, the results of
        their
        operations and their cash flows for the nine months ended June 29, 2005 and
        September 30, 2004 in conformity with accounting principles generally accepted
        in the United States of America. Also, in our opinion, such financial statement
        schedule for the nine months ended June 29, 2005 and September 30, 2004,
        when
        considered in relation to the basic combined financial statements taken as
        a
        whole, presents fairly in all material respects the information set forth
        therein.
  /s/
        Mahoney Cohen & Company, CPA, P.C.
  New
        York,
        New York
 October
        20, 2005
  F-3
 
 **INDEPENDENT
        AUDITORS’ REPORT**
 
 To
        the
        Members and Stockholder
 Ronco
        Inventions, LLC and Affiliated Companies:
 
 We
        have
        audited the accompanying combined statements of operations, stockholders’ and
        members’ deficiency, and cash flows of Ronco Inventions, LLC and Affiliated
        Companies (collectively, the “Company”), which are under common ownership and
        common management, for the year ended December 31, 2003. Our audit also includes
        the financial statement scheduled listed in the index as Item 15 for the
        year
        ended December 31, 2003. These financial statements are the responsibility
        of
        the Company’s management. Our responsibility is to express an opinion on these
        financial statements based on our audit.
 
 We
        conducted our audit in accordance with auditing standards generally accepted
        in
        the United States of America. 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 audit provides a reasonable basis
        for our opinion.
 
 In
        our
        opinion, the combined statements of operations, stockholders’ and members’
deficiency, and cash flows referred to above present fairly, in all material
        respects, the results of its operations and its cash flows of the Company
        for
        the year then ended in conformity with accounting principles generally accepted
        in the United States of America. Also, in our opinion, such financial statement
        schedule when considered in relation to the basic combined financial statements
        taken as a whole, presents fairly in all material respects the information
        set
        forth therein.
 
 /s/
        VELAH
        Group LLP
 Los
        Angeles, California
 August
        19, 2004
  F-4
  **RONCO
        CORPORATION AND SUBSIDIARY**
 **CONSOLIDATED
        BALANCE SHEETS**
 **JUNE
        30, 2006 AND 2005**
 
 **June
                    30, 2006**
                
                **June
                    30, 2005****ASSETS**CURRENT
                    ASSETS:Cash
                    and cash equivalents
                
                $
                425,145
                
                $
                834,358Short-term
                    investments
                
                
                501,942
                
                
                -Accounts
                    receivable, net of allowance for doubtful accounts and returns
                    of $363,517
                    at June 30, 2006
                
                
                759,758
                
                
                2,264,315Inventories
                
                
                8,372,362
                
                
                8,968,199Prepaid
                    expenses and other current assets
                
                
                632,376
                
                
                2,537,506Due
                    from seller entities
                
                
                -
                
                
                135,676Investments
                
                
                601,783
                
                
                -Total
                    current assets
                
                
                11,293,366
                
                
                14,740,054INVESTMENTS
                
                
                -
                
                
                1,627,823PROPERTY
                    AND EQUIPMENT, Net
                
                
                1,185,227
                
                
                925,000OTHER
                    ASSETS:Production
                    costs, net of accumulated amortization $135,805 at June 30,
                    2006
                
                
                71,610
                
                
                100,000Deposits
                
                
                278,578
                
                
                182,500DEFERRED
                    INCOME TAXES
                
                
                -
                
                
                310,000INTANGIBLE
                    ASSETS, Net of accumulated amortization and impairment writedown
                    of$27,513,161
                    at June 30, 2006
                
                
                15,410,439
                
                
                42,923,600GOODWILL
                
                
                -
                
                
                2,953,481$
                28,239,220
                
                $
                63,762,458**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**CURRENT
                    LIABILITIES:Line
                    of credit
                
                $
                384,000
                
                $
                -Current
                    maturities of notes payable to seller entities
                
                
                13,026,085
                
                
                2,876,000Current
                    maturities of notes payable
                
                
                1,507,715
                
                
                -Accounts
                    payable
                
                
                7,432,957
                
                
                3,156,080Accrued
                    expenses
                
                
                1,223,005
                
                
                430,251Deferred
                    income
                
                
                586,363
                
                
                75,000Total
                    current liabilities
                
                
                24,160,125
                
                
                6,537,331LONG-TERM
                    LIABILITIES:Deferred
                    income
                
                
                182,430
                
                
                -Notes
                    payable, less current maturities
                
                
                31,182
                
                
                10,282,180COMMITMENTS
                    AND CONTINGENCIESSTOCKHOLDERS'
                    EQUITYSeries
                    A Convertible Preferred stock, $.00001 par value; 20,000,000
                    shares
                    authorized; 15,580,932 and 13,262,600 shares issued and outstanding
                    at
                    June 30, 2006 and 2005, respectively
                
                
                156
                
                
                133Common
                    stock, $.00001 par value; 500,000,000 shares authorized; 2,091,605
                    shares
                    issued and outstanding at June 30, 2006 and 2005
                
                
                21
                
                
                21Common
                    stock to be issued
                
                
                1,206,870
                
                
                1,206,870Additional
                    paid-in capital
                
                
                52,182,203
                
                
                49,513,066Deferred
                    compensation
                
                
                -
                
                
                (3,310,096
                )Accumulated
                    deficit
                
                
                (49,523,767
                )
                
                (467,047
                )TOTAL
                    STOCKHOLDERS' EQUITY
                
                
                3,865,483
                
                
                46,942,947$
                28,239,220
                
                $
                63,762,458
 
 *See
        accompanying notes.*
  F-5
   **RONCO
        CORPORATION AND SUBSIDIARY**
 **CONSOLIDATED
        AND COMBINED STATEMENTS OF OPERATIONS**
 **FOR
        THE YEAR ENDED JUNE 30, 2006, ONE DAY (DATE OF ACQUISITION) JUNE 30, 2005,
        NINE
        MONTHS**
 **ENDED
        JUNE 29, 2005 AND SEPTEMBER 30, 2004, AND THE YEAR ENDED DECEMBER 31,
        2003**
 **Successor**
                
                **Successor**
                
                **Predecessor**
                
                **Predecessor**
                
                **Predecessor****Year****Ended
                    June 30,****2006**
                
                **(Date
                    of Acquisition) June 30,****2005**
                
                ****Nine
                    Months Ended**June 29,****2005**
                
                **Nine
                    Months Ended September 30,****2004**
                
                **Year****Ended
                    December 31,****2003**Net
                    sales
                
                $
                58,723,826
                
                $
                -
                
                $
                68,985,101
                
                $
                63,245,257
                
                $
                93,500,173Cost
                    of sales
                
                
                (20,009,445
                )
                
                -
                
                
                (16,844,057
                )
                
                (16,842,282
                )
                
                (29,274,097
                )Gross
                    profit
                
                
                38,714,381
                
                
                -
                
                
                52,141,044
                
                
                46,402,975
                
                
                64,226,076Selling,
                    general and administrative expenses
                
                
                56,968,807
                
                
                765,967
                
                
                50,446,473
                
                
                53,216,762
                
                
                67,652,570Impairment
                    loss on goodwill
                
                
                2,953,481
                
                
                -
                
                
                -
                
                
                -
                
                
                -Impairment
                    loss on intangibles
                
                
                21,567,435
                
                
                -
                
                
                -
                
                
                -
                
                
                -Impairment
                    loss on equipment
                
                
                -
                
                
                -
                
                
                -
                
                
                771,048
                
                
                -81,489,723
                
                
                765,967
                
                
                50,446,473
                
                
                53,987,810
                
                
                67,652,570Income
                    (loss) from operations
                
                
                (42,775,342
                )
                
                (765,967
                )
                
                1,694,571
                
                
                (7,584,835
                )
                
                (3,426,494
                )Other
                    income (loss), net
                
                
                -
                
                
                -
                
                
                (7,840
                )
                
                -
                
                
                385,992Interest
                    expense, net of interest income of $112,915, $104,251, and $133,830
                    - June
                    30, 2006, June 29, 2005 and September 30, 2004,
                    respectively
                
                
                (1,335,038
                )
                
                -
                
                
                (2,824,260
                )
                
                (120,482
                )
                
                -Loss
                    before income taxes (benefit)
                
                
                (44,110,380
                )
                
                (765,967
                )
                
                (1,137,529
                )
                
                (7,705,317
                )
                
                (3,040,502
                )Income
                    taxes (benefit)
                
                
                310,000
                
                
                (310,000
                )
                
                -
                
                
                -
                
                
                -Net
                    loss
                
                
                (44,420,380
                )
                
                (455,967
                )
                
                (1,137,529
                )
                
                (7,705,317
                )
                
                (3,040,502
                )Preferred
                    stock dividends
                
                
                4,636,340
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    loss attributable to common stockholders
                
                $
                (49,056,720
                )
                $
                (455,967
                )
                $
                (1,137,529
                )
                $
                (7,705,317
                )
                $
                (3,040,502
                )**NET
                    LOSS PER SHARE:**Loss
                    per share attributable to common stockholders - basic and
                    diluted
                
                $
                (23.45
                )
                $
                (0.22
                )
                
                N/A
                
                
                N/A
                
                
                N/APro
                    forma loss per share attributable to common stockholders- basic
                    and
                    diluted (unaudited)
                
                
                N/A
                
                
                N/A
                
                $
                (0.54
                )
                $
                (3.68
                )
                
                N/AWeighted
                    average shares outstanding - basic and diluted
                
                
                2,091,605
                
                
                2,091,605
                
                
                N/A
                
                
                N/A
                
                
                N/APro
                    forma weighted average shares outstanding - basic and diluted
                    (unaudited)
                
                
                N/A
                
                
                N/A
                
                
                2,091,605
                
                
                2,091,605
                
                
                N/A
  *See
        accompanying notes.*
  F-6
 
 **RONCO
        CORPORATION AND SUBSIDIARY**
  **CONSOLIDATED
        AND COMBINED STATEMENTS OF STOCKHOLDERS'**
 **AND
        MEMBERS' EQUITY (DEFICIENCY)**
 
 **FOR
        THE YEAR ENDED JUNE 30, 2006, THE PERIOD FROM OCTOBER 15,
        2004**
 **(DATE
        OF INCEPTION) TO JUNE 30, 2005, NINE MONTHS**
 **ENDED
        JUNE 29, 2005 AND SEPTEMBER 30, 2004 AND YEAR ENDED DECEMBER 31,
        2003**
  **Successor:**
 **Series
                      A Convertible**
                  
                  
                  
                  **Additional****Common
                      Stock**
                  
                  **Preferred
                      Stock**
                  
                  **Common
                      Stock**
                  
                  **Paid-In**
                  
                  **Deferred**
                  
                  **Accumulated****Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **To
                      Be Issued**
                  
                  **Capital**
                  
                  **Compensation**
                  
                  **Deficit**
                  
                  **Total****BALANCE,
                      beginning at October 15, 2004 (Date of Inception)**
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Issuance
                      of Common Stock
                  
                  
                  800,002
                  
                  
                  8
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,237
                  
                  
                  
                  
                  
                  
                  
                  
                  3,245Recapitalization
                      of Fi-Tek VII, Inc.
                  
                  
                  477,639
                  
                  
                  5
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  11,784
                  
                  
                  
                  
                  
                  
                  
                  
                  11,789Issuance
                      of Preferred Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  13,262,600
                  
                  
                  133
                  
                  
                  
                  
                  
                  49,999,867
                  
                  
                  
                  
                  
                  
                  
                  
                  50,000,000Issuance
                      costs on Preferred Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (3,570,460
                  )
                  
                  
                  
                  
                  
                  
                  
                  (3,570,460
                  )Issuance
                      of Common Stock to officers at fair value (cash received
                      $6,403)
                  
                  
                  640,251
                  
                  
                  6
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,413,741
                  
                  
                  (2,106,426
                  )
                  
                  
                  
                  
                  307,321Issuance
                      of Common Stock for transaction costs at fair value (cash received
                      $1,601)
                  
                  
                  173,713
                  
                  
                  2
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  654,897
                  
                  
                  
                  
                  
                  
                  
                  
                  654,899Common
                      Stock to be issued to officer as deferred compensation at fair
                      value (cash
                      received $3,200)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,206,870
                  
                  
                  
                  
                  
                  (1,203,670
                  )
                  
                  
                  
                  
                  3,200Net
                      Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (467,047
                  )
                  
                  (467,047
                  )**BALANCE,
                      June 30, 2005**
                  
                  
                  2,091,605
                  
                  $
                  21
                  
                  
                  13,262,600
                  
                  $
                  133
                  
                  $
                  1,206,870
                  
                  $
                  49,513,066
                  
                  $
                  (3,310,096
                  )
                  $
                  (467,047
                  )
                  $
                  46,942,947Preferred
                      Stock dividends
                  
                  
                  
                  
                  
                  
                  
                  
                  2,318,332
                  
                  
                  23
                  
                  
                  
                  
                  
                  4,636,317
                  
                  
                  
                  
                  
                  (4,636,340
                  )
                  
                  -Amortization
                      of deferred compensation expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,303,978
                  
                  
                  
                  
                  
                  1,303,978Reclassification
                      of deferred compensation as a result of adopting SFAS
                      123(R)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,006,118
                  )
                  
                  2,006,118
                  
                  
                  
                  
                  
                  -Options
                      issued to member of the Board of Directors
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  38,938
                  
                  
                  
                  
                  
                  
                  
                  
                  38,938Net
                      Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (44,420,380
                  )
                  
                  (44,420,380
                  )**BALANCE,
                      June 30, 2006**
                  
                  
                  2,091,605
                  
                  $
                  21
                  
                  
                  15,580,932
                  
                  $
                  156
                  
                  $
                  1,206,870
                  
                  $
                  52,182,203
                  
                  $
                  -
                  
                  $
                  (49,523,767
                  )
                  $
                  3,865,483
  **Predecessor:**
 **Popeil
                    Inventions, Inc. Common Stock**
                
                **R.P.
                    Productions,**
                  **Inc.
                    Common Stock**
                
                **Additional
                    Paid-In**
                
                **Accumulated**
                
                **Ronco
                    Inventions, LLC Members'****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **Deficit**
                
                **Deficit**
                
                **Total****BALANCE,
                    December 31, 2002**
                
                
                1,000
                
                $
                1,000
                
                
                100
                
                $
                1
                
                $
                1,194,375
                
                $
                (18,417,039
                )
                $
                (8,422,230
                )
                $
                (25,643,893
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (364,024
                )
                
                (2,676,478
                )
                
                (3,040,502
                )**BALANCE,
                    December 31, 2003**
                
                
                1,000
                
                $
                1,000
                
                
                100
                
                
                1
                
                
                1,194,375
                
                
                (18,781,063
                )
                
                (11,098,708
                )
                
                (28,684,395
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (5,018,727
                )
                
                (2,686,590
                )
                
                (7,705,317
                )**BALANCE,
                    September 30, 2004**
                
                
                1,000
                
                $
                1,000
                
                
                100
                
                
                1
                
                
                1,194,375
                
                
                (23,799,790
                )
                
                (13,785,298
                )
                
                (36,389,712
                )Net
                    loss (Income)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,110,822
                
                
                (3,248,351
                )
                
                (1,137,529
                )Sale
                    of assets to Successor
                
                
                (1,000
                )
                
                (1,000
                )
                
                (100
                )
                
                (1
                )
                
                (1,194,375
                )
                
                21,688,968
                
                
                17,033,649
                
                
                37,527,241**BALANCE,
                    June 29, 2005**
                
                
                **-**
                
                **$**
                **-**
                
                
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
  *See
        accompanying notes.*
 
 F-7
 
 **RONCO
        CORPORATION AND SUBSIDIARY**
  **CONSOLIDATED
        AND COMBINED STATEMENTS OF CASH FLOWS**
  **FOR
        THE YEAR ENDED JUNE 30, 2006, ONE DAY (DATE OF ACQUISITION) JUNE 30,
        2005,**
 **NINE
        MONTHS ENDED JUNE 29, 2005 AND SEPTEMBER 30, 2004**
 **AND
        YEAR ENDED DECEMBER 31, 2003**
 **Successor**
                
                **Successor**
                
                **Predecessor**
                
                **Predecessor**
                
                **Predecessor****For
                    the Year Ended June 30, 2006**
                
                **Period
                    for  One Day**
                  **(Date
                    of Acquisition)June 30, 2005**
                
                **Nine
                    Months June 29, 2005**
                
                **Nine
                    Months September 30, 2004**
                
                **Year
                    Ended December 31, 2003**CASH
                    FLOWS FROM OPERATING ACTIVITIESNet
                    loss
                
                
                (44,420,380
                )
                
                (455,967
                )
                
                (1,137,529
                )
                
                (7,705,317
                )
                
                (3,040,502
                )Adjustments
                    to reconcile net loss to net cash used in(provided
                    by) operating activities:Depreciation
                    and amortization
                
                
                6,358,204
                
                
                -
                
                
                601,671
                
                
                953,928
                
                
                1,391,671Non-cash
                    interest expense
                
                
                1,154,293
                
                
                -
                
                
                -
                
                
                -
                
                
                -Gain
                    on sale of property and equipment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (624
                )Impairment
                    loss on goodwill, intangibles and equipment
                
                
                24,520,916
                
                
                -
                
                
                -
                
                
                771,048
                
                
                -Bad
                    debt expense
                
                
                502,517
                
                
                -
                
                
                -
                
                
                1,474,147
                
                
                3,691,009Non-cash
                    board of director fees
                
                
                38,938
                
                
                -
                
                
                -
                
                
                -
                
                
                -Deferred
                    income taxes
                
                
                310,000
                
                
                (310,000
                )
                
                -
                
                
                -
                
                
                -Compensation
                    expense from the issuance of common stock and amortization of
                    deferred
                    compensation
                
                
                1,303,978
                
                
                300,919
                
                
                -
                
                
                -
                
                
                -Changes
                    in operating assets and liabilities, net of effect of acquisition
                    of
                    businesses:Accounts
                    receivable
                
                
                1,002,040
                
                
                -
                
                
                1,214,221
                
                
                4,612,403
                
                
                (4,361,600
                )Inventories
                
                
                595,837
                
                
                -
                
                
                2,497,350
                
                
                (5,652,929
                )
                
                1,338,015Prepaid
                    expenses and other current assets
                
                
                1,905,130
                
                
                (210,490
                )
                
                668,872
                
                
                2,222,083
                
                
                (57,213
                )Due
                    from seller entities
                
                
                135,676
                
                
                -
                
                
                -
                
                
                -
                
                
                -Other
                    assets
                
                
                (203,493
                )
                
                -
                
                
                (6,705
                )
                
                (454,214
                )
                
                (361,481
                )Accounts
                    payable
                
                
                4,276,877
                
                
                -
                
                
                (4,994,730
                )
                
                206,150
                
                
                1,030,675Accrued
                    expenses
                
                
                792,754
                
                
                -
                
                
                2,798,142
                
                
                177,827
                
                
                237,059Royalty
                    and license fees payable
                
                
                -
                
                
                -
                
                
                (580,027
                )
                
                (40,380,573
                )
                
                1,497,327Deferred
                    income
                
                
                693,793
                
                
                -
                
                
                (3,444,870
                )
                
                2,548,315
                
                
                (704,893
                )NET
                    CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                (1,032,920
                )
                
                (675,538
                )
                
                (2,383,605
                )
                
                (41,227,132
                )
                
                659,443CASH
                    FLOWS FROM INVESTING ACTIVITIESProperty
                    and equipment purchased
                
                
                (536,900
                )
                
                -
                
                
                (453,519
                )
                
                (243,084
                )
                
                (555,842
                )Proceeds
                    from sale of property and equipment
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                1,000Deposit
                    received on acquisition of Successor
                
                
                -
                
                
                -
                
                
                100,000
                
                
                -
                
                
                -Proceeds
                    from investment in securities
                
                
                1,026,040
                
                
                -
                
                
                500,000
                
                
                500,003
                
                
                -Acquisition
                    of businesses, net of cash acquired of $12,293 at June 30,
                    2005
                
                
                -
                
                
                (44,934,093
                )
                
                -
                
                
                -
                
                
                -Purchase
                    of short-term investments
                
                
                (501,942
                )
                
                -
                
                
                -
                
                
                -
                
                
                -NET
                    CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                
                
                (12,802
                )
                
                (44,934,093
                )
                
                146,481
                
                
                256,919
                
                
                (554,842
                )CASH
                    FLOWS FROM FINANCING ACTIVITIESProceeds
                    from loans from stockholder and affiliate
                
                
                -
                
                
                -
                
                
                -
                
                
                39,150,000
                
                
                -Proceeds
                    from notes payable
                
                
                1,544,597
                
                
                391,810
                
                
                -
                
                
                -
                
                
                -Payments
                    on notes payable
                
                
                (1,292,088
                )
                
                (391,810
                )
                
                -
                
                
                -
                
                
                (375,000
                )Net
                    advances to affiliates
                
                
                -
                
                
                -
                
                
                12,339
                
                
                (81,436
                )
                
                11,600Net
                    borrowings on line of credit
                
                
                384,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -Proceeds
                    from issuance of preferred stock, net of issuance costs $3,570,460
                    at June
                    30, 2005, respectively
                
                
                -
                
                
                46,429,540
                
                
                -
                
                
                -
                
                
                -Issuance
                    of common stock
                
                
                -
                
                
                14,449
                
                
                -
                
                
                -
                
                
                -NET
                    CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                
                
                636,509
                
                
                46,443,989
                
                
                12,339
                
                
                39,068,564
                
                
                (363,400
                )NET
                    INCREASE (DECREASE) IN CASH
                
                
                (409,213
                )
                
                834,358
                
                
                (2,224,785
                )
                
                (1,901,649
                )
                
                (258,799
                )CASH
                    AND CASH EQUIVALENTS, beginning of period
                
                
                834,358
                
                
                -
                
                
                2,421,984
                
                
                4,323,633
                
                
                4,582,432CASH
                    AND CASH EQUIVALENTS, end of period
                
                
                425,145
                
                
                834,358
                
                
                197,199
                
                
                2,421,984
                
                
                4,323,633SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:Cash
                    paid during the period for:Interest
                
                
                286,715
                
                
                -
                
                
                -
                
                
                -
                
                
                -Income
                    taxes
                
                
                -
                
                
                -
                
                
                1,600
                
                
                1,600
                
                
                1,600
  *See
        accompanying notes.*
  F-8
  **RONCO
        CORPORATION AND SUBSIDIARY**
  **CONSOLIDATED
        AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)**
  **FOR
        THE YEAR ENDED JUNE 30, 2006, ONE DAY (DATE OF ACQUISITION) JUNE 30,
        2005,**
 **NINE
        MONTHS ENDED JUNE 29, 2005 AND SEPTEMBER 30, 2004**
 **AND
        YEAR ENDED DECEMBER 31, 2003**
 
 **SUPPLEMENTAL
        SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:**
 
 During
        2006, the Company paid a preferred stock dividend in the amount of $4,636,340
        to
        the holders of Series A Convertible Preferred Stock
  On
        June
        30, 2005, the Company acquired businesses (see Note 2).
 
 The
        following table summarizes the purchase transaction on the date of
        acquisition:
  Purchase
                    Price:Cash
                
                $
                40,209,000Transaction
                    costs (including $653,298 of common stock issued)
                
                
                5,728,859Notes
                    Payable
                
                
                13,158,180Total
                    purchase price
                
                
                59,096,039Less
                    Fair Value of:Assets
                    acquired
                
                
                59,454,129Liabilities
                    assumed
                
                
                (3,311,571
                )Goodwill
                
                $
                2,953,481On
                    June 30, 2005, the Company issued common stock at fair value
                    of $3,310,096
                    for deferred compensation.On
                    June 30, 2005, the Company accrued $338,175 of transaction
                    costs.
  *See
        accompanying notes.*
  F-9
  **RONCO
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS**
  **NOTE
        1 - ORGANIZATION, MERGER, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES**
  **Business**
  Ronco
        Corporation (the “Company” or the “Successor”), a Delaware corporation, is a
        provider of proprietary consumer products for the kitchen and home. The Company
        markets its products primarily in the United States through the broadcast
        of
        direct response commercial announcements known as infomercials, internet
        advertising, its in-house customer service department, tele-marketing and
        through wholesale distributors to retailers.
  On
        June
        29, 2005, Fi-Tek VII, Inc. (“Fi-Tek”), a publicly traded shell corporation,
        acquired all of the outstanding shares of Ronco Marketing Corporation (“RMC”)
        through the merger of a wholly-owned subsidiary of Fi-Tek with and into RMC.
        RMC
        continued as the surviving corporation after this transaction and became
        a
        wholly-owned subsidiary of the Company. Upon closing of the merger, Fi-Tek
        changed its name to Ronco Corporation and completed a 1 to 89 stock split
        of
        Fi-Tek outstanding shares of common stock. In exchange for their shares of
        RMC,
        the former holders of RMC common stock received 800,002 post-reverse split
        shares of the Company's stock. The Company's existing stockholders (the
        stockholders of the Company when it was operating as Fi-Tek) retained the
        remaining 477,639 shares of the outstanding common stock of the Company
        following the merger and reverse stock split of the common stock. The
        transaction was accounted for as a reverse acquisition into a publicly traded
        shell corporation, and accordingly, no goodwill was recorded. As a result
        of the
        reverse acquisition, the historical financial statements of Fi-Tek for the
        periods prior to the date of the transaction are not presented.
  Effective
        June 30, 2005, the Company through its wholly-owned subsidiary, RMC, completed
        a
        series of transactions to acquire certain assets and assumed certain liabilities
        of Ronco Inventions, LLC (“RI” or “LLC”), a California limited liability
        company; Popeil Inventions, Inc. (“PII”), a Nevada S corporation; RP
        Productions, Inc. (“RPP”) a Nevada S corporation (collectively, the “Seller
        Entities” or the “Predecessor”); and certain patents and other intellectual
        property rights from Ronald M. Popeil (“Popeil”).
  **Principles
        of Consolidation and Combination**
  Successor
        - The accompanying consolidated financial statements include the accounts
        of the
        Company and its wholly-owned subsidiary, RMC.
  Predecessor
        - The accompanying combined financial statements include the accounts of
        the
        Seller Entities, which are affiliated through common ownership and
        management.
  All
        significant intercompany balances and transactions have been eliminated in
        consolidation or combination.
  **Fiscal
        Year-End**
 
 Successor
        - The Company has a fiscal year end of June 30. Expenses of Ronco Marketing
        Corporation (Successor) in the amount of $11,080 are not included in the
        consolidated statement of operations for June 30, 2005 because these expenses
        are prior to the date of acquisition.
 
 Predecessor
        - In 2004, the Seller Entities changed their fiscal year-end from December
        31 to
        September 30. The combined Seller Entities financial statements include the
        results of operations for the nine months ended June 29, 2005 and September
        30,
        2004 and the results from operations for the years ended December 31, 2003.
 9
                    Months Ended 6/29/05
                
                9
                    Months Ended 6/30/04
                
                9
                    Months Ended 9/30/2004
                
                9
                    Months Ended 9/30/2003(Unaudited)
                
                
                
                (Unaudited)Net
                    sales
                
                $
                68,985,101
                
                $
                92,823,959
                
                $
                63,245,257
                
                $
                42,195,654Cost
                    of goods sold
                
                
                (16,844,057
                )
                
                (27,312,386
                )
                
                (16,842,282
                )
                
                (14,271,989
                )Gross
                    Profit
                
                
                52,141,044
                
                
                65,511,573
                
                
                46,402,975
                
                
                27,923,665Selling
                    and general administrative expenses
                
                
                50,446,473
                
                
                71,762,668
                
                
                53,216,762
                
                
                31,194,972Impairment
                    loss on equipment
                
                
                
                
                
                
                
                
                771,048Operating
                    income (loss)
                
                
                1,694,571
                
                
                (6,251,095
                )
                
                (7,584,835
                )
                
                (3,271,307
                )Interest
                    income (expense), net
                
                
                (2,824,260
                )
                
                49,946
                
                
                (120,482
                )
                
                158,836Other
                    Income (expense)
                
                
                (7,840
                )
                
                (131,977
                )
                
                —
                
                
                —Net
                    Loss
                
                $
                (1,137,529
                )
                $
                (6,333,126
                )
                $
                (7,705,317
                )
                $
                (3,112,471
                )Pro
                    forma net loss per share (unaudited)
                
                $
                (0.33
                )
                $
                (3.03
                )
                $
                (3.68
                )
                $
                (1.49
                )Pro
                    forma weighted shares outstanding (unaudited)
                
                
                2,091,605
                
                
                2,091,605
                
                
                2,091,605
                
                
                2,091,605
  **Cash
        and Cash Equivalents**
  Cash
        and
        cash equivalents include all short-term, highly liquid investments purchased
        with original maturities of three months or less.
  **Short-Term
        Investments**
  Short-term
        investments are comprised of certificates of deposit used as a credit card
        reserve by the Company’s credit card processor. Under the terms of the Company’s
        arrangement with the credit card processor, such funds that are deposited
        with
        them are only available to meet credits incurred by the processor that the
        Company cannot meet in due course.
  **Inventories**
  Our
        inventories are valued at the lower of cost, determined by the first-in,
        first-out method, or market value. With respect to the acquisition of the
        Ronco
        business, we accounted for the inventories acquired at fair value in accordance
        with purchase accounting. Inventory costs are comprised primarily of product,
        freight and duty. The Company writes down inventory for estimated obsolescence
        equal to the difference between cost of inventory and the estimated market
        value
        based upon assumptions about future demand and market conditions.
  **Revenue
        Recognition**
  The
        Company and Seller Entities recognize revenue from the sale of products when
        the
        products are shipped to the customers, provided that the price is fixed,
        title
        has been transferred and collectibility of the resulting receivable is
        reasonably assured. Net sales include revenue generated from products shipped,
        shipping and handling fees and revenue earned on extended service contracts,
        less returns and sales allowances. Revenue from free trial sales are recognized
        after the trial period is over and the customer has not returned the product.
        Returns and sales allowances are for damaged goods and anticipated customer
        returns.
  F-10
  **NOTE
        1 - ORGANIZATION, MERGER, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES (CONTINUED)**
  **Revenue
        Recognition (continued)**
  For
        the
        year ended June 30, 2006, nine months ended June 29, 2005 and September 30,
        2004
        and for the year ended December 31, 2003, the Company and the Seller Entities
        generated approximately 93%, 99%, 98%, and 92% of sales, respectively, from
        two
        kitchen products. The Company and the Seller Entities total sales are comprised
        of direct response and wholesale business of approximately 62% and 38%, 81%
        and
        19%, 80% and 20%, and 74% and 26% for the year ended June 30, 2006, the nine
        months ended June 29, 2005 and September 30, 2004 and the year ended December
        31, 2003, respectively.
  Revenue
        from the sale of extended service contracts is recognized on a straight-line
        basis over the life of the extended service contract. Extended service contract
        lives begin after the six-month free warranty period and range from three
        to
        four years. Amounts received from the sale of extended service contracts
        prior
        to revenue being recognized are included in deferred income on the consolidated
        balance sheet for June 30, 2006. At June 30, 2005, deferred income has been
        recorded at fair value in accordance with purchase accounting, see Note
        3.
  The
        Company and Seller Entities do not accrue warranty costs, since such costs
        were
        insignificant for the periods presented.
  **Shipping
        and Handling Costs**
  Shipping
        and handling costs are included in selling, general and administrative expenses.
        For the year ended June 30, 2006, nine months ended June 29, 2005 and September
        30, 2004, and for the year ended December 31, 2003 shipping and handling
        costs
        approximated $7,370,000, $7,124,000, $7,491,000, and $8,468,000,
        respectively.
  **Investments**
  At
        June
        30, 2006, investments consist of securities that are available-for-sale and
        are
        recorded at fair value, which approximated cost at June 30, 2006. The change
        in
        fair value of available-for-sale securities during the period is reported
        net of
        tax as part of comprehensive income as a separate component of
        equity.
  At
        June
        30, 2005, the Company has accounted for investments as held to maturity which
        consist of securities that management has the ability and intent to hold
        to
        maturity and are carried at amortized cost which is equivalent to the fair
        value
        at June 30, 2005, in accordance with purchase accounting, see Note 3. The
        Company determines specific identification for computing realized gains or
        losses for securities sold.
  **Stock-Based
        Compensation**
  Previously,
        pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock
        Issued to Employees," the Company accounted for stock based employee
        compensation arrangements using the intrinsic value method. Accordingly,
        no
        compensation expense was recorded in the financial statements with respect
        to
        option grants, since the options were granted at/or above market
        value.
  Effective
        January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), "Share
        Based
        Payment" ("SFAS No. 123R") which eliminates the use of APB 25 and the intrinsic
        value method of accounting, and requires companies to recognize the cost
        of
        employee services received in exchange for awards of equity instruments,
        based
        on the grant date fair value of those awards, in the financial statements.
        The
        Company has adopted the modified prospective method whereby compensation
        cost is
        recognized in the financial statements beginning with the effective date
        based
        on the requirements of SFAS No. 123R for all share-based payments granted
        after
        that date. The Company did not issue any stock options prior to the effective
        date.
  **Use
        of Estimates**
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America 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 revenue and expenses
        during
        the reporting period. Actual results could differ from those
        estimates.
  F-11
  **NOTE
        1 - ORGANIZATION, MERGER, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES (CONTINUED)**
  **Property
        and Equipment**
  The
        Company records property and equipment at cost for purchases subsequent to
        June
        30, 2005. Property and equipment acquired on June 30, 2005 was accounted
        for at
        fair value in accordance with purchase accounting, see Note 3. The Company
        provides for depreciation utilizing straight-line methods based on the estimated
        useful lives ranging from three to seven years. Leasehold improvements are
        amortized over the shorter of the estimated life of the asset or lease
        term.
  The
        Seller Entities provided for depreciation and amortization utilizing accelerated
        methods based on the estimated useful lives ranging from three to seven years.
        Leasehold improvements are amortized over the shorter of the estimated life
        of
        the asset or lease term.
  **Impairment
        of Long-Lived Assets**
  The
        Company and Seller Entities evaluate long-lived assets for impairment in
        accordance with SFAS 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets” whenever events or changes in circumstances indicate that the
        carrying value of an asset may not be recoverable. If the estimated future
        cash
        flows (undiscounted and without interest charges) from the use of an asset
        are
        less than the carrying value, a write-down would be recorded to reduce the
        related asset to its estimated fair value.
  During
        the nine months ended September 30, 2004, the Seller Entities recorded an
        impairment charge of approximately $771,000 for tooling that is no longer
        being
        used.
  **Goodwill,
        Intangible Assets and Impairment**
  Intangible
        assets are comprised of patents, customer relationships, consulting agreement
        and trademarks. Goodwill represents acquisition costs in excess of the net
        assets of businesses acquired. In accordance with SFAS 142, “Goodwill and Other
        Intangible Assets” goodwill is no longer amortized; instead goodwill is tested
        for impairment on an annual basis. The Company assesses the impairment of
        identifiable intangibles and goodwill whenever events or changes in
        circumstances indicate that the carrying value may not be recoverable. Factors
        the Company considers to be important which could trigger an impairment review
        include the following:
  ·
              Significant
                  underperformance relative to expected historical or projected future
                  operating results;·
              Significant
                  changes in the manner of use of the acquired assets or the strategy
                  for
                  the overall business; and·
              Significant
                  negative industry or economic
                  trends.
  When
        the
        Company determines that the carrying value of intangibles and other long-lived
        assets may not be recoverable based upon the existence of one or more of
        the
        above indicators of impairment and the carrying value of the asset cannot
        be
        recovered from projected undiscounted cash flows, the Company records an
        impairment charge. The Company measures any impairment based on a projected
        discounted cash flow method using a discount rate determined by management
        to be
        commensurate with the risk inherent in the current business model. Significant
        management judgment is required in determining whether an indicator of
        impairment exists and in projecting cash flows.
 
 As
        required by SFAS No.142, the impairment test is accomplished using a two-stepped
        approach. The first step screens for impairment and, when impairment is
        indicated, a second step is employed to measure the impairment. The Company
        performed its annual goodwill and unamortizable intangible asset impairment
        analysis using the SFAS No. 142 approach described above, and amortizable
        intangible asset impairment analysis using the SFAS No. 144 approach, during
        the
        fourth quarter of fiscal 2006. Based on the analysis performed, the Company
        recorded a goodwill and intangible asset impairment charge during the fourth
        quarter of fiscal 2006 of approximately $24,521,000 presented as an operating
        expense which resulted primarily from a decline in the profitability of the
        Company. The goodwill impairment was recorded due to the decreased sales
        in
        direct response primarily because of our lack of new product development
        and
        limited capital to spend on sales and marketing. The reduced sales activity
        during the year resulted in lower future cash flow projections than the Company
        had anticipated upon acquiring the business. This in turn resulted in a reduced
        fair market value of the Company.
 
 F-12
 
 **NOTE
        1 - ORGANIZATION, MERGER, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES (CONTINUED)**
  **Goodwill,
        Intangible Assets and Impairment (continued)**
  The
        following was the breakdown of the impairment charge for the year ended June
        30,
        2006:
 
 ImpairmentCustomer
                  Relationships
              
              $
              485,546Patents
              
              
              5,187,121Trademarks
              
              
              12,119,036Popeil
                  Agreement
              
              
              3,775,733Goodwill
              
              
              2,953,480**Total
                  Impairment**
              
              **$**
              **24,520,916**
  Patents
        are being amortized over 19 years, customer relationships over 1.5 to 10
        years
        and consulting agreements over 3 years, utilizing the straight-line method.
        Amortization expense recorded at June 30, 2006 was approximately $6 million.
        Amortization expense was not recorded at June 30, 2005 since the Acquisition
        occurred on June 30, 2005, see Note 3.
  Trademarks
        have an indefinite life.
  **Production
        Costs**
  Production
        costs of infomercials are amortized on a straight-line basis using an estimated
        useful life of three years.
  **Income
        Taxes**
  Successor
        - Deferred income tax assets and liabilities are computed annually for
        differences between the financial statements and income tax bases of assets
        and
        liabilities. Such deferred income tax asset and liability computations are
        based
        on enacted tax laws and rates applicable to periods in which the differences
        are
        expected to reverse. A valuation allowance is established, when necessary,
        to
        reduce deferred income tax assets to the amount expected to be realized.
        Income
        tax expense is the tax payable or refundable for the period plus or minus
        the
        change during the period in deferred income tax assets and
        liabilities.
  Predecessor
        - PII and RPP have elected to be treated as S corporations for federal and
        state
        income tax purposes. Pursuant to these elections, the income or loss of the
        companies is included in the income tax returns of their stockholders. In
        addition, RI is a limited liability company, which is a non-taxable entity
        for
        federal and state income tax purposes. Accordingly, the members' have
        responsibility for payment of tax on their individual shares of income or
        losses.
 
 **Advertising
        Costs**
  Advertising
        costs are expensed when broadcast. Amounts paid for advertising prior to
        the
        broadcast are deferred as prepaid advertising costs until such time that
        the
        advertising has been broadcast.
  Advertising
        expense amounted to approximately $23,341,000, $29,907,000, $31,096,000,
        and
        $29,419,000 for year ended June 30, 2006, the nine months ended June 29,
        2005
        and September 30, 2004 and year ended December 31, 2003,
        respectively.
  **Fair
        Value of Financial Instruments**
  The
        carrying amounts of significant financial instruments, which includes accounts
        receivable, accounts payable, accrued expenses and notes payable approximated
        fair value as of June 30, 2006 due to their short-term maturities. As of
        June
        30, 2005, the carrying amounts of significant financial instruments, which
        includes accounts receivable, accounts payable and accrued expenses are at
        fair
        value in accordance with purchase accounting, see Note 3.
 
 F-13
  **NOTE
        1 - ORGANIZATION, MERGER, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES (CONTINUED)**
  **Loss
        Per Share**
  Successor
        - Basic and diluted net loss per share information for the year ended June
        30,
        2006 and one day of June 30, 2005 (Date of Acquisition) is presented in
        accordance with SFAS No. 128, Earnings Per Share. Basic loss per share is
        calculated by dividing the net loss attributable to common stockholders by
        the
        weighted-average common shares outstanding during the period. Diluted loss
        per
        share is calculated by dividing net loss attributable to common stockholders
        by
        the weighted-average common shares outstanding. The dilutive effect of preferred
        stock, options and warrants convertible into an aggregate of approximately
        15,857,000 and 13,529,000 of common shares as of June 30, 2006 and June 30,
        2005, respectively, are not included as the inclusion of such would be
        anti-dilutive for all periods presented.
  Predecessor
        - Loss per share for the nine months ended June 29, 2005 and September 30,
        2004
        and year ended December 31, 2003 is not applicable to the Seller Entities
        as
        they were a combination of privately held companies that were different legal
        entities, and accordingly, the weighted-average number of common shares
        outstanding is not determinable. For comparative purposes the Company calculated
        earnings per share on a Pro forma basis using the outstanding common shares
        of
        2,091,605 as of June 30, 2005 for the nine months ended June 29, 2005 and
        September 30, 2004 as the weighted-average common shares
        outstanding.
  **Accounting
        Pronouncements**
  In
        February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
        Financial Instruments—an amendment of FASB Statements No. 133 and 140,” that
        allows a preparer to elect fair value measurement at acquisition, at issuance,
        or when a previously recognized financial instrument is subject to a
        re-measurement (new basis) event, on an instrument-by-instrument basis, in
        cases
        in which a derivative would otherwise have to be bifurcated. It also eliminates
        the exemption from applying Statement 133 to interests in securitized financial
        assets so that similar instruments are accounted for similarly regardless of the
        form of the instruments. This Statement is effective for all financial
        instruments acquired or issued after the beginning of an entity's first fiscal
        year that begins after September 15, 2006. The Company does not anticipate
        that
        the adoption of SFAS No. 155 will have an impact on the Company's overall
        results of operations or financial position.
  In
        March
        2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets—an
        amendment of FASB Statement No. 140,” that applies to the accounting for
        separately recognized servicing assets and servicing liabilities. This Statement
        requires that all separately recognized servicing assets and servicing
        liabilities be initially measured at fair value, if practicable. An entity
        should adopt this Statement as of the beginning of its first fiscal year
        that
        begins after September 15, 2006. The Company does not anticipate that the
        adoption of SFAS No. 156 will have an impact on the Company's overall results
        of
        operations or financial position.
  In
        July
        2006 the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
        in
        Income Taxes. The Interpretation clarifies the way companies are to account
        for
        uncertainty in income tax reporting and filing and prescribes a consistent
        recognition threshold and measurement attribute for recognizing, derecognizing,
        and measuring the tax benefits of a tax position taken, or expected to be
        taken,
        on a tax return. The Interpretation is effective for fiscal years beginning
        after December 15, 2006, although early adoption is possible. The Company
        does
        not plan to adopt early and the Company is currently in the process of
        evaluating the impact, if any, the adoption of the Interpretation will have
        on
        the 2007 financial statements.
  In
        September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value, and expands disclosures about fair value measurements. This Statement
        shall be effective for financial statements issued for fiscal years beginning
        after November 15, 2007, and interim periods within those fiscal years. Earlier
        application is encouraged, provided that the reporting entity has not yet
        issued
        financial statements for that fiscal year, including any financial statements
        for an interim period within that fiscal year. The provisions of this statement
        should be applied prospectively as of the beginning of the fiscal year in
        which
        this Statement is initially applied, except in some circumstances where the
        statement shall be applied retrospectively. The Company is currently evaluating
        the effect, if any, of SFAS 157 on its financial statements.
  **NOTE
        2 - GOING CONCERN**
  The
        Company incurred net losses of approximately $44,420,000 for the year ended
        June
        30, 2006, and had a working capital deficiency of approximately $12,867,000
        as
        of June 30, 2006. The 2006 loss included an impairment of goodwill and
        intangibles of $24,520,916.
 
 F-14
  The
        Company has suffered significant losses from continuing operations and has
        negative cash flows from operations. These conditions raise substantial doubt
        about the Company’s ability to continue as a going concern. The financial
        statements do not include any adjustments to reflect the possible future
        effects
        on the recoverability and classification of assets or the amounts and
        classification of liabilities that might result from the outcome of this
        uncertainty.
  The
        Company plans to continue its efforts to identify ways of reducing operating
        costs and to increase liquidity through equity and debt financing.  On
        October 6, 2006, the Company secured a $4.0 million loan to help meet its
        business plan for the next four months and plans to arrange new debt or equity
        of at $10 to $15 million to meet its long-term goals. The Company has also
        taken
        steps to reduce expenditures, salaries and other operating costs.
  **NOTE
        3 - BUSINESS ACQUISTION**
  On
        June
        30, 2005, the Company completed the acquisition of certain of the Seller
        Entities' assets and assumption of certain liabilities; and the acquisition
        of
        patents and of certain intellectual property rights from Popeil (collectively,
        the “Acquisition”). The Acquisition was made pursuant to a purchase agreement
        between RMC and the Seller Entities and Popeil. The Board of Directors agreed
        to
        purchase the Seller Entities because of its leadership position in the direct
        response industry.
  The
        stated purchase price in the purchase agreement between RMC and the Seller
        Entities and Popeil was $56,509,000, of which the Company delivered $40,209,000
        in cash on or before the closing. The remainder of $16,300,000 was made up
        of
        promissory notes issued to the Seller Entities. The promissory notes were
        based
        on the estimated net value of the acquired assets, as defined. The preliminary
        determination by management of the Company of the net value of the acquired
        assets, resulted in approximately $3,142,000 reduction to the promissory
        notes.
  The
        promissory notes to the Seller Entities are subject to finalization between
        the
        Company and the Seller Entities as to the calculation of the estimated net
        value
        of the acquired assets, as defined. As of the date hereof this issue was
        still
        not finalized. The Company has not made certain payment due on this note
        and as
        such the entire amount is classified as current for financial statement
        purposes.
  The
        purchase price subject to final agreement between the Company and the Seller
        Entities was $59,096,039, which consisted of the cash payment of $40,209,000,
        the adjusted promissory notes of $13,158,180, and transaction costs of
        $5,728,859, and are allocated as follows:
 
 Accounts
                  receivable
              
              $
              2,264,315Inventories
              
              
              8,968,199Prepaid
                  expenses and other current assets
              
              
              2,327,016Due
                  from predecessor entities
              
              
              135,676Investments
              
              
              1,627,823Property
                  and equipment
              
              
              925,000Production
                  costs
              
              
              100,000Deposits
              
              
              182,500Intangibles
              
              
              42,923,600Goodwill
              
              
              2,953,481Accounts
                  payable
              
              
              (3,155,576
              )Accrued
                  expenses
              
              
              (80,995
              )Deferred
                  income
              
              
              (75,000
              )**Total
                  Purchase Price**
              
              **$**
              **59,096,039**
  The
        Company's management and the Board of Directors believes that the purchase
        of
        certain assets and assumption of certain liabilities of the Seller Entities
        and
        Popeil that resulted in approximately $2,953,000 of goodwill at June 30,
        2005
        was justified because of the Seller Entities position in the marketplace
        and
        expected increased cash flows to the Company. The Company expects all of
        the
        goodwill will be deductible for income tax purposes.
 
 **Unaudited
        Proforma Consolidated Condensed Financials**
 
 The
        following unaudited pro forma financial information is provided for
        informational purposes only and should not be construed to be indicative
        of the
        Company’s consolidated results of operations had the acquisitions been
        consummated on the dates assumed and does not project the Company’s results of
        operations for any future period.
  The
        following unaudited pro forma financial information presents the consolidated
        operations of the Company for the nine months ended June 29, 2005 and
        September 30, 2004 as if the acquisition of the Ronco business had occurred
        as
        of October 1, 2004 and January 1, 2004, respectively.
 
 Nine
                    Months ended
                June
                  29, 2005
              
              Nine
                    Months ended
                September
                  30, 2004Net
                  sales
              
              
              68,985,101
              
              
              63,245,257Net
                  loss
              
              
              (2,874,298
              )
              
              (11,689,346
              )Loss
                  attributable to common stockholders
              
              
              (4,749,298
              )
              
              (12,500,348
              )Pro
                  forma loss per share - basic and diluted
              
              $
              (2.27
              )
              $
              (7.17
              )Pro
                  forma weighted average shares outstanding
              
              
              2,091,605
              
              
              2,091,605
  **NOTE
        4 - INTANGIBLE ASSETS**
  Intangible
        assets consist of the following at June 30, 2006 and 2005:
 
 Amortizable
                  Intangibles:
              
              Balance
                  at June 30, 2005
              
              Impairment
              
              Amortization
                Expense
              
              Net
                  book value at June 30, 2006Patents
              
              $
              9,890,000
              
              $
              5,187,121
              
              $
              520,526
              
              $
              4,182,353Customer
                  relationships
              
              
              5,680,000
              
              
              485,546
              
              
              3,537,333
              
              
              1,657,121Popeil
                  consulting agreement
              
              
              5,663,600
              
              
              3,775,733
              
              
              1,887,867
              
              
              -Total
                  amortizable intangibles
              
              
              21,233,600
              
              
              9,448,400
              
              
              5,945,726
              
              
              5,839,474Unamortizable
                  intangible assets:Trademarks
              
              
              21,690,000
              
              
              12,119,035
              
              
              -
              
              
              9,570,965Goodwill
              
              
              2,953,481
              
              
              2,953,481
              
              
              -
              
              
              -Total
                  unamortizable intangibles
              
              
              24,643,481
              
              
              15,072,516
              
              
              -
              
              
              9,570,965
  Estimated
                  future amortization expense at June 30, 2006:For
                  year ending June 30, 2007
              
              $
              1,556,656For
                  year ending June 30, 2008
              
              
              291,074For
                  year ending June 30, 2009
              
              
              291,074For
                  year ending June 30, 2010
              
              
              291,074For
                  year ending June 30, 2011
              
              
              291,074For
                  year ending June 30, 2012 and beyond
              
              
              3,118,469
  **NOTE
        5 - CONCENTRATIONS OF RISK**
  **Cash
        and Cash Equivalents**
  The
        Company and Seller Entities maintain most of its cash balances at a bank
        located
        in California. Accounts at this institution are insured by the Federal Deposit
        Insurance Corporation up to $100,000.
  **Accounts
        Receivable**
  The
        Company utilizes the allowance method for accounting for losses from
        uncollectible accounts. Under this method, an allowance for doubtful accounts
        reflects the Company's best estimate of probable losses inherent in the accounts
        receivable balance. Management has determined the allowance based on known
        troubled accounts, historical experience and other currently available evidence.
        The Company accrues its estimated product returns and records this as a
        reduction of accounts receivable.
  **Suppliers**
  The
        Company and Seller Entities purchased approximately 84%, 99% and 94% of
        merchandise from four vendors for the year ended June 30, 2006, and three
        vendors for the nine months ended June 29, 2005 and September 30, 2004,
        respectively. The Seller Entities purchased approximately 94% of their
        merchandise from one vendor for the year ended December 31, 2003. These vendors
        have suppliers and manufacturing locations in Korea and China. Management
        believes that other vendors could provide the materials on comparable
        terms.
  **NOTE
        6 - INVESTMENTS**
  At
        June
        30, 2006 and 2005, investments classified as available-for-sale and held
        to
        maturity, respectively, consisted of obligations of states and political
        subdivisions, including municipal bonds, which are valued at amortized cost
        which is equivalent to fair value of $601,783 and $1,627,823, respectively.
        During the year ended June 30, 2006 $601,783 of investments were transferred
        from held to maturity to available for sale.
  All
        investments are pledged to a bank as collateral (see Note 12). In July and
        September 2006, the Company redeemed all obligations to utilize the proceeds
        to
        repay a bank loan and for working capital.
 
 F-15
 
 **NOTE
        7 - PREPAID EXPENSES AND OTHER CURRENT ASSETS**
  Prepaid
        expenses and other current assets consisted of the following at June 30,
        2006
        and 2005:
 
 June
                  30, 2006
              
              June
                  30, 2005Prepaid
                  advertising
              
              $
              112,963
              
              $
              1,474,447Deposits
              
              
              147,482
              
              
              716,232Prepaid
                  insurance
              
              
              203,992
              
              
              210,490Other
              
              
              167,939
              
              
              136,337$
              632,376
              
              $
              2,537,506
  **NOTE
        8 - INVENTORIES**
  Inventories,
        consisting of finished goods, are valued at the lower of cost, determined
        by the
        first-in, first-out method, or market value. With respect to the acquisition
        of
        the Ronco business, the inventories acquired were recorded at fair value
        in
        accordance with purchase accounting. Inventory costs are comprised primarily
        of
        product, freight and duty. The Company writes down inventory for estimated
        obsolescence equal to the difference between the cost of inventory and the
        estimated market value based upon assumptions about future demand and market
        conditions.
 
 **NOTE
        9 - PROPERTY AND EQUIPMENT**
  Property
        and equipment consisted of the following at June 30, 2006 and 2005:
 
 June
                  30, 2006
              
              June
                  30, 2005Transportation
                  equipment
              
              $
              110,671
              
              $
              62,000Office
                  furniture and equipment
              
              
              608,804
              
              
              388,000Tooling
              
              
              611,371
              
              
              475,000Software
              
              
              35,515
              
              
              -Leasehold
                  improvements
              
              
              95,540
              
              
              -1,461,901
              
              
              925,000Less:
                  Accumulated depreciation and amortization
              
              
              276,674
              
              
              -$
              1,185,227
              
              $
              925,000
  Depreciation
        and amortization expense for the year ended June 30, 2006 was $276,674. There
        was no depreciation expense for the period ended June 30, 2005 as the
        Acquisition closed on the last day of the year-end.
  Depreciation
        and amortization expense was approximately $455,000, $804,000, and $1,199,000
        for the nine months ended June 29, 2005 and September 30, 2004 and year ended
        December 31, 2003, respectively.
  **NOTE
        10 - DEFERRED INCOME**
  As
        of
        June 30, 2006, deferred income consists of unamortized extended service
        contracts amounting to $235,499 and cash received on unshipped orders of
        $533,294. On June 30, 2005, the Company accounted for deferred income at
        fair
        value in accordance with purchase accounting, see Note 3, which was valued
        at
        $75,000.
  For
        the
        year ended June 30, 2006, nine months ended June 29, 2005 and September 30,
        2004
        and for the year ended December 31, 2003, revenues generated from extended
        services contracts were approximately $6,000, $1,008,000, $1,183,000, and
        $2,263,000, respectively.
 
 **NOTE
        11 - LONG-TERM DEBT**
  Long-term
        debt consists of the following at June 30, 2006 and 2005:
 
 June
                  30, 2006
              
              June
                  30, 2005Promissory
                  note to Seller Entities (including accrued interest of $1,154,293
                  at June
                  30, 2006)
              
              $
              13,026,085
              
              $
              13,158,180Note
                  payable to Sanders Morris Harris, Inc. (Note 14)
              
              
              1,500,000
              
              
              -Note
                  payable - other
              
              
              38,897
              
              
              -Total
                  debt
              
              
              14,564,982
              
              
              13,158,180Less
                  estimated current maturities
              
              
              14,533,800
              
              
              2,876,000$
              31,182
              
              $
              10,282,180
  F-16
  The
        face
        value of the promissory notes to the Seller Entities is management's best
        estimate based on the estimated net value of the assets acquired, as defined,
        see Note 3. These promissory notes bear simple interest at a rate of 9.5%
        per
        annum. The required payment amounts under these promissory notes will be
        determined by applying a per-unit dollar amount, as defined, to the volumes
        of
        products, as defined, that are shipped to the Company, within a period. Any
        outstanding principal amount and accrued but unpaid interest will become
        due and
        payable in full by June 29, 2010; and there is no pre-payment penalty on
        the
        promissory notes. The Company has an incident of default on this note by
        not
        making certain required payments due. As such, the entire amount is classified
        as current for financial statement purposes.
  Upon
        occurrence of an event of default, as defined, that is not cured by the time
        period defined in the promissory notes the interest rate on the notes will
        increase to 11% per annum and any unpaid principal and interest will become
        immediately due and payable. In addition, Popeil will have the right to reclaim
        any ownership interest in his name and likeness previously sold or licensed
        to
        the Company and will receive a right of first refusal to purchase the
        intellectual property rights acquired before these rights may be sold or
        transferred to any other party.
  **NOTE
        12 - REVOLVING LINE OF CREDIT**
  On
        September 21, 2005, the Company borrowed $1,234,000 from Wells Fargo Bank,
        National Association under a Revolving Line of Credit Note. The outstanding
        balance is due and payable on September 20, 2006 and is collateralized by
        municipal bonds held by the Company. The borrowings bear interest at 1% above
        LIBOR, or 1/2% below prime, at the Company's option. At June 30, 2006, the
        Company’s interest rate was 6.375%. There is no prepayment penalty on this
        revolving line of credit. As of June 30, 2006, the balance due under this
        line
        of credit was $384,000 which is the maximum availability based on the available
        collateral. In August 2006, the outstanding balance was repaid in full and
        the
        line of credit expired in September 2006.
  **NOTE
        13 - FACTORING AGREEMENT**
  On
        October 25, 2005, the Company, and Prestige Capital Corporation ("Prestige"),
        entered into a Purchase and Sale Agreement (the "Agreement") pursuant to
        which
        Prestige agreed to buy and accept, and the Company agreed to sell and assign,
        certain accounts receivable owing to the Company with recourse except for
        payment not received due to insolvency. Under the terms of the Agreement,
        upon
        the receipt and acceptance of each assignment of accounts receivable
        (“Accounts”), Prestige shall pay the Company 75% of the face amount of the
        Accounts so assigned. Under the Agreement, Prestige has agreed to purchase
        Accounts with a maximum aggregate face amount of $8,000,000. The fee payable
        by
        the Company to Prestige under the Agreement is 2% of the face amount of assigned
        Accounts if the receivable is collected within 15 days, 2.75% of the face
        amount
        if the receivable is collected within 30 days, 3.75% of the face amount if
        the
        receivable is collected within 45 days, 4.75% of the face amount if the
        receivable is collected within 60 days, and 5.75% of the face amount if the
        receivable is collected within 75 days. Thereafter, the rate goes up by 1%
        for
        each additional fifteen day period until the Account is paid. There is no
        maximum rate. In addition, Prestige may require the Company to repay the
        amount
        it has advanced to it, in certain cases, if the receivable is not paid within
        90
        days. In such case Prestige would not retain the account receivable. If an
        account receivable is not paid due to the bankruptcy of the customer, or
        due to
        certain similar events of insolvency, the Company will not be required to
        repay
        the cash advance to Prestige.     The initial term of the Agreement
        expired on May 1, 2006, but the Agreement will thereafter be automatically
        extended for additional one-year terms unless either party provides written
        notice of cancellation at least sixty days prior to the expiration of the
        initial or renewal term. The Company has given notice not to renew and Prestige
        has agreed to extend the term on a month to month basis. On October 6, 2006
        the
        Company extended the term of the agreement with Prestige until October 1,
        2007.
        There is no prepayment penalty associated with this extension.
  Under
        the
        terms of the Agreement, the Company granted to Prestige a continuing security
        interest in, and lien upon, all accounts, instruments, inventory, documents,
        chattel paper and general intangibles, whether now owned or hereafter created
        or
        acquired, as security for the prompt performance and payment of all obligations
        of the Company to Prestige under the Agreement. If the customers do not pay
        their receivable within 90 days, Prestige has the right to charge back the
        Company. The Company has accounted for this as a sale of receivables in
        accordance with SFAS 140, "Accounting for Transfers and Servicing of Financial
        Assets and Extinguishment of Liabilities." As of June 30, 2006 the Company
        had
        no outstanding borrowings under the agreement.
  **NOTE
        14 - LOAN AGREEMENT**
  On
        June
        9, 2006, the Company entered to a Letter Loan Agreement with the Lenders,
        a
        Security Agreement in favor of Sanders Morris Harris Inc. (“SMH”), individually
        and as agent for the Lenders an Assignment of Life Insurance Policy in favor
        of
        SMH, individually and as agent for the Lenders and the Company issued a
        Subordinated Promissory Note in the principal amount of $1,500,000 to SMH.
        As of
        June 9, 2006, A. Emerson Martin, II and Gregg A. Mockenhaupt were members
        of the
        Company's Board of Directors and managing directors of SMH.
  F-17
  Pursuant
        to the Loan Agreement, SMH agreed to loan the Company an additional $1,500,000
        (the “Second Loan”) subject to certain closing conditions, including the mailing
        of an offer to each of the holders of the Company's Series A Convertible
        Preferred Stock to the extent of their pro rata share of the Company's
        outstanding shares of Series A Convertible Preferred Stock to participate
        in the
        Company's closing on a credit agreement for a facility of not less than $15
        million. The Notes bear interest at a rate of 4.77% per annum. Interest will
        be
        due and payable on the first and second anniversary of the issuance of the
        notes
        and at the maturity date.
  The
          Notes
          are convertible into shares of the Company's common stock based on the
          principal
          amount outstanding plus accrued and unpaid interest through, the conversion
          dated divided by the conversion price. The conversion feature was exercisable
          on
          the later of August 23, 2006 or the end of the Pricing Period, which is
          defined
          in the loan document by reference to the time at which the Company’s
          registration statement becomes effective. Since the Pricing Period is based
          on
          the registration statement becoming effective, there was no certainty that
          the
          conversion would take place, and thus, no value was ascribed to the conversion
          feature. To date the Company has not completed its registration statement
          and as
          such the note cannot be converted into shares.
 Subsequent
        to June 30, 2006 the Company was in default of the SMH loan as one of the
        conditions of the Note was Richard F. Allen Sr. remaining as the Chief Executive
        Officer of the Company. On August 9, 2006 the Company terminated Richard
        F.
        Allen, Sr. as President and Chief Executive Officer of the Company. As such,
        the
        note is classified as current for financial statement purposes.
  **NOTE
        15 - STOCKHOLDERS' EQUITY**
  **Series
        A Convertible Preferred Stock**
  In
        connection with the Acquisition, on June 30, 2005, the Company sold 13,262,600
        shares of Series A Convertible Preferred Stock for $50 million in a private
        placement. The preferred stock has certain special rights, as defined, and
        the
        qualifications of the preferred stock are as follows:
  Conversion
        - The conversion ratio of the preferred stock is at the rate of one share
        of
        common stock for each share of preferred stock at the option of the holder.
        The
        Company, at its option, may cause all of the outstanding shares of preferred
        stock to be converted into shares of common stock, as defined, (representing
        an
        85% ownership, as of September 28, 2006, of the Company after
        redemption).
  Voting
        Rights - Holders of preferred stock are entitled to the number of votes per
        share that would be equivalent to the number of shares of common stock into
        which a share of preferred stock is convertible.
  Dividends
        - The holders of preferred stock are entitled to receive cumulative preferred
        dividends at the rate of $0.1885 per share per annum, payable quarterly in
        arrears on January 1, April 1, July 1, and October 1 of each year. The
        cumulative dividends may be paid in cash or, at the Company's option, in
        additional shares of Series A Convertible Preferred Stock. Because the Company
        failed to make its scheduled October 1, 2005, January 1, 2006 and April 1,
        2006
        dividend payments on a timely basis and because its registration statement
        has
        not yet been declared effective, the Company lost the option to choose
        unilaterally to make these dividend payments in additional shares of Series
        A
        Convertible Preferred Stock as opposed to cash. On June 28, 2006 the Series
        A
        shareholder’s agreed to be paid in Series A Preferred Stock instead of cash at
        the rate of 0.153857 shares per share for the three quarters ended October
        1,
        2005, December 31, 2005 and March 31, 2006 as they agreed to waive all penalties
        related to the registration rights agreement. The Company agreed to pay a
        dividend of 0.020933 shares per share for the quarter ended June 30, 2006
        to the
        Series A holders. The Company recorded the dividend based on the fair market
        value on the date the Series A shareholders agreed to the terms of the dividend
        agreement.
  Liquidation
        - The holders of preferred stock will have the right to receive, after payment
        of all creditors, the sum of $3.77 per share of the preferred stock held,
        plus
        any accrued and unpaid dividends, as defined, prior to any distributions
        with
        respect to the common stock. Subject to certain restrictions, the terms of
        the
        Series A Convertible Preferred Stock provide that the Company may, at its
        option, cause all of the outstanding shares of Series A Convertible Preferred
        Stock to be converted into shares of common stock, at any time and from time
        to
        time, if the market price of the common stock equals or exceeds 200% of the
        conversion price then in effect for any 20 days during the most recent
        consecutive 30 trading days prior to giving the notice of conversion and
        the
        daily trading volume of the common stock for any 20 days during the most
        recent
        consecutive 30 trading days prior to giving the notice of conversion equaled
        or
        exceeds 50,000 shares. In the event that the Company fails to declare or
        pay in
        full any dividend payable on the Series A Convertible Preferred Stock on
        the
        applicable dividend date and fails to correct such failure within thirty
        days of
        the applicable dividend date then the Company loses its ability to cause
        all of
        the outstanding shares of Series A Convertible Preferred Stock to be converted
        into shares of common stock at anytime. The Company failed to make such a
        dividend payment on October 1, 2005 and, therefore, cannot cause all of the
        outstanding shares of Series A Convertible Preferred Stock to be converted
        into
        shares of common stock at any time.
  F-18
  **Registration
        Rights Agreement**
  On
        June
        30, 2005, the Company entered into a Registration Rights Agreement
        (“Registration Rights Agreement”) and under the terms of the agreement, the
        Company is obligated to file a shelf registration statement (Form S-1) covering
        the resale of the shares of common stock into which the shares of Series
        A
        Convertible Preferred Stock purchased are convertible. The Company is obligated
        to have the registration statement declared effective by October 28, 2005.
        The Company was unable to meet this deadline and the Company is liable for
        a
        cash payment to the stockholders who are party to the Registration Rights
        Agreement, as liquidated damages. The amount will be equal to one percent
        of the
        per share price of the Series A Convertible Preferred Stock per month (pro
        rated
        for periods less than a month), or $500,000, until the Company has cured
        the
        deadline default, as defined. To date the Company has been unable to complete
        the registration statement. In June 2006 the Series A Preferred shares holders
        agreed to waive all penalties related to the registration statement noted
        above.
  **Warrants**
  On
        June
        30, 2005, the Company issued a warrant to purchase 266,667 shares of common
        stock. The warrant has an exercise price of $3.77 per share and is exercisable
        for five years from July 1, 2005. The warrant is exercisable for cash or
        pursuant to a cashless exercise option provision.
  The
        warrant contains certain anti-dilution provisions, which will adjust the
        number
        of shares underlying the warrant and the exercise price in the event of stock
        splits, stock dividends, or other re-capitalizations of the
        Company.
  **Deferred
        compensation**
  On
        June
        30, 2005, in connection with an employment agreement, the Company sold 800,313
        shares of common stock to its Chief Executive Officer (“CEO”) for $.01 a share.
        These shares are subject to certain performance milestones. The Company has
        recorded deferred compensation of $3,009,177 based on the fair value of the
        common stock at June 30, 2005, the market value was $3.77 a share. The deferred
        compensation will be amortized over three years based on the CEO's contract. At
        June
        30, 2006, the deferred compensation was eliminated against additional paid
        in
        capital in accordance with SFAS 123(R).
  The
        CEO
        received 60% of these shares (480,188) in connection with his employment
        agreement, and will be entitled to receive an additional 20% of these shares
        (160,063) on each of the first two anniversaries from June 30, 2005. The
        initial
        480,188 shares are subject to repurchase by the Company, at its option, for
        $0.01 per share, exercisable if the CEO voluntarily terminates his employment
        with the Company prior to June 30, 2008 or if certain performance targets
        are
        not satisfied. Additionally, if the Company terminates the CEO's employment
        on
        or before June 30, 2007 for “cause” the Company has the option to repurchase,
        for $0.01 per share, the shares issued to him on the first and second
        anniversaries of his employment. On August 9, 2006 Ronco Corporation (the
        "Company") terminated Richard F. Allen, Sr. as President and Chief Executive
        Officer of the Company effective immediately. The Company is evaluating the
        financial affect of Mr. Allen’s termination.
  On
        June 30, 2005, in connection with an employment agreement, the Company sold
        160,063 shares of common stock to its Chief Financial Officer ("CFO") for
        $.01 a
        share. The Company has valued these shares at $601,838 based on the fair
        value
        of the common stock at June 30, 2005, the market value was $3.77 a share.
        The
        Company recorded $300,919 as compensation expense for the period from October
        15, 2004 (Date of Inception) to June 30, 2005, and the remainder of $300,919
        has
        been recorded as deferred compensation and was being amortized over three
        years
        based on CFO's contract. The balance of deferred compensation was expensed
        as of
        June 30, 2006.
  The
        Company has the option to repurchase 50% of these shares (80,032) at $.01
        per
        share, exercisable if the CFO's employment is terminated voluntarily or for
        "cause," as defined. The Company's repurchase right will lapse with respect
        to
        each 25% (40,016) of these shares on each of the first two anniversaries
        from
        June 30, 2005.
  On
        April
        18, 2006, the Company terminated Evan J. Warshawsky as its Chief Financial
        Officer and Secretary. The Company is currently negotiating with Mr. Warshawsky
        to settle any obligations that it may have under his employment agreement.
        If
        the Company is unable to reach a settlement with him, and it is ultimately
        determined that Mr. Warshawsky was terminated by the Company without cause
        under
        the terms of his employment agreement, the Company would have to pay Mr.
        Warshawsky $600,000, which has been accrued and recorded in accrued expenses
        at
        June 30, 2006, and reimburse him for the cost of up to the first twelve months
        of continuing group health plan coverage that Mr. Warshawsky and his covered
        dependents are entitled to receive under federal law. In addition, the Company's
        repurchase option would lapse with respect to 80,032 shares of the Company's
        common stock held by Mr. Warshawsky.
  For
        the
        year ended June 30, 2006 and the one day June 30, 2005, the Company recognized
        $
        1,303,978 and $300,919, respectively, of amortization expense related to
        the
        former CEO and former CFO deferred compensation.
  **Transaction
        Costs**
  In
        connection with the Acquisition, the Company issued 13,650 shares of common
        stock to a consulting company for services rendered. These shares were valued
        at
        $51,460 based on the fair market value of the stock and are treated as
        transaction costs for the one day June 30, 2005.
  In
        connection with the Acquisition, the Company sold 160,063 shares of common
        stock
        to an attorney for services rendered for $1,601. These shares were valued
        at
        $603,438 based on the fair market value of the stock and are treated as
        transaction costs for the one day June 30, 2005. In addition, the Company
        incurred $128,500 of transaction costs to this attorney which was accrued
        at
        June 30, 2005. Subsequent to June 30, 2005, the attorney became the General
        Counsel of the Company.
  F-19
  **Stock
        Option Plan**
  In
        October, 2005, the Board of Directors granted a fully vested option to purchase
        10,000 shares of the Company’s common stock to a former board member, Anthony
        Brown, in connection with the termination of a consulting agreement between
        the
        Company and a company controlled by Mr. Brown. The option has a term of ten
        years and has an exercise price of $5.75 per share. In connection with the
        option, the Company recorded compensation expense of $38,938 for the year
        ended
        June 30, 2006 using the Black-Scholes option pricing model.
 
 **NOTE
        16 - INCOME TAXES**
  The
        income taxes (benefit) for the year ended June 30, 2006 and the period ended
        June 30, 2005 (date of acquisition) consisted of the following:
  June
                  30, 2006
              
              June
                  30, 2005Current
              
              $
              -
              
              $
              -Deferred:Federal
              
              
              241,000
              
              
              (241,000
              )State
              
              
              69,000
              
              
              (69,000
              )Total
                  deferred
              
              
              310,000
              
              
              (310,000
              )Income
                  taxes (benefit)
              
              $
              310,000
              
              
              (310,000
              )
  The
        income tax effects of significant items, comprising the Company's net deferred
        income tax assets and liabilities, are as follows:
 
 June
                  30, 2006
              
              June
                  30, 2005Deferred
                  income tax assets:CurrentContingent
                  settlement
              
              $
              240,000
              
              $
              -Others
              
              
              199,000
              
              
              -Total
                  current
              
              
              439,000
              
              
              -Net
                  operating loss carry forwards
              
              
              6,250,000
              
              
              433,000Goodwill
                  and intangible impairments
              
              
              9,768,000
              
              
              -Difference
                  between book and tax basis of depreciation and
                  amortization
              
              
              1,034,000
              
              
              (123,000
              )Deferred
                  compensation
              
              
              519,000
              
              
              -18,010,000
              
              
              310,000Valuation
                  Allowance
              
              
              (18,010,000
              )
              
              -Net
                  deferred income tax asset
              
              $
              -
              
              $
              310,000
  Reconciliation
        of the U.S. statutory rate with the Company's effective tax rate is summarized
        as follows:
 
 Year
                    Ended
                June
                  30, 2006
              
              Period
                    from October 15, 2004
                (Date
                    of Acquisition) to
                June
                  30, 2005Federal
                  statutory tax benefit
              
              
              (34
              )%
              
              (34
              )%State
                  income tax benefit, net of federal tax benefit
              
              
              (6
              )
              
              (6
              )Valuation
                  allowance
              
              
              40Effect
                  of reversal of deferred tax asset
              
              
              0.70Effective
                  tax rate (benefit)
              
              
              0.70
              %
              
              (40
              )%
  F-20
  The
        Company establishes a valuation allowance in accordance with the provision
        of
        SFAS No. 109, “Accounting for Income Taxes.” The Company continually review the
        adequacy of the valuation allowance and recognizes a benefit from income
        taxes
        only when reassessment indicates that it is more likely than not that the
        benefits will be realized. As of June 30, 2006, the Company has recorded
        a
        valuation allowance against the entire deferred tax asset.
  As
        of
        June 30, 2006, the Company had net operating loss carry forwards available
        in
        future periods to reduce income taxes that may be payable at those dates.
        For
        federal and California income tax purposes, net operating loss carry forwards
        amounted to approximately $15,690,000 and expire during the years 2026 and
        2016,
        respectively.
  As
        described in Note 1 under Income Taxes, the Seller Entities did not pay income
        taxes, as the losses are included in the individual income tax returns of
        their
        stockholders and members for PII, RPP, and LLC.
  **NOTE
        17 - PRODUCT DEVELOPMENT AND LICENSE AGREEMENTS**
  Predecessor
        - The Seller Entities entered into a product development agreement with a
        third
        party who co-invented the ShowtimeTM Rotisserie products, as well as a number of
        other products for the Seller Entities. Under the terms of the agreement,
        the
        Seller Entities incur an expense in an amount equal to 25% of net profits,
        as
        defined, or is reimbursed by the third party for 25% of net losses, as defined.
        For the nine months ended June 29, 2005 and September 30, 2004 and for the
        year
        ended December 31, 2003, the Seller Entities recorded income (expense) from
        the
        reimbursement of losses (payment of product development fees) of approximately
        $468,000, $1,407,000, and ($1,777,000), respectively, which is included in
        selling, general and administrative expenses in the accompanying combined
        statements of operations. The Successor is not a party to this
        agreement.
  The
        Seller Entities also entered into licensing agreements with an unrelated
        company
        that holds the patents on certain of its products. Under the terms of the
        licensing agreements, as amended, the Seller Entities incur license fees
        ranging
        from $6 to $17 per unit sold through 2007. Licensing expense under these
        agreements for the nine months ended September 30, 2004 and for the year
        ended
        December 31, 2003 amounted to approximately $3,251,000 and $10,004,000,
        respectively. In December 2004, the license agreements were amended and
        terminating them effective August 31, 2004.
  **NOTE
        18 - COMMITMENTS AND CONTINGENCIES**
  **Letters
        of Credit**
  As
        of
        June 30, 2006, the Company is contingently liable to a bank for open
        letters of credit for purchases of inventory of approximately $242,000 which
        is
        secured by a deposit account at the bank.
  **Leases**
  In
        November 2005, the Company entered into a lease for 81,646 square feet of
        space
        located in Simi Valley, California. The lease has a 10-year term beginning
        on
        May 1, 2006 and ending on April 30, 2016. The monthly base rent under the
        lease
        is $44,905 for the first year and increases by approximately 0.97% each year
        thereafter. The lease also provides that the Company must pay approximately
        $9,800 each month for taxes, insurance, landscaping, management and
        reserves.
  Rent
        expense under operating leases, including related party rent, for the year
        ended
        June 30, 2006, nine months ended June 29, 2005 and September 30, 2004 and
        for
        the year ended December 31, 2003 were approximately $391,000, $324,000, $303,000
        and $403,000, respectively.
  The
        Seller Entities leased office space from a related party, Popeil. Rent expense
        paid to this related party under the month-to-month lease was $45,000, $45,000
        and $60,000 for the nine months ended June 29, 2005 and September 30, 2004
        and
        for the year ended December 31, 2003, respectively.
 
 Future
        minimum lease payments on all non-cancelable operating leases as of
        June 30, 2006 are as follows:
  Year
                  ending June 30,2007
              
              $
              496,0002008
              
              
              680,0002009
              
              
              700,0002010
              
              
              721,0002011
              
              
              744,000Thereafter
              
              $
              4,012,000$
              7,353,000
  F-21
  **Popeil
        Agreements**
  On
        June
        30, 2005, the Company entered into several agreements with Popeil which include
        a Consulting Services Agreement, a Trademark Co-Existence Agreement, a New
        Product Development Agreement, and an agreement that the Company will pay
        Popeil
        a percentage of the gross profits generated from the sale of the Company's
        products which result from Popeil's ongoing personal appearances on QVC,
        a
        wholesale customer, or other television or online shopping venues.
  The
        Consulting Agreement is for a term of three years for an annual base fee
        of
        $500,000 per year, paid in equal weekly installments. In addition, the Company
        will pay certain fees for personal appearances, as defined. Popeil will be
        eligible to receive incentive stock options at the sole discretion of the
        Board
        of Directors.
  The
        Trademark Co-Existence Agreement was entered into with respect to the names
        “Popeil,” “Ron Popeil” and the name form of the likeness approved by Popeil,
        including the image, silhouette and voice (the “Marks”), as defined. The term of
        this agreement continues as long as the Marks are protected by the laws of
        the
        United States of America. Popeil retains the right to approve all uses of
        the
        name and likeness for any purpose, as defined.
  The
        New
        Product Development Agreement has terms that the Company will be offered
        a
        fifteen-day right of first refusal on all new consumer products, as defined,
        that are created by Popeil during the term. The purchase price of each new
        product will include the cost of any product designs, prototypes, tooling
        and a
        completed commercial or infomercial. Popeil will have creative control over
        all
        new consumer product created, as defined. Popeil has the right to terminate
        this
        agreement, if a breach to any provisions of this agreement or to any other
        of
        the above discussed agreements are breached and not cured to Popeil satisfaction
        within fifteen-days of such breach.
  **Litigation**
  On
        April
        3, 2006, Palisades Master Fund, L.P. (“Palisades”), a holder of our Series A
        Convertible Preferred Stock, filed a lawsuit against us in the United States
        District Court for the Southern District of New York, claiming breach of
        contract based on our failure to have a registration statement declared
        effective by October 28, 2005 for the sale of Palisades’ shares of our common
        stock and failure to pay dividends and penalties to Palisades. On September
        29,
        2006, Palisades filed an Amended Complaint, claiming that Palisades also
        incurred damages due to Ronco's alleged failure to timely issue documents
        that
        would allow Palisades the ability to sell its common stock pursuant to Rule
        144.  Palisades claims that Ronco's alleged conduct was in breach of the
        Certificate of Designation.
  On
        May
        22, 2006, Evan J. Warshawsky, our former Chief Financial Officer filed a
        lawsuit
        in Los Angeles County Superior Court against the Company seeking damages
        in
        excess of $600,000 in connection with his termination which was accrued at
        June
        30, 2006 as part of accrued expenses. The complaint alleges causes of action
        for
        breach of employment agreement, declaratory relief and wrongful termination
        in
        violation of public policy. The lawsuit was stayed pending resolution of
        the
        arbitration. The parties have not begun arbitration proceedings.
  On
        June
        22, 2006, we received a demand letter from Mr. Paul F. Wallace,
        a stockholder, seeking prompt payment of $41,285 plus interest from us as
        partial liquidated damages for our failure to have a registration statement
        declared effective by October 28, 2005 for the sale of Wallace’s shares
        of stock.  The demand letter also seeks a monthly payment of $5,027 as
        partial liquidated damages until such registration statement is declared
        effective.   The demand letter was updated on August 21, 2006 to increase
        the amount owed to $50,296.
  On
        August
        30, 2006, we received a letter from counsel to Human Electronics (a vendor
        to
        the Company) demanding payment for allegedly unpaid invoices amounting to
        some
        $488,549 for a large quantity of items manufactured and shipped for us. 
Human Electronics asserts that the invoices totaled $2,058,871, which have
        been
        included in accounts payable as of June 30, 2006, and that of that amount,
        an
        insurance company paid them $1,570,323 and that the unpaid balance is still
        due.  Human Electronics then threatened suit if the amount claimed to be
        due was not paid in 7 days.  We responded to the demand on September 5,
        2006 asserting a number of responses, including offsets and demanding that
        Human
        Electronics return certain of our assets (consisting of tooling, some inventory
        and parts) in Human Electronics' possession.  We offered to pay the balance
        ultimately determined to be due, subject to working out a definitive settlement
        agreement that includes a payment arrangement with the insurance carrier,
        a
        payment arrangement with Human Electronics and working out a resolution
        with respect to the disposition of the remaining issues addressed in the
        initial
        demand letter from Human Electronics.
 
 F-22
  **NOTE
        19 - RELATED PARTY TRANSACTIONS**
  As
        part
        of the Acquisition, the Company had a due from the Seller Entities of
        approximately $136,000 of assets that were not transferred at June 30, 2005
        that
        were subsequently transferred.
  Pursuant
        to the terms stated in the lease (See Note 18), the Company executed in November
        2005, the Company's general counsel at that time, Gilbert Azafrani, was entitled
        to receive an aggregate of approximately $156,000 as a broker's commission
        for
        negotiating the lease of which he is required to pay to a co-broker
        approximately $52,000. The commission was payable in two installments, half
        upon
        execution of the lease and the balance upon occupancy. In addition, subject
        to
        certain terms and conditions, Mr. Azafrani is also entitled to a commission
        equal to 2.5% of the purchase price if the Company exercises its option to
        purchase the property subject to the lease. The Company believes that the
        terms
        of the lease are no less favorable to the Company as terms that the Company
        could have obtained in a transaction where an unaffiliated party acted as
        a real
        estate broker.
  As
        described in Note 1 under Business, the Company entered into certain
        transactions to acquire the assets of the Seller Entities and Popeil and
        issued
        stock to a group of entities owned, controlled and/or affiliated with the
        promoters; these entities collectively and inclusive of their affiliates
        are
        considered the “Venture Group.” The Venture Group collectively held 533,334
        shares of common stock of the Company. In addition, in connection with the
        Acquisition, the Company paid cash fees consisting of (i) a base fee of
        $1,800,000, and (ii) an incremental fee equal to five percent of any cash
        and
        cash equivalent the Company received in excess of $6 million at June 30,
        2005,
        as mutually agreed.
  Prior
        to
        the Acquisition, RMC secured its initial working capital from a group of
        private
        accredited investors, collectively, the “Ronco Private Group” through the sales
        of shares and approximately $392,000 in promissory notes of RMC. On June
        30,
        2005, the promissory notes held by the Ronco Private Group were redeemed
        at face
        value plus accrued interest. In addition, the Ronco Private Group collectively
        owns 266,688 shares of common stock.
  The
        shares held by both the Venture Group and the Ronco Private Group are restricted
        shares. These shares are subject to the Registration Rights
        Agreement.
  The
        Company has agreed to indemnify and hold harmless and generally release the
        members of the Venture Group, their managers, directors and officers from
        and
        against any loss, claim, damage, liability or expense arising from the
        Acquisition, as defined.
  **NOTE
        20 - EMPLOYEE BENEFIT PLAN**
  The
        Company sponsors a 401(k) defined contribution benefit plan covering
        substantially all of its employees. Under the plan, employees can make annual
        voluntary contributions not to exceed the lesser of an amount equal to 15%
        of
        their compensations or limits established by the Internal Revenue Service
        Code.
        The Company does not provide for matching contributions, but does pay a 3%
        safe
        harbor contribution for each employee.
 
  F-23
  **NOTE
        21 - QUARTERLY DATA (Unaudited)**
 **Revenue**
                
                **Gross
                    Profit**
                
                **Earnings
                    (Loss) from operations**
                
                **Net
                    Earnings (Loss)**
                
                **Net
                    Loss**
                  **attributable
                    to common stockholders**
                
                **Loss
                    per share attributable to common stockholders -Basic and
                    Diluted**
                
                **Proforma
                    Earnings (loss) per share attributable to common stockholders
                    -Basic and
                    Diluted****Successor****Fiscal
                    2006 Quarter ended**September
                    30, 2005
                
                $
                13,089,410
                
                $
                8,648,624
                
                $
                (4,918,672
                )
                $
                (3,131,190
                )
                $
                (3,756,190
                )
                $
                (1.80
                )
                $
                -December
                    31, 2005
                
                
                29,644,381
                
                
                20,166,283
                
                
                (474,716
                )
                
                (562,898
                )
                
                (2,235,898
                )
                
                (1.07
                )
                
                -March
                    31, 2006
                
                
                10,093,898
                
                
                7,716,298
                
                
                (4,401,171
                )
                
                (2,811,754
                )
                
                (4,936,741
                )
                
                (2.36
                )
                
                -June
                    30, 2006
                
                
                5,896,137
                
                
                2,183,176
                
                
                (32,980,783
                )
                
                (37,914,538
                )
                
                (38,127,891
                )
                
                (18.22
                )
                
                -$
                58,723,826
                
                $
                38,714,381
                
                $
                (42,775,342
                )
                $
                (44,420,380
                )
                $
                (49,056,720
                )
                $
                (23.45
                )
                $
                -
  
 **Predecessor****Fiscal
                    2005 Quarter ended**September
                    30, 2004
                
                $
                21,083,983
                
                $
                16,551,980
                
                $
                (1,350,835
                )
                $
                (1,300,222
                )
                $
                (1,300,222
                )
                $
                -
                
                $
                (0.62
                )December
                    31, 2004
                
                
                43,690,709
                
                
                32,715,771
                
                
                2,843,052
                
                
                1,898,407
                
                
                1,898,407
                
                
                -
                
                
                0.91March
                    31, 2005
                
                
                14,593,089
                
                
                10,271,908
                
                
                (444,810
                )
                
                (1,377,650
                )
                
                (1,377,650
                )
                
                -
                
                
                (0.66
                )June
                    30, 2005
                
                
                10,701,303
                
                
                9,153,365
                
                
                (703,671
                )
                
                (1,658,286
                )
                
                (1,658,286
                )
                
                -
                
                
                (0.79
                )$
                90,069,084
                
                $
                68,693,024
                
                $
                343,736
                
                $
                (2,437,751
                )
                $
                (2,437,751
                )
                $
                -
                
                $
                (1.17
                )
   **Note:**Proforma weighted average shares were used to calculate Proforma
                  Earnings
                  (Loss) per share attributable to common stockholders for the predecessor
                  entity.
  F-24
 
 **NOTE
        22 - SUBSEQUENT EVENTS**
  Debt
—
On
        October 6, 2006 Ronco Corporation entered into a Loan and Security Agreement
        with Crossroads Financial, LLC, as the lender.  This facility consists of a
        revolving loan facility of up to $4,000,000 of which the company borrowed
        $4,000,000 at the initial funding, to be used to pay certain existing
        indebtedness and fund general operating and working capital needs.
        This credit facility has a term expiring September 1, 2007 at which
        time all amounts due under the facility become due and payable, but is
        automatically renewed for consecutive one year terms unless terminated by
        written notice of either party 60 days prior to the end of the initial Term
        or
        any renewal Term.  The amount the company may borrow under this
        credit facility is determined by a percentage of the cost of
        eligible inventory, up to a maximum of $4,000,000.  Interest
        under this facility is payable monthly, commencing October 1, 2006, with
        the
        interest rate equal to 18% per year.  The Company has authorized the
        lender to collect all payments of interest, monthly monitoring fees, principal
        payments and any Over Advance (as defined in the Loan and Security Agreement)
        directly from the Company's factor, Prestige Capital Corporation, which provides
        an accounts receivable factoring facility for the Company.  The Company's
        obligations under this facility are secured by a lien on substantially all
        the
        assets of the company including a pledge of the equity interests of its
        subsidiary, Ronco Marketing Corporation, and a secured guaranty by Ronco
        Marketing Corporation. This facility contains limited covenants, including
        covenants that the Company not sell or dispose of assets or properties
        other than inventory sold in the ordinary course of business, and that
        the company keep the Collateral free and clear of liens, except Permitted
        Liens. This facility includes customary default provisions, and all
        outstanding obligations may become immediately due and payable in the event
        of a
        default.  The loan can be prepaid upon payment of a prepayment penalty of
        $12,000 per month for each month remaining in the Prepayment Period (i.e.,
        the
        number of months remaining in the Term at the time of the prepayment), with
        a
        minimum prepayment penalty of $100,000.
   On
        October 6, 2006 Ronco Corporation executed a Modification and Extension
        Agreement with Prestige Capital Corporation which extended the existing
        factoring agreement until October 1, 2007. Thereafter the Agreement shall
        renew
        itself automatically for additional one (1) year period unless either party
        receives written notice of cancellation from the other, at minimum, sixty
        (60)
        days prior to the expiration date of each sixty (60) day period. In addition
        to
        the factoring of Ronco Corporation, Prestige will collect all cash receipts
        of
        Ronco Corporation as part of its agreement with Crossroads Financial LLC.
        The
        fee for Prestige’s collection services shall be 10 basis points of the total
        collections (excluding factored accounts) received by Prestige.
  F-25