**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-K/A**


**(Amendment
      No. 3)**




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.




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




Large
      Accelerated File r 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**




**PART
                I**
            
            **Page**Item
                1.
            Business
            3Item
                1A.
            Risk
                Factors
            11Item
                1B.
            Unresolved
                Staff Comments
            19Item
                2.
            Properties
            19Item
                3.
            Legal
                Proceedings
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            20**PART
                II**Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                purchases of Equity Securities
            20Item
                6.
            Selected
                Financial Data
            21Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            22Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            36Item
                8.
            Financial
                Statements and Supplementary Data
            37Reports
                of Independent Registered Public Accounting Firm
            F-2
                - F-3Consolidated
                Balance Sheet
            F-5Consolidated
                and Combined Statements of Operations
            F-6Consolidated
                and Combined Statements of Cash Flows
            F-7Consolidated and
                Combined Statement of Stockholders’ and Members Equity
                (Deficiency)
            F-8
                - F-9Notes
                to Consolidated and Combined Financial Statements
            F-10
                - F-26Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            37Item
                9A.
            Controls
                and Procedures
            37Item
                9B
            Other
                Information
            38**PART
                III**Item
                10.
            Directors
                and Executive Officers of the Registrant
            39Item
                11.
            Executive
                Compensation
            42Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            46Item
                13.
            Certain
                Relationships and Related Transactions
            51Item
                14.
            Principal
                Accountant Fees and Services
            53**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            53










**Explanatory
      Note**




This
      amendment on Form 10-K/A (Amendment No. 3) 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 and by amendment on Form 10-K/A
      (Amendment No. 2) filed with the Securities and Exchange Commission on January
      3, 2007 (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 for the predecessor
                entities





·
            restating
                the Consolidated Balance Sheets, Consolidated and Combined Statements
                of
                Operations, Consolidated and Combined Statements of Cash Flows and
                Consolidated and Combined Statements of Stockholders' and Members'
                Equity
                (Deficiency) for the
                following:




·
            to
                reclassify the settlement of penalties relating to the registration
                rights
                agreement previously recorded as dividends to registration penalty
                expense
                in accordance with SFAS 5;





·
            to
                account for the difference of $605,000 between the accrued penalty
                liability of $4,048,000 and the settlement amount of $3,443,000 resulting
                in a gain on settlement of $467,000, and $138,000 associated with
                related
                parties as a contribution to capital in accordance with APB 26, footnote
                1, by crediting additional paid in
                capital;





·
            to
                account for the difference of $727,000 between the accrued dividend
                liability of $2,500,000 and the settlement amount of $1,773,000 resulting
                as a gain on settlement of $562,000, and the portion of the gain
                of
                $165,000 associated with related parties as a contribution to capital
                in
                accordance with APB 26, footnote 1, by crediting additional paid
                in
                capital;





·
            revising
                the disclosure in Items 1, 5, 6 and 7 in relation to the above described
                changes. The Company is also filing the restated financial statements
                described in Item 8 of this Form 10-K/A. The Company is also including
                new
                certifications as exhibits 31.1, 31.2, 32.1 and 32.2, as referenced
                in
                Item 15 of this Form 10-K/A. The other items included in this Form
                10-K/A
                are set forth herein for convenience only and the information set
                forth in
                such other items has not been amended or revised from the information
                set
                forth in these items in the Original Report.




In
        addition to this report on Form 10-K/A, the Company is filing a Current Report
        on Form 8-K to report the Company's determination concerning the unreliability
        of previously issued financial statements included in prior reports filed
        by the
        Company. The Company will also file an amended Quarterly Report on Form 10-Q/A
        to restate the Company’s financial statements for the period ended September 30,
        2006, and to make changes to disclosure corresponding to these changes.
  You
        should not rely on the financial statements and other financial information
        contained in the Company’s Forms 10-K and 10-Q for periods ended June 30, 2006
        and September 30, 2006.




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.









**PART
      I**




This
      report, including the sections entitled “Risk Factors,” “Management’s Discussion
      and Analysis of Financial Condition and Results of Operation” and “Business,”
contains “forward-looking statements” that include information relating to
      future events, future financial performance, strategies, expectations,
      competitive environment, regulation and availability of resources. These
      forward-looking statements include, without limitation, statements regarding:
      proposed new services; our expectations concerning litigation, regulatory
      developments or other matters; statements concerning projections, predictions,
      expectations, estimates or forecasts for our business, financial and operating
      results and future economic performance; statements of management’s goals and
      objectives; and other similar expressions concerning matters that are not
      historical facts. Words such as “may,” “will,” “should,” “could,” “would,”
“predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,”
“intends,” “plans,” “believes” and “estimates,” and similar expressions, as well
      as statements in future tense, identify forward-looking statements.




Forward-looking
      statements should not be read as a guarantee of future performance or results,
      and will not necessarily be accurate indications of the times at, or by which,
      that performance or those results will be achieved. Forward-looking statements
      are based on information available at the time they are made and/or management’s
      good faith belief as of that time with respect to future events, and are subject
      to risks and uncertainties that could cause actual performance or results to
      differ materially from those expressed in or suggested by the forward-looking
      statements. Important factors that could cause these differences include, but
      are not limited to:




·
            seasonal
                patterns affecting consumer spending, primarily related to the Christmas
                holiday season as well as other gift-centric
                holidays;




·
            other
                seasonal patterns affecting the performance of television media,
                primarily
                weather;




·
            availability
                of raw materials and manufacturing capacity, which may limit the
                ability
                to get our products manufactured;




·
            the
                relative availability of attractive media time within a given period
                for
                us to promote our products;




·
            changes
                in interest rates, which may impact certain customers' decisions
                to make
                purchases through credit cards;




·
            the
                impact of general economic
                conditions;




·
            the
                introduction of new product offerings;
                and




·
            the
                introduction of new infomercials for existing products.;
                and




·
            other
                factors discussed under the headings “Risk Factors,” “Management’s
                Discussion and Analysis of Financial Condition and Results of Operations”
                and “Business.”




Forward-looking
      statements speak only as of the date they are made. You should not put undue
      reliance on any forward-looking statements. We assume no obligation to update
      forward-looking statements to reflect actual results, changes in assumptions
      or
      changes in other factors affecting forward-looking information, except to the
      extent required by applicable securities laws. If we do update one or more
      forward-looking statements, no inference should be drawn that we will make
      additional updates with respect to those or other forward-looking
      statements.




2




**Item
                1.**
            **Business.**




**Corporate
      Overview**




We
      are a
      developer, marketer and distributor of branded consumer products for the kitchen
      and home. Our products are primarily sold through direct response television
      marketing by broadcasting 30-minute long advertisements commonly referred to
      as
“infomercials.” Ronald M. Popeil, our principal consultant and founder of our
      operating business, started selling products under the Ronco brand over forty
      years ago. Over the last six years, Ronco branded products have been sold to
      over five million customers.





We
      were
      incorporated under the name Fi-Tek VII, Inc. under the laws of the State of
      Delaware on July 12, 1990. Before June 30, 2005, we were a “blank check”
company. During this time, we engaged in no significant operations other than
      the search for, and identification and evaluation of, possible acquisition
      candidates. The address of our principal executive offices is 61 Moreland Road,
      Simi Valley, California 93065 and our telephone number is (805) 433-1030. Our
      corporate web site is www.ronco.com . The
      information on our web site is not a part of this prospectus.





In
      June
      2005, we (at the time operating under the name Fi-Tek VII, Inc.) completed
      a
      series of related transactions including the merger of our wholly-owned
      subsidiary, Ronco Acquisition Corporation, with and into Ronco Marketing
      Corporation and the acquisition of assets comprising the Ronco business from
      Ronco Inventions, LLC, Popeil Inventions, Inc., RP Productions, Inc., which
      we
      refer to collectively as the predecessor entities, and Mr. Popeil. On June
      30,
      2005, in connection with these transactions, we changed our name to Ronco
      Corporation.




The
      following table summarizes these transactions and our corporate
      structure:












3




**Our
      Products**




We
      operate in a single operating segment which designs, sources, markets and
      distributes our products. We currently offer two product categories: kitchen
      products and household products. The majority of our products were developed
      by
      Mr. Popeil, and we acquired the intellectual property rights underlying those
      product lines through our acquisition of assets from the predecessor entities
      and Mr. Popeil. All of our products carry the Ronco or Popeil brand
      names.




*Kitchen
      Products*




We
      manufacture or source, market and distribute innovative, affordable and highly
      functional products for use in kitchens. Our products include the
      following:




·
            ShowtimeTM
                Rotisserie & BBQ




·
            Electric
                Food Dehydrator




·
            Six
                Star+TM Cutlery Set




·
            Popeil's
                Pasta Maker




·
            Solid
                Flavor Injector




We
      have
      also, over the last year, reintroduced products previously sold by the
      Predecessor Entities, including the Chop-O-Matic, Bagel Slicer, Dial-O-Matic
      and
      Inside the Shell Egg Scrambler.




Our
      most
      prominent and successful product line today is our family of ShowtimeTM
Rotisserie & BBQ electric rotisserie ovens and accessories. We offer several
      models of ShowtimeTM ovens including the standard unit, the compact unit and the
      professional unit. In addition, we sell a variety of accessories which
      complement this appliance, including cookbooks, food products, flavor injectors,
      gloves, racks, and self-turning kebab rods. Historically, our ShowtimeTM
rotisserie products have had very low return rates, averaging 3% of units sold.
      Since the 1998 launch of this product family, over $760 million in
      ShowtimeTM-related products have been sold. The majority of the sales originated
      from direct response television marketing.




Another
      of our prominent product lines is the family of Six Star+TM Cutlery Sets of
      knives for use in residential kitchens. We offer a range of accessories that
      complement our Six Star+TM Cutlery Sets, including flatware, knife sharpeners,
      scissors and wooden blocks. Since this product family's introduction in November
      2003, over 650,000 Six Star+TM Cutlery Sets have been sold with a return rate of
      less than 3%.




Since
      2002, the ShowtimeTM family of products and the Six Star+TM cutlery family of
      products have accounted for in excess of 94% of our revenues.




*Household
      Products*




We
      also
      manufacture or source, market and distribute the Pocket Fisherman and GLH
      Formula Number 9 Hair System. The Pocket Fisherman is being maintained because
      it is a classic and instantly identified with the Ronco brand. GLH has a very
      loyal following and we believe that it will offer licensing opportunities in
      the
      future.




We
      believe that our products are characterized by their fundamental utility,
      innovation, quality and value.




**Our
      Industry**




Direct
      response marketing is a form of advertising or promotion that seeks to generate
      an immediate sale or lead from prospective customers. The direct response
      industry, which consists of direct response television, marketing, live home
      shopping channels, direct mail, catalogs, internet marketing and advertising,
      and outbound telemarketing, is one of the fastest growing segments of the
      retailing industry.




Direct
      response marketing allows marketers to develop, test, implement, measure and
      modify their marketing programs. The advertiser can monitor exactly how much
      business is derived from each station, each commercial flight and each creative
      effort. Direct response television has succeeded as a medium in part because
      the
      format allows potential purchasers to see products actually in use. Direct
      response television combines the power of television with the precision of
      direct marketing. Top direct response television product categories have
      historically included fitness equipment, housewares, beauty products, healthcare
      and diet products, and coins and collectibles.





Direct
      response television consists of both short-form infomercials and long-form
      infomercials. Short-form infomercials are typically one to three minutes in
      length and are used to market simple, easy-to-understand products with very
      affordable price points. In contrast, long-form infomercials are typically
      twenty-eight to thirty minutes in length and utilize a more elaborate sales
      pitch, which generally involves identifying a problem or need and introducing
      a
      product solution, supported by product demonstrations, question-and-answer
      sessions and audience testimonials. Long-form infomercials are the medium of
      choice for products sold at a higher price point and require a more elaborate
      presentation of the product's features and benefits.





4




Many
      infomercials are filmed before a studio audience and feature one or more hosts
      to explain and demonstrate the virtues of a given product, solicit audience
      member testimonials and then present the opportunity to purchase a given product
      through a toll-free phone number provided during the infomercial. The atmosphere
      created within an infomercial is generally positive and high-energy to convey
      the benefits created by a product. Often, celebrities are enlisted to act as
      hosts or to otherwise endorse products marketed through
      infomercials.




Companies
      who market their products through direct response television typically purchase
      commercial airtime from local broadcast stations and regional and national
      cable
      television operators across the country, either directly or through media buying
      agencies. Infomercial programs are most commonly run during late night and
      overnight time periods during the week and throughout the day on
      weekends.




Availability
      of time periods varies from station to station, depending on programming. The
      majority of customer purchases occur within the first four hours following
      the
      airing of infomercial programs. Some direct response television companies also
      choose to market their products through retail channels, particularly after
      a
      product has been on air a sufficient amount of time to build brand awareness
      required for success at the retail level.




In
      addition to domestic television and retail channels, there is generally a
      significant demand for U.S. direct response television products internationally.
      A direct response television company with a successful product in the U.S.
      may
      work with one or more international distributors who specialize in bringing
      U.S.
      direct response television products to countries around the world. Some of
      the
      leading international distributors for direct response television products
      include Thane, Interglobal, TV Shop, TelSel, and Northern Response.




**Marketing
      and Distribution**




We
      primarily distribute our products through three channels: direct response
      television marketing, wholesale and retail outlets, and online commerce. These
      channels and new product strategy with respect to marketing and distribution
      are
      described below.




*Direct
      Response Television (Infomercials)*




We
      market
      our products direct to consumers through thirty-minute infomercials, which
      allow
      potential customers to see demonstrations and hear testimonials of our products.
      Since 2002, in excess of 77% of our gross product sales have been generated
      through direct response television marketing. Our infomercials provide viewers
      with the opportunity to purchase our products by calling a toll-free phone
      number provided during the infomercial. Of the 210 broadcast markets in the
      U.S., we primarily focus on the top 90 markets for infomercials, airing on
      as
      many as 4 to 8 stations in each market. We ensure the highest profitability
      from
      the broadcast of our infomercials by closely monitoring media costs per order
      and encouraging telemarketers to suggest additional products to all customers
      who call the toll-free number. Most of our infomercials air between Friday
      evening and Saturday afternoon to ensure the maximum viewership.




We
      produce our own infomercials, and purchase television media through our internal
      media group, that does business as Castle Advertising, we purchase broadcast
      and
      cable time to reach consumers. Castle Advertising employs several highly trained
      media buyers who purchase media on our behalf at pricing that we believe is
      significantly below that which would be obtainable through the use of a
      third-party media buying agency. In contrast, other infomercial companies will
      typically have a modest staff of in-house buyers and outsource most of their
      media buying activities to third-party agencies. We believe this competitive
      practice provides us a distinct competitive advantage.





Castle
      Advertising functions as an independent agency and receives agency commissions
      from media outlets, thereby reducing our net media costs. Media expenditures
      are
      highly volatile and depend on many factors, including type of television
      station, short or long-form infomercial, time slots for our target audience,
      rating and size of audience delivered, seasonal influences on available media
      inventory, general market trends, and negotiation of packaged
      deals.




We
      also
      intend to supplement our direct response television distribution channel by
      continuing to develop and expand sales through our customer service department
      and our third party outbound telemarketers.




*Wholesale
      and Retail Distributions*




In
      addition to television marketing, we sell our products through selected
      traditional retailers. These wholesale arrangements are made through agents
      and
      distributors and directly to large retail chains. During the period from 2002
      through June 30, 2005, sales through wholesale and retails distribution channels
      accounted for approximately 19% to 26% of our gross product sales. In the fiscal
      year ended June 30, 2006, sales through wholesale and retail distribution
      channels accounted for 38% of our gross product sales.





5


We
      plan
      to expand our retail distribution network by entering into direct distribution
      agreements with key national retailers of household and home improvement
      products. We are currently in discussions with a number of mass merchants,
      department stores and large retail chains in an effort to achieve wider retail
      distribution of our products nationwide. In September 2005, we began shipping
      our rotisserie ovens to Wal-Mart Stores, Inc. and have successfully secured
      a
      repeat of this program that shipped in September 2006.




*Online
      Commerce*




We
      sell
      direct to consumers through our website, www.ronco.com. Historically our website
      has primarily been used by viewers of our television infomercial as an alternate
      means of purchase and by existing customers to buy additional products and
      accessories. We plan to redesign the website to accommodate higher traffic
      counts and to support more robust features such as product up-sells (the
      recommendation of higher-priced versions of products) and cross-sells (the
      recommendation of related or complementary products), product recommendations,
      automated customer service, product demonstrations, customer affinity programs
      and branding. We expect that our website redesign will increase our ability
      to
      sell online, and will position our site for search engine optimization.
      Historically, online sales has represented approximately between 6 and 10%
      of
      our gross product sales.




**New
      Product Strategy**




We
      have
      historically focused a substantial portion of our creative, managerial and
      capital resources within a given period on a single product and have not
      diversified our business. Until the November 2003 launch of the Six Star+TM
Cutlery Set, a launch which overlapped with the marketing of our ShowtimeTM
Rotisserie line, Mr. Popeil had not simultaneously invested in and featured
      more
      than one major product line in a long-form infomercial at the same time. In
      addition, our historical product development efforts have relied solely on
      the
      inventions of Mr. Popeil, which could constrain our ability to respond to market
      opportunities on a timely basis or with forward-thinking product ideas. We
      intend to diversify our sources of product development and our emphasis on
      a
      given product category. We also intend to pursue a new product strategy by
      which
      we will:




*Work
      Closely with Mr. Popeil to Create New Products that Leverage our Historical
      Competencies In Product Development and Marketing*




As
      an
      inventor, Mr. Popeil has conceived of, developed and produced a succession
      of
      unique and highly-functional products that have been well-suited to infomercial
      marketing, which feature thorough product demonstrations, discussions of a
      product's virtues and user testimonials. As a model, the sales of our ShowtimeTM
product family demonstrates the effectiveness of infomercials as a marketing
      medium and the value that we can create through innovative product design.
      On
      June 30, 2005, we entered into a new product development agreement with Mr.
      Popeil which provides that we will have an exclusive relationship with Mr.
      Popeil with respect to new product inventions for the next two
      years.





*Add
      Complementary Products to our Existing Primary Product
      Lines*




We
      plan
      to introduce product line extensions to our major product families in the
      future, including the ShowtimeTM Rotisserie and the Food Dehydrator, to take
      advantage of their imbedded customer bases and our cumulative media investment
      in building each sub-brand. In addition, most of our products have not been
      “versioned.” We believe this type of product differentiation will result in
      extended product life and allow us to increase our market share and retail
      shelf
      space for our products.




*Introduce
      New Ronco-branded Product Lines that Innovate through Packaging and
      Pricing*




We
      believe the success experienced thus far with the Six Star+TM Cutlery Set product
      line serves as a demonstration of the value that the Ronco brand can bring
      to
      the marketing of less unique items. Our cutlery product line takes advantage
      of
      the large market in cutlery sold through direct response television. While
      we
      own no intellectual property with respect to this product line, we have created
      a strong market position for our product offering through the value proposition
      (24 knives for $39.95), the Ronco brand, and our infomercial marketing and
      sourcing expertise. We intend to continue to selectively leverage our brand
      and
      market position to introduce and sell non-proprietary products.




*Introduce
      Unique Products from Third Parties that have the Opportunity to be Major
      Contributors*




We
      regularly receive new product ideas. We anticipate formalizing a process of
      new
      product evaluation and market testing. This effort would include identification
      of products that could be the subject of infomercial marketing by us under
      a
      license or royalty arrangement. Opportunities also exist within the industry
      to
      either purchase or form a joint venture with companies who have potentially
      successful product lines, but could benefit from our brand, marketing expertise
      and established distribution channels.





6




**Long-Term
      Marketing and Distribution Strategy**




Our
      objective is to increase our revenue, profitability and cash flow while growing
      our position as a direct response television marketer of branded products for
      use in the kitchen and elsewhere around the home. Our strategy for this
      objective includes the following key elements:




*Expand
      Retail Distribution*




We
      believe there is a substantially untapped opportunity to market our products
      through traditional retailers. To date, over five million ShowtimeTM Rotisserie
& BBQ units have been sold. Approximately three million of those units were
      sold through direct response television channels and two million through
      retailers. This represents a ratio of less than one retail unit sale for each
      one direct response television sale. Therefore, a core component of our strategy
      to increase revenue is to expand retail distribution of our products by entering
      into direct distribution agreements with key national retailers of household
      and
      home improvement products. We are also 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.




*Market
      Directly to the U.S. Hispanic Population*




We
      believe the Hispanic population within the U.S. represents a growing and
      attractive market for our products. According to a December 2004 Conference
      Board study, Hispanic-American households will sharply increase both their
      numbers and spending power over the next 10 years. By 2010, Hispanic households
      are expected to reach approximately 13.5 million, up from less than 6 million
      in
      1990, the report finds. According to the Conference Board, in 2010 the Hispanic
      market will represent $670 billion in personal income, however, the domestic
      Spanish language television market is still largely untapped by the direct
      response industry. Historically, we approached this market opportunity by
      re-producing certain content from our library of infomercials with Spanish
      dubbing. We do not believe that these efforts are the most effective method
      of
      addressing this marketing opportunity. We believe the market opportunity
      requires a more comprehensive strategy and investment. We plan to increase
      our
      domestic Spanish language media exposure through the production of a new
      infomercial, produced entirely in Spanish, with a Hispanic host and appropriate
      recipes. Beginning in July, 2006, we initiated efforts to market our products
      to
      retailers who sell in the Hispanic markets.




*Enhance
      Our Online Commerce Capabilities*




While
      sales through our e-commerce distribution channel have grown substantially,
      we
      believe our current website lacks many commonly-available e-commerce features
      that would improve the customer experience and increase our sales. In order
      to
      address this untapped opportunity, we plan to make a number of modifications
      and
      enhancements to our existing website operations. The enhancements and
      improvements that were completed include improving our technology infrastructure
      to accommodate higher traffic counts and simultaneous transaction processes.
      We
      are continuing to increasing online features to enable product up-sells, product
      recommendations, automated customer service, product demonstrations, customer
      affinity programs and overall branding. We are also providing higher quality
      online streaming of past and future infomercials and adding content that will
      draw potential customers to our site for repeat visits and for longer durations,
      including online newsletters, sweepstakes and promotions, and an expanded our
      recipe section featuring celebrity chef recipes and automated affiliate links.
      We expect to complete these enhancements within the next twelve
      months.




*Expand
      International Distribution*




We
      sell a
      nominal amount of product in international markets. In addition, the ShowtimeTM
product is marketed in Canada either through television/telemarketing (via
      Northern U.S. television stations) and The Shopping Channel or through retail
      outlets. We believe that our international market opportunity is vastly untapped
      and that the emergence of additional television shopping channels in Western
      Europe, Latin America and Asia present additional market opportunities.
      Beginning in February 2006, we began targeting these markets for export; this
      program includes both multi-national import/export companies, as well as
      individual in-country importers. We have signed an agreement with Interglobal
      International Ltd. to act as our distributor in this endeavor.




*Leverage
      our Customer Database for Relational Marketing Programs*




We
      maintain a database of over four million customers while adding many thousands
      of new customers each month, which is a valuable asset for current and future
      sales. To date, we have not exploited the potential value of this asset. We
      currently generate revenues through mining our customer lists and occasionally
      renting our list to third parties for a fee. Among the tools we are currently
      testing or developing are outbound telemarketing programs, catalogs, direct
      mail
      offers, and email.




**Manufacturing**




We
      currently outsource manufacturing of our products, primarily to China. We have
      been sourcing Six Star+TM Cutlery and related products in China since November
      2003. Delivery of ShowtimeTM Rotisseries from China began in September 2004. Our
      manufacturing was sourced in Korea prior to China. Our Chinese sourcing partner
      will assist us going forward with product development, product line extensions,
      quality control, and ongoing review of manufacturing and distribution. We will
      continue to re-engineer many of our business processes over the next several
      years and expect that we will further enhance our profitability as a result.
      We
      believe that our profitability will be increased by developing new products
      that
      increases sales while maintaining our historic gross profits.





7


We
      enjoy
      the protection of sixteen patents covering the design and manufacture of the
      ShowtimeTM Rotisserie & BBQ, and own the tooling and dies currently used by
      our manufacturers and their sub-contractors for production. Manufacturing of
      the
      ShowtimeTM product line is streamlined. Since the primary differentiation among
      all three ShowtimeTM units is width, common parts, including side panels, motor,
      gear assemblies, and electrical wiring are utilized. This allows for extremely
      efficient production and allocation among suppliers. There is a six to eight
      week production cycle from issuance of a purchase order to the arrival of the
      product at port in Los Angeles. This quick turnaround enables us to maintain
      relatively low levels of inventories and allows for efficient
      production.




**Fulfillment
      and Customer Service**




We
      utilize telemarketing service bureaus to handle most of the inbound traffic
      generated by potential customers who are calling one of the toll-free phone
      numbers provided within our infomercials. Each show has a unique toll-free
      phone
      number, enabling us to gather important data for determining the profitability
      of individual shows and products and the efficacy of our media buying. We have
      also implemented the use of unique internet URL addresses to track the traffic
      increase from our media to internet sales.




Potential
      customers call into a toll-free number, received by our telemarketing partners.
      Our telemarketing vendors route a customer's order, via order-fulfillment
      software, for approval. We use third-party vendors to process customer
      payments.





When
      an
      order is placed and the original method of payment is declined, our customer
      service department contacts the potential customer to obtain an alternate method
      of payment.  It is our experience that approximately 75% of such orders are
      recovered. We operate an in-house 80 seat customer contact center and utilize
      strategic partnerships with off-site vendors for customer service support during
      our peak volume periods.  We also operate a 30-seat data entry center,
      which handles our written correspondence, product warranties, returns,
      collections and quality assurance for all aspects of our call center
      operations.  Together, these departments generate sales revenues from
      inbound customer service inquiries, as well as outbound campaigns to existing
      customers. This customer contact center not only handles basic customer service
      inquiries, but also has instituted a number of successful inbound and outbound
      telemarketing programs that are currently generating significant revenues at
      attractive margins.




All
      approved orders are routed to a fulfillment house, which remits shipping status
      notifications back to us through our order-fulfillment software. The majority
      of
      our physical inventory is warehoused by our fulfillment partners.




**Arrangements
      with Ronald M. Popeil**




Although
      Mr. Popeil has not assumed day-to-day operational duties or executive
      responsibilities with us, he is continuing to be involved in our business as
      a
      consultant. We believe it is in our best interests and our stockholders' best
      interests to maintain a close working and financial relationship with Mr.
      Popeil. Accordingly, we have entered into several agreements with Mr. Popeil
      including a consulting services agreement, a trademark co-existence agreement
      and a new product development agreement. We have also entered into an agreement
      with Mr. Popeil pursuant to which we will pay Mr. Popeil a percentage of the
      gross profits generated from the sale of our products, which occur as a result
      of his ongoing personal appearances on QVC or other television or online
      shopping venues.




*Consulting
      Agreement with Ronald M. Popeil*




On
      June
      30, 2005, we entered into a consulting services agreement with Ronald M. Popeil
      for an initial term of three years. During the term of the agreement, Mr. Popeil
      will not enter into any consulting services, advisory services or employment
      agreement, nor directly provide consulting or advisory services to any entity
      or
      person that is in direct competition with our business or in violation of the
      new product development agreement, as described below. Pursuant to the
      consulting agreement, Mr. Popeil may, among other things, consult on the
      development of new products acquired by us pursuant to the new product
      development agreement. Mr. Popeil will also make the following personal
      appearances (each of which will be performed at Mr. Popeil's sole discretion,
      unless otherwise noted):




·
            Speak
                as our chief spokesperson for non-financial matters in all forms
                of media
                (not otherwise covered below) ;




·
            Promote
                our image by making up to six appearances per year on nationally
                broadcast
                television programs, if invited or booked by
                us;




·
            Make
                personal appearances for leading national
                retailers;




·
            Participate
                in the mandatory production of up to three long-form infomercials
                per year
                for the direct response television marketing of our products, if
                we choose
                to produce them; and




·
            Attend
                and participate in the Gourmet Show and Housewares Show (at our
                discretion).




8




We
      will
      pay Mr. Popeil an annual base fee of $500,000 per year, paid in equal weekly
      installments, at Mr. Popeil's direction, in the form of salary and/or payment
      of
      certain business expenses incurred by Mr. Popeil. In addition, we will pay
      Mr.
      Popeil certain fees for personal appearances in accordance with the following
      schedule:




·
            Fees
                for chief public spokesperson, which will be negotiated on a fair
                and
                reasonable basis as and when appearance requests
                arise;




·
            $10,000
                per day for appearances on nationally broadcast television
                programs;




·
            $10,000
                per day for appearances for leading national
                retailers;




·
            $50,000
                for each infomercial produced; and




·
            $50,000
                per day for the Gourmet Show and Housewares
                Show.




Mr.
      Popeil will be eligible to receive stock options under the stock incentive
      plan
      that we intend to implement during our next fiscal year, based on his
      contribution to our growth, as determined by our board of directors in its
      sole
      discretion. We will also provide customary indemnification to Mr. Popeil with
      respect to our products, appearances and other items.




*Trademark
      Co-Existence Agreement*




On
      June
      30, 2005, we also entered into an agreement with Mr. Popeil with respect to
      the
      names “Popeil,” “Ron Popeil” and the name and any form of the likeness approved
      by Mr. Popeil (or one of his representatives), including the image, silhouette
      and voice of Mr. Popeil. The term of this agreement will continue so long as
      the
      trademarks are protected by applicable U.S. law. Mr. Popeil retains as his
      sole
      and exclusive property, the worldwide royalty-free perpetual rights with respect
      to the trademarks for certain uses, including autobiographical works, various
      media projects, and a specific licensing arrangement. We acquired the trademarks
      subject to the rights of certain third parties, including QVC, the
      PopeilFamilyStore.com and Marketing Development Group. Should certain events
      of
      default with respect to the promissory notes issued in connection with our
      purchase of the assets of the predecessor entities occur, we will grant Mr.
      Popeil a non-exclusive license (at no cost to Mr. Popeil) to use the trademarks
      in connection with the manufacturing, marketing and sale of certain specific
      new
      products as to which Mr. Popeil elects, pursuant to the new product development
      agreement, and terminate the applicable patent or other intellectual property
      licenses we hold.




Mr.
      Popeil retains the right to approve all uses of his name and likeness for any
      purpose including but not limited to products, packaging, advertising and
      displays, but with such approval not to be unreasonably withheld or delayed.
      Should Mr. Popeil die or become incapacitated, a designated representative
      of
      Mr. Popeil will exercise the right of approval.




**New
      Product Development Agreement**




On
      June
      30, 2005, we entered into a new product development agreement with Mr. Popeil.
      Under the terms of the agreement, we have a fifteen day right of first refusal
      on all new consumer products (excluding all products that are autobiographical
      in nature) that are created by Mr. Popeil during the term, to the extent that
      Mr. Popeil owns and controls the rights to such products. Should certain events
      of default with respect to the promissory notes issued to the predecessor
      entities occur, the right of first refusal described above will be suspended
      until such event of default is cured. The purchase price of each new product
      will be negotiated and agreed upon on a fair and reasonable basis. The purchase
      price will include the cost of any product designs, prototypes, tooling and
      a
      completed commercial or infomercial.




The
      agreement also provides the terms of purchase for a specific product currently
      under development by Mr. Popeil, including a specific upfront payment and a
      per-manufactured-unit payment to be paid up to an aggregate maximum. We will
      also be obligated to pay the costs for all patent filings, tooling and
      infomercials related to this product and will be obligated to reimburse the
      out-of-pocket expenses incurred by Mr. Popeil in connection with the development
      of this product. All the intellectual property related to the product will
      remain with Mr. Popeil until the promissory notes, including any accrued and
      unpaid interest, are paid in full.




Mr.
      Popeil will have creative control over all new consumer products created by
      Mr.
      Popeil and sold to us under the new product development agreement, and control
      over all packaging, advertising, naming and promotion, including, without
      limitation, creative control over all stages of new product conception,
      creation, design, development and completion. Mr. Popeil has no obligation
      under
      the terms of this agreement to develop new products. Mr. Popeil will have the
      right to terminate the agreement if we breach any provision of the new product
      development agreement, the asset purchase agreement, the trademark co-existence
      agreement or the consulting agreement with Mr. Popeil, if the breach is not
      cured to Mr. Popeil's reasonable satisfaction within fifteen days of such
      breach.





**Sources
      of Supply**




We
      maintain supply contracts with third party suppliers, located primarily in
      Asia,
      which include standard terms for production and delivery. Specific production
      amounts are ordered by separate purchase orders. We believe that we maintain
      good business relationships with our overseas manufacturers, although these
      relationships were strained due to our cash shortfall and our payments for
      products purchased exceeded our agreed upon terms.





9




We
      believe that the loss of any one supplier would not have a long term material
      adverse effect on our business because we believe we would be able to locate
      other suppliers that would be able to increase production to fulfill our
      requirements. However, the loss of a supplier could, in the short term,
      adversely affect our business until alternative supply arrangements are
      secured.




**Backlog**




Although
      we obtain firm purchase orders from our customers, customers typically do not
      make firm orders for delivery of products more than 30 days in advance. In
      addition, customers may reschedule or cancel firm orders. Therefore, we do
      not
      believe that the backlog of expected product sales covered by firm purchase
      orders is a meaningful measure of future sales.




**Competition**




The
      direct response television marketing industry includes numerous companies that
      market their products on television through infomercials. Competition among
      direct response companies is largely based on: (i) ability to place infomercials
      into television time slots that yield the highest viewership and customer
      generation for a particular product; (ii) ability to purchase air time at
      competitive prices, create brand awareness, and generate sales profitably;
      and
      (iii) product quality, reputation and pricing. In the U.S., we compete with
      several other companies and products in the direct response industry, including
      GT Brands, Telebrands, Idea Village, Guthy-Renker, Tilia (a division of Jarden,
      Inc.), and Sylmark. We believe, however, that we have a definite advantage
      due
      to the strength of our brand and the consistent quality of our
      products.




We
      believe that manufacturers of small kitchen appliances, such as Cuisinart,
      Kitchen Aid, Oster, and DeLonghi, are not comparable competition because these
      products are mostly commoditized and are not characterized by unique, patented
      systems and designs. Currently, we believe there are very few competitive brands
      that market appliances equivalent to our proprietary models (such as the
      rotisserie and food dehydrator) in price, uniqueness or quality. We also compete
      with various manufacturers of kitchen knives and flatware, sold both through
      direct-to-consumer and retail channels. We believe that our Six Star+TM line of
      products favorably competes on quality and durability at very attractive price
      points. In addition, some mainstream manufacturers, such as Panasonic, Salton,
      Sharper Image, and Nautilus, have turned to direct response television to create
      self-liquidating brand value.




**Insurance
      Matters**




We
      currently carry insurance policies through major carriers for product liability,
      general liability, commercial property, automobile, plant and equipment, marine
      insurance, workers' compensation, directors and officers' insurance and excess
      liability. We currently have key man life insurance coverage and disability
      coverage on Ronald M. Popeil in the aggregate amount of $15 million. Under
      the
      terms of our June 2006 loan agreement with Sanders Morris Harris, we assigned
      proceeds payable under this key man life insurance policy to Sanders Morris
      Harris as a lender and as agent for the under lenders under the loan agreement.
      We have also increased the limits of our directors and officers' insurance
      commensurate with our status as a public company.




**Intellectual
      Property and Proprietary Rights**




We
      acquired a significant amount of proprietary technology covering the design
      and
      manufacturer of our products. We rely on patents and confidentiality,
      non-disclosure and assignment of inventions agreements to protect our
      proprietary rights. We hold over thirty patents on the proprietary design and
      manufacturing processes of our products.




Our
      policy is to require employees and consultants to execute confidentiality
      agreements when their relationship with us begins. We also seek these protective
      agreements from suppliers and subcontractors. These agreements provide that
      confidential information developed or made known during the course of a
      relationship with us is to be kept confidential and not disclosed to third
      parties, except in specific circumstances. It might be possible for unauthorized
      third parties to copy aspects of our products or to obtain and use information
      that we regard as proprietary.





We
      also
      have trademarks in the U.S. and various countries around the world covering
      a
      variety of our marks.




Many
      participants in the consumer products industry have an increasing number of
      patents and patent applications. Third parties may, from time to time, assert
      infringement claims in the future alleging infringement by our current or future
      products. It is possible that these claims may require us to enter into license
      arrangements or may result in protracted and costly litigation, regardless
      of
      the merits of these claims.





10


**Government
      Regulations**




We
      are
      subject to federal, state and local regulations concerning consumer products
      safety. Foreign jurisdictions also have regulatory authorities overseeing the
      safety of consumer products. Foreign compliance regulations vary by country
      and
      because of these various certifications we have encountered a very lengthy
      approval process for marketing and selling products in the European Union (EU).
      This process has delayed shipments to our international distributor. We have
      completed the necessary electric and RoHS (a directive that bans the placing
      on
      the EU market of the new electrical and electronic equipment containing high
      levels of lead and other contaminants) certifications for the United Kingdom,
      which should enable us to expand our sales into this international market during
      the third and fourth quarters of fiscal 2007.  Our small electric appliance
      products sold in the United States are listed by Underwriters Laboratory, Inc.,
      which we refer to as UL, and similar products sold in other countries are listed
      with local organizations similar to UL, if required.




**Employees**




We
      currently have approximately 117 employees, including executive, management,
      warehouse, customer service, media buyers and maintenance personnel. None of
      our
      employees are members of a labor union. We believe that we have good relations
      with our employees.




**Item
      1A.**  **Risk
      Factors.**




**Cautionary
      Statements and Risk Factors**




Several
      of the matters discussed in this document contain forward-looking statements
      that involve risks and uncertainties. Factors associated with the
      forward-looking statements that could cause actual results to differ materially
      from those projected or forecast are included in the statements below. In
      addition to other information contained in this report, readers should carefully
      consider the following cautionary statements *.*




**Risks
      Related to our Business**




*We
      have a history of operating losses and we may be unable to achieve or maintain
      profitability.*




Ronald
      M.
      Popeil has been selling products under the Ronco brand name since the early
      1960s. The predecessor entities have been operating since 1991 under various
      brands and entities. These entities have recorded operating losses during
      various periods in their operating history. During this year, we continued
      to
      experience these losses as the revenue from the direct response sales decreased
      and had greater media expenditures on a per order basis. It is our expectation
      that we can achieve positive operating profits under our current business plan
      as we have recently seen an increase in our direct response sales and the
      decrease in the media expenditures on a per order basis. There can be no
      assurance, however, that we will achieve or maintain our profitability
      targets.




*There
      can be no assurance that we will be ability to continue as a going
      concern*




Our
      substantial historical operating losses, limited revenues, negative working
      capital and our capital needs raise substantial doubt about our ability to
      continue as a going concern. We can provide no assurances that cash generated
      from operations together with cash received in the future from external
      financing will be sufficient to enable us to continue as a going concern. If
      we
      are unable to obtain adequate funding or sufficiently increase revenues from
      the
      sale of our products to satisfy our working capital requirements, we could
      be
      required to significantly curtail or even shutdown our operations.




*If
      we
      are unable to meet our increased need for liquidity our business and financial
      condition could be seriously harmed.*




As
      a
      result of our strategy to increase our wholesale business, we will need to
      purchase more inventory, but we will have less available cash per product sold
      because we offer credit terms to wholesale customers. Thus, we will require
      additional working capital. We cannot be certain that additional capital will
      be
      available to us at all, or that, if it is available, it will be on terms
      favorable to us. Any inability to raise additional capital when we require
      it
      would seriously harm our business and financial condition. Any additional
      issuance of equity or equity-related securities will be dilutive to our
      stockholders.




*We
      face risks associated with the use of debt to fund our operations, such as
      refinancing risk. We currently may have incidents of default of our debt
      obligations under multiple arrangements with lenders, as a result of which
      we
      could lose significant rights to our products and intellectual property assets,
      which would harm our business.*




We
      are
      subject to the risks normally associated with debt financing, including the
      risk
      that our cash flow will be insufficient to meet required payments of principal
      and interest. If principal payments due at maturity cannot be refinanced,
      extended or repaid with proceeds from other sources, such as new equity capital,
      our cash flow may not be sufficient to repay amounts under the promissory notes
      that we issued in connection with our purchase of the Ronco business. We also
      may be unable to satisfy our debt obligations under other arrangements with
      lenders, including our obligations to Sanders Morris Harris and other lenders
      under the $3.0 million loan transaction completed in June 2006, our obligations
      under our factoring agreement and our obligations under our $4.0 million credit
      facility with Crossroads Capital that we closed on October 6, 2006.





11




We
      may
      have defaulted under certain of our obligations with these lenders. Under the
      terms of our loan agreement with Sanders Morris Harris and other lenders that
      we
      closed in June 2006, 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 were
      technically not in compliance with our obligations under the loan. In addition,
      we also have not made certain payments under the promissory notes issued in
      connection with the purchase of our Ronco business, including promissory notes
      issued to Mr. Popeil, which could result in an event of default under these
      notes.




Our
      agreements with lenders provide that the interest rate on the notes will
      increase upon occurrence of default to which we have been notified in
      writing that is not cured in the time specified in the agreements. These
      agreements also provide that any unpaid principal and interest will become
      immediately due and payable. Accordingly, our default of obligations under
      these
      agreements will significantly increase our cash flow needs and cause us to
      incur
      substantial damages, all of which could harm our business. In addition, the
      promissory notes issued to Mr. Popeil provide that we could lose significant
      intellectual property rights if we default on our obligations under these notes.
      The loss of these intellectual property rights could have a material adverse
      effect on our business and results of operations.




*Due
      to changes that occurred in our financing and licensing arrangements, and other
      changes that occurred in connection with our acquisition of the Ronco business,
      the financial statements of the predecessor entities may not be a good indicator
      of our future performance.*




In
      connection with our acquisition of the Ronco business, we modified certain
      of
      the predecessor entities' business arrangements and did not assume certain
      of
      their liabilities. For instance, we purchased the patents that the predecessor
      entities licensed and terminated product development and license fees. We also
      did not assume approximately $39.2 million of related party loans to the
      predecessor entities. Although we will not have the expenses associated with
      these liabilities, we will incur the substantial costs associated with being
      a
      public company, pay income taxes (the predecessor entities did not pay taxes
      at
      the corporate level) and have to establish financing facilities since we will
      no
      longer be able to rely on Mr. Popeil to make loans to us, as needed. We cannot
      yet determine the amounts of these additional costs. As a result of these
      changes, our historical financial statements may not be a good indicator of
      our
      future performance.




*Our
      shareholders will be subject to increasing dilution if the price of our common
      stock declines because we will be required to issue a higher number of shares
      of
      Series A Convertible Preferred Stock in payment of dividends on the Series
      A
      Convertible Preferred Stock. In addition, we will be required to issue an ever
      increasing number of shares of Series A Convertible Preferred Stock to satisfy
      our continuing obligations to pay dividends on the Series A Convertible
      Preferred Stock, because dividends are payable on additional shares of Series
      A
      Convertible Preferred Stock that we issue.*





Our
      Series A Convertible Preferred Stock are entitled to cumulative preferential
      dividends at the annual rate of $0.1885 per share, payable quarterly in cash
      or
      in shares of Series A Convertible Preferred Stock. Pursuant to the terms of
      our
      agreements with our lenders, we are not allowed to make these dividends in
      cash,
      but expect to issue additional shares of Series A Convertible Preferred Stock
      to
      satisfy these obligations. The number of additional shares of Series A
      Convertible Preferred Stock that we are required to issue will be calculated
      by
      dividing the cash value of the dividends payable on the Series A Convertible
      Preferred Stock by the per share market value of the Series A Convertible
      Preferred Stock, as determined by our Board of Directors in good faith. Our
      Board of Directors has determined that the value of the Series A Convertible
      Preferred Stock is equal to the market price of our common stock for the
      purposes of determining the number of additional shares that we issue to pay
      dividends on the Series A Convertible Preferred Stock. As a result, if our
      common stock price declines over time, we will be required to issue a higher
      number of shares of Series A Convertible Preferred Stock to satisfy our dividend
      payment obligations. In addition, as more shares of Series A Convertible
      Preferred Stock are issued and remain outstanding, we will be required to issue
      an increasingly higher number of shares of Series A Convertible Preferred Stock
      to pay dividends to our Series A stockholders. The higher number of shares
      of
      Series A Convertible Preferred Stock will be convertible into a higher number
      of
      common stock, as a result of which you could suffer increasing dilution in
      percentage ownership and the economic value of the shares of common stock you
      purchase under this prospectus.





*The
      sale of securities by us at a price or terms that cause an adjustment in the
      conversion price of the Series A Convertible Preferred Stock would result in
      an
      increase in the number of shares underlying the Series A Convertible Preferred
      Stock, which in turn could result in significant dilution to our existing
      holders of common stock, cause our stock price to decline and harm our
      business.*





We
      may
      issue equity or debt securities in the future at prices that are below the
      conversion price of the Series A Convertible Preferred Stock, or under terms
      that require an adjustment in the rate at which our Series A Convertible
      Preferred Stock would be convertible into shares of our common stock. This
      will
      cause a decrease in the conversion price of the Series A Convertible Preferred
      Stock and result in an increase in the number of shares of common stock that
      would be issued upon conversion of the Series A Convertible Preferred Stock.
      In
      the future, we may also issue securities in connection with acquisition
      transactions or other types of transactions that similarly result in an
      adjustment in the conversion price of our Series A Convertible Preferred Stock.
      These types of issuances in the future could significantly dilute your ownership
      of common stock you purchase under this prospectus and cause our stock price
      to
      decline. We also may assume debt or incur impairment losses related to goodwill
      and other intangible assets if we acquire other companies or businesses, which
      could negatively affect our earnings and results of operations, cause our stock
      price to decline and harm our business.





12




*We
      are subject to Federal Communications Commission regulation with respect to
      the
      telemarketing aspects of our business, and our business could be harmed if
      these
      regulations limit the format and/or content of television direct marketing
      programs.*




Our
      television direct marketing programs are significantly impacted by government
      regulation of television advertising, particularly those regulations adopted
      by
      the Federal Communications Commission. These regulations impose restrictions
      on,
      among other things, the air time, content, and format of our direct response
      television programs. If we are required to remove or alter the format or content
      of our television programs, our business could be harmed. Additional regulations
      may be imposed on television advertising in the future. Legislation regulating
      the content of television advertisements has been introduced and passed in
      Congress from time to time in the past. Additional regulations or changes in
      the
      current laws regulating and affecting television advertising may harm the
      results of our operations.




*Our
      business model is dependent, in part, on our ability to purchase sufficient
      quantities of television media at attractive prices. If we fail to obtain
      attractive media prices for our direct response television programs, our
      profitability will decline and our business may be harmed.*




While
      we
      intend to invest in and develop other distribution channels, direct response
      television is currently our main channel of distribution. Our business model
      is
      dependent in part on our ability to purchase television media time at attractive
      prices in order to broadcast our direct response television programs. We have
      formed our own media department, Castle Advertising, solely for the purpose
      of
      making these media purchases.




The
      nominal cost of television media rises every year as a result of increasing
      competition for “paid programming” time slots. In addition, each network or
      station generally desires to increase annual revenues and they achieve revenue
      growth by increasing the price of their media. Castle Advertising faces the
      problem of having to negotiate low prices despite this upward pressure on
      prices. If we fail to obtain attractive prices for our media purchases and
      our
      media purchasing costs increase, our results of operations may be adversely
      affected and our operating profitability may decline. There can be no assurance
      that our media department will be able to acquire sufficient media at attractive
      prices.




*Our
      direct response television revenues, in part, depend on our ability to
      successfully develop, produce and broadcast new and updated infomercials. If
      we
      fail to regularly renew our infomercial campaigns for our existing products,
      sales from such products will decline.*




Historically,
      direct response television sales of our products are highest during the first
      four hours immediately following the airing of a long form infomercial for
      that
      specific product.




In
      addition, direct response television sales from a particular long form
      infomercial decline as the infomercial ages. Therefore, our revenues from direct
      response television sales depend, in part, on the continued periodic airing
      of
      our existing infomercials and the development, production and broadcast of
      new
      and updated infomercials. Under the terms of our consulting agreement with
      Ronald M. Popeil, Mr. Popeil is obligated to appear in three long form
      infomercials per year for our products, if we choose to produce them. Mr.
      Popeil's consulting agreement has a term of three years beginning June 30,
      2005.
      If we are unable to produce or broadcast new and updated infomercials, or
      broadcast existing infomercials, for our products in a timely manner, our
      revenues from direct television sales could decrease, which could have a
      material adverse effect on our business, financial condition and results of
      operations.




*Our
      operations are based, to a certain extent, on the successful integration of
      certain supply chain and operating technologies. Our inability or our vendors'
      inability to integrate these technologies may negatively impact our customer
      order process, and the fulfillment and delivery of our products, which could
      harm our business and operating results.*




Some
      of
      our operating activities are outsourced to various vendors and service
      providers. These operating activities include taking customer orders, product
      manufacturing, product fulfillment and product delivery. We rely on certain
      hardware and software systems, provided by third-party vendors, to perform
      vital
      functions and processes with respect to our operations. Various supply chain
      and
      operating technologies have been used to implement these functions and
      processes. Our inability, or our vendors' inability, to operate and integrate
      these technologies properly may negatively impact our product supply chain
      and
      may harm our business and operating results.




*The
      loss of any of our major wholesale distributors could reduce our sales and
      substantially harm our business.*




Since
      2003, sales from our wholesale business distributors accounted for between
      11%
      and 16.4% of our gross product sales annually, in the aggregate. Since 2003,
      we
      have used M. Block & Sons and Englewood Marketing Group as our two wholesale
      distributors to purchase and distribute our products through retail channels.
      M.
      Block & Sons accounted for approximately 7.3% and 6.8%, and Englewood
      Marketing Group accounted for approximately 9.1% and 7.9%, of our net sales
      for
      the years ended June 30, 2006 and June 30, 2005, respectively. As a result,
      our
      wholesale revenues have been highly concentrated. Our wholesale revenues could
      decline if either one of these distributors experience financial distress that
      interfere with its ability to purchase our products, or under perform relative
      to our expectations. A core component of our strategy is to expand our retail
      distribution by entering into direct distribution agreements with key national
      retailers of household and home improvement products. In September 2005, we
      began shipping our ShowtimeTM Rotisserie ovens to Wal-Mart. We also plan to
      re-focus our existing wholesale distribution relationships to target selected
      smaller or regional retail chains. There can be no assurance that we will be
      able to establish direct relationships with other retail chains or that we
      will
      be able to increase the number of wholesale distributors that sell our products
      and decrease our reliance on these two distributors.





13




*We
      may be unable to expand our retail distribution by entering into direct
      distribution agreements with key national retailers on favorable terms, in
      which
      case we may be unable to generate sufficient revenues or adequate margins to
      offset the increase in our operating costs associated with this
      strategy.*




We
      plan
      to implement our strategy to distribute our products through large national
      retailers in order to leverage the strength of the Ronco brands created through
      our direct response television distribution channel. There can be no assurance
      that we will be able to negotiate attractive distribution agreements with key
      national retailers or otherwise achieve substantial retail distribution of
      our
      products. Furthermore, if we are successful in placing our products with key
      national retailers, there can be no assurance that our products will have
      satisfactory sell-through rates or that sales will offset any additional costs
      associated with this strategy.




*We
      rely on the services of Ronald M. Popeil to develop new products and to define
      our marketing strategy, and the loss of his services would negatively affect
      our
      operations.*




Our
      future success depends, in part, on the continued service of Ronco's founder
      and
      chief inventor, Ronald M. Popeil. Mr. Popeil's name and identity are closely
      linked to the brand identity of Ronco Corporation. Additionally, Mr. Popeil
      has
      been essential to defining the predecessor entities' brand and marketing
      strategies and product developments. We have entered into an exclusive
      consulting agreement with Mr. Popeil for an initial term of three years, under
      which Mr. Popeil will continue to provide us with his expertise and services
      with respect to new products, marketing and other aspects of our operations.
      This agreement also contains a provision prohibiting Mr. Popeil from competing
      with us. We have also entered into several other agreements with Mr. Popeil
      to
      encourage his ongoing interest in our growth and financial prospects. The loss
      of Mr. Popeil's services for any reason would have an adverse effect on our
      business.




*We
      rely on a limited number of offshore manufacturers, vendors and suppliers for
      the bulk of our product production capacity and the procurement of materials
      required to manufacture our products, and the loss of services and materials
      provided to us by any of these manufacturers, vendors or suppliers could result
      in product shortages.*




We
      outsource our manufacturing and procurement needs to a small number of offshore
      manufacturers, vendors and suppliers in multiple geographic regions, which
      provides us with low cost production capacity. Because a small number of
      manufacturers, vendors and suppliers are responsible for the production of
      our
      products and procurement of materials for us, any breakdown in the manufacturing
      or procurement process could result in shortages of products or materials,
      and
      our revenues could decline due to the loss of one of these manufacturers,
      vendors or suppliers. An early termination by one of our manufacturers, vendors
      or suppliers would leave limited time to seek a replacement and as such, could
      harm our financial results, as it is unlikely that we would be able to rapidly
      replace that source.




*Our
      earnings in future periods could be unfavorably impacted in the event of
      political instability or fluctuations in exchange rates.*




Sourcing
      products abroad subjects our business to a variety of risks generally associated
      with doing business abroad, such as political instability, currency and exchange
      risks and local political issues. Our future performance will be subject to
      these factors, which are beyond our control.




*Our
      prospects are dependent, to a certain extent, on our ability to successfully
      introduce new products on a timely basis. If we fail to continue to develop
      and
      successfully introduce new products, either directly or through third-party
      inventors, our revenues could decline.*




Companies
      engaged in the direct response television marketing and consumer products
      industries regularly develop and introduce new products to consumers in order
      to
      grow their revenues and to compensate for the normal life cycle of any product.
      We are continually developing new products as well as new applications of,
      or
      modifications to, existing products. In addition, as part of our product
      strategy, we intend to work with third-party inventors for the first time in
      our
      history, which may result in our purchasing or licensing the rights to certain
      products or product lines from such parties. There can be no assurance that
      these efforts will be successful, or that we will be able to maintain a level
      of
      uniqueness, customer value or product quality with potential third-party
      products that we have experienced with products developed internally by us.
      There can be no assurance that we will not experience difficulties that could
      delay or prevent the successful development, introduction or marketing of these
      products, or that such new or enhanced products will adequately meet the
      requirements of current or prospective customers. Any failure by us to
      successfully design, develop, test and introduce such new products, or the
      failure of our recently introduced products to achieve market acceptance, could
      prevent us from maintaining our existing customer base, gaining new customers
      or
      expanding our markets and could have a material adverse effect on our business,
      financial condition and results of operations.




*Our
      success depends largely on the value of our brands, and if the value of our
      brands were to diminish, our business would be adversely
      affected.*




The
      prominence of our Ronco, Popeil, ShowtimeTM and other brands is a key component
      of our business. If our consumer brands or their associated merchandise lose
      their appeal to consumers, our business would be adversely affected. The value
      of our consumer brands could also be eroded by misjudgments in product
      development or selection, or by our failure to maintain a sufficient level
      of
      quality control. These events would likely reduce sales for our products.
      Moreover, we anticipate that we will expand our marketing and sales efforts
      through the development or acquisition of new products that will be sold under
      our brand names directly, through retail stores and online through our website.
      Misjudgments by us in the development or choice of new products could damage
      our
      existing or future brands. If any of these developments occur, our business
      would likely suffer and we may be required to write-down the carrying value
      of
      our goodwill.





14


*Our
      ability to compete successfully will depend, in part, on our ability to protect
      our intellectual property rights. Litigation required to enforce these rights
      can be costly, and there is no assurance that courts will enforce our
      intellectual property rights.*




We
      rely
      on a combination of patents, trademarks, trade secrets, copyrights,
      nondisclosure agreements and other contractual provisions and technical measures
      to protect our intellectual property rights. Policing unauthorized use of our
      intellectual property, however, is difficult, especially in foreign countries.
      Litigation may be necessary in the future to enforce our intellectual property
      rights, to protect trade secrets, to determine the validity and scope of the
      proprietary rights of others, or to defend against claims of infringement or
      invalidity. Litigation could result in substantial costs and diversion of
      resources and could harm our business, operating results and financial condition
      regardless of the outcome of the litigation. In addition, there can be no
      assurance that the courts will enforce the contractual arrangements that we
      have
      entered into to protect our intellectual property rights. Our operating results
      could be harmed by the failure to protect such intellectual
      property.




*If
      we
      fail to implement our product distribution strategy effectively, our revenue,
      gross margin and profitability could suffer.*




We
      plan
      to use a variety of different distribution methods to sell our products,
      including direct response television sales, indirect sales through retail stores
      and sales through our internet website. Successfully managing the interaction
      of
      our direct and indirect channel efforts to reach all of the potential customer
      segments for our products is a complex process. Moreover, since each
      distribution method has distinct risks and gross margins, our failure to
      implement the most advantageous balance in the delivery model for our products
      could adversely affect our revenue and gross margins and therefore
      profitability.




*Our
      financial results could be materially adversely affected if conflicts arise
      among our various sales channels or if we lose a distributor.*




Our
      future operating results may be adversely affected by any conflicts that might
      arise among our various sales channels, the loss or deterioration of any
      alliance or distribution arrangement or the loss of retail shelf space. We
      primarily distribute our products through three channels: direct response
      television marketing, wholesale and retail outlets and online commerce. In
      order
      to achieve successful sales at all these channels of distribution, we must
      offer
      products that are differentiated by price or functionality through different
      channels of distribution. Alternatively, we must schedule the timing of our
      product offerings so that we are not offering the same product for sale through
      direct response media, and indirectly through retail and wholesale outlets,
      at
      the same time. If we do not follow this strategy, consumers may not be willing
      to buy our products directly from us if the same or similar products are
      available at retail and wholesale outlets, potentially at lower prices. If
      we
      fail to successfully manage these conflicts then our results of operations
      will
      decline.





*We
      plan to sell more of our products through distributors and direct to retail
      chains. Due to the typically large size of these orders, which fluctuate
      seasonally and may be changed or canceled on short notice, cost-effective
      management of our inventory may become more complex and costly. If we are unable
      to accurately forecast orders and cancellations, our profitability may
      suffer.*




We
      must
      manage inventory effectively, particularly with respect to sales to wholesalers
      and retail chains, which involves forecasting demand and pricing issues.
      Although a comparatively small portion of our sales volume is supplied through
      wholesale distributors, our strategy calls for increasing such sales, and such
      distributors and retail chains may increase orders during periods of product
      shortages, cancel orders if their inventory is too high or delay orders in
      anticipation of new products. Wholesalers and retail chains may also adjust
      their orders in response to the supply of our products and the products of
      our
      competitors and seasonal fluctuations in end-user demand. Our reliance upon
      indirect distribution methods may reduce visibility to demand and pricing
      issues, and therefore make forecasting more difficult. If we have excess
      inventory, we may have to reduce our prices and write-down inventory. Moreover,
      our use of wholesale distribution channels may limit our willingness or ability
      to adjust prices quickly and otherwise to respond to pricing changes by
      competitors. We also may have limited ability to estimate future product returns
      for products sold through wholesale distribution channels.




*Claims
      made against us based on product liability could have a material adverse effect
      on our business.*




Like
      any
      other distributor or manufacturer of consumer products, we are subject to
      product liability litigation. Whether frivolous or with merit, these claims
      divert management's time and resources from general operations. Consequently,
      our operations would be adversely affected. Additionally, there can be no
      assurance that the plaintiffs in these cases will not obtain large judgments
      against us, which may include substantial punitive damages that we would be
      forced to pay. As a result, we may suffer a material adverse impact to our
      earnings and financial health.




*Our
      business may be adversely affected by certain customers seeking to directly
      source lower cost imported products.*




In
      some
      cases, our wholesale and retail customers may find substantially similar,
      unbranded products produced by a foreign manufacturer for significantly less
      than our prices. Consequently, these wholesale or retail customers may elect
      to
      purchase the cheaper, unbranded products to offer in their stores or to their
      customers, and we could suffer a material decrease in our sales and
      profitability.




15




*If
      we
      do not execute our growth and profitability strategy successfully, our financial
      condition and results of operations will be adversely
      affected.*




Our
      growth will depend to a significant degree on our ability to increase revenues
      from our direct marketing and retail businesses, to maintain existing vendor
      and
      distribution relationships and develop new relationships, and to maintain and
      enhance the reach and brand recognition of our existing products and any new
      products that we create or acquire. Our ability to implement our growth strategy
      will also depend on a number of other factors, many of which are or may be
      beyond our control including: (i) the effectiveness of our media and marketing
      strategies, (ii) the perception by consumers that we offer high quality products
      at attractive prices, (iii) our ability to develop and/or select new products
      that appeal to our customer base and to market such products effectively to
      our
      target audience, and (iv) our ability to attract, train and retain qualified
      employees and management. There can be no assurance that we will be able to
      implement our growth strategy successfully.




*There
      can be no assurance that our internet technology systems will be able to handle
      increased traffic or that we will be able to upgrade our systems, if required,
      on a timely basis. If our online systems do not perform properly, we may lose
      online sales and our revenues may be adversely affected.*




An
      element of our growth strategy is to generate a higher volume of traffic on,
      and
      use of, our internet website: www.ronco.com. Accordingly, the satisfactory
      performance, reliability and availability of www.ronco.com, transaction
      processing systems and network infrastructure will be critical to our reputation
      and our ability to attract and retain online customers, as well as to maintain
      adequate customer service levels. Our online revenues will depend on the number
      of visitors who shop on www.ronco.com and the volume of orders we can handle.
      Unavailability of our website or reduced order fulfillment performance could
      reduce the volume of goods sold and could also adversely affect consumer
      perception of our brand name. We may experience periodic system interruptions
      from time to time. If there is a substantial increase in the volume of traffic
      on www.ronco.com or the number of orders placed by customers, we may be required
      to expand and upgrade our technology, transaction processing systems and network
      infrastructure. There can be no assurance that we will be able to accurately
      project the rate or timing of increases, if any, in the use of www.ronco.com
      or
      expand and upgrade our systems and infrastructure to accommodate such increases
      on a timely basis. Any failure to manage the anticipated growth and expansion
      of
      our online sales could have a material adverse effect on our
      business.





*We
      could face liability for breaches of security on the internet, which could
      expose us to damages and harm our business.*




To
      the
      extent that our activities or the activities of third-party contractors involve
      the storage and transmission of information, such as credit card numbers,
      security breaches could disrupt our business, damage our reputation and expose
      us to a risk of loss, litigation, governmental actions and possible liability.
      We could be liable for claims based on unauthorized purchases with credit card
      information, impersonation or other similar fraud claims. These claims could
      result in substantial costs and a diversion of our management's attention and
      resources.




*We
      may not be able to attract, retain or integrate key personnel, which may prevent
      us from successfully operating our
      business.*




We
      may not be able to retain our key personnel or attract other qualified personnel
      in the future. Our success will depend upon the continued service of key
      management personnel. The loss of services of any of the key members of our
      management team or our failure to attract and retain other key personnel could
      disrupt operations and have a negative effect on employee productivity and
      morale and harm our financial results.




*Indemnification
      obligations to our directors and officers may require the use of a significant
      amount of our funds, which would reduce funds that otherwise would be available
      for business operations.*




Our
      certificate of incorporation and bylaws provide for the indemnification of
      our
      officers and directors and we intend to enter into indemnification agreements
      with each of our directors and executive officers. If one of our officers or
      directors makes a valid claim for indemnification, the amount could be
      substantial and any amount in excess of our insurance coverage would be paid
      from our operating cash flow. As a result, the amount of funds available for
      our
      operations would be reduced.




*As
      a
      result of our acquisition of the Ronco business, we have a substantial amount
      of
      intangibles on our balance sheet, which is subject to annual impairment
      analysis. If the value of the Ronco business we acquired declines in the future,
      the resulting charge would negatively impact our earnings.*




We
      accounted for our acquisition of the Ronco business using the purchase method
      of
      accounting. The total cost of this transaction is allocated to the underlying
      net assets based on their respective estimated fair values. As part of this
      allocation process, we must identify and attribute values and estimated lives
      to
      the intangible assets acquired. Such determinations involve considerable
      judgment, and often involve the use of significant estimates and assumptions,
      including those with respect to future cash inflows and outflows, discount
      rates
      and asset lives. These determinations will affect the amount of amortization
      expense recognized in future periods. If we later determine that any of these
      estimates and assumptions is incorrect, and that the value of the Ronco business
      that we acquired is less than the amount then reflected on our balance sheet,
      we
      will be required to reduce our income by the amount of such decline in value,
      which reduction is referred to as an impairment charge.





16


We
      will
      test goodwill for impairment annually in accordance with accounting principles
      generally accepted in the United States of America. If we conclude that our
      goodwill is impaired, we will reduce it by the amount of the impairment charge.
      Such write-downs could dramatically impact our earnings and may result in lower
      trading prices for our common stock.




*Terrorist
      attacks and other acts of wider armed conflict may have an adverse effect on
      the
      United States of America and world economies and may adversely affect our
      business.*




Terrorist
      attacks and other acts of violence or war, such as those that took place on
      September 11, 2001, could have an adverse effect on our business, results of
      operations or financial condition. There can be no assurance that there will
      not
      be further terrorist attacks against the United States of America or its
      businesses or interests. Attacks or armed conflicts that directly impact the
      internet or our physical facilities could significantly affect our business
      and
      thereby impair our ability to achieve our expected results. Further, the adverse
      effects that such violent acts and threats of future attacks could have on
      the
      United States of America and world economies could similarly have a material
      adverse effect on our business, results of operations and financial condition.
      Finally, further terrorist acts could cause the United States of America to
      enter into a wider armed conflict, which could disrupt our operations and result
      in a material adverse effect on our business, results of operations and overall
      financial condition.





**Risks
      Related to Being a Public Company**




*The
      requirements of complying with the Sarbanes-Oxley Act and evolving corporate
      governance and public disclosure regulations may strain our
      resources.*




We
      are a
      relatively new public company, and thus we only recently became subject to
      certain laws that are applicable only to public companies. Changing laws,
      regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002 and related rules and
      regulations, are creating uncertainty for public companies. We are presently
      evaluating and monitoring developments with respect to new and proposed rules
      and cannot predict or estimate the amount of the additional compliance costs
      we
      may incur or the timing of such costs. These new or changed laws, regulations
      and standards are subject to varying interpretations, in many cases due to
      their
      lack of specificity. As a result, their application in practice may evolve
      over
      time as new guidance is provided by courts and regulatory and governing bodies.
      This could result in continuing uncertainty regarding compliance matters and
      higher costs necessitated by creating initial disclosure and governance
      practices to comply with these laws and ongoing revisions to disclosure and
      governance practices. Maintaining appropriate standards of corporate governance
      and public disclosure may result in increased general and administrative
      expenses and a diversion of management time and attention from
      revenue-generating activities to compliance activities. For example, as a result
      of these requirements, we need to form and maintain multiple board committees
      and adopt policies regarding internal controls and disclosure controls and
      procedures. These rules and regulations also make it more difficult and more
      expensive to obtain director and officer liability insurance. We may be required
      to accept reduced policy limits and coverage or incur substantially higher
      costs
      to obtain the same or similar coverage that was available to the entities that
      operated the Ronco business before we acquired it. As a result, it may be more
      difficult for us to attract and retain qualified candidates to serve on our
      board of directors or as executive officers. Our efforts to evaluate and monitor
      developments with respect to these new rules also could result in additional
      costs in the future. In addition, if we fail to comply with new or changed
      laws,
      regulations and standards, regulatory authorities may initiate legal proceedings
      against us and our business and our reputation may be harmed.




In
      addition, the financial statements of the predecessor entities do not reflect
      the additional costs of complying with the various corporate governance and
      public reporting requirements that now apply to us. We will incur significant
      legal, accounting and other expenses that are not reflected in the results
      of
      operations of our business before June 30, 2005. We estimate that these costs
      will be approximately $1 million annually, but they could be higher. These
      additional costs and the uncertainties associated with evolving requirements
      could materially impact our results of operations.




*As
      of
      June 30, 2006, Ronco Corporation had material weakness in its internal controls,
      and its internal controls over financial reporting were not effective as of
      that
      date. If Ronco Corporation fails to maintain an effective system of internal
      controls, it may not be able to provide timely and accurate financial
      statements.*





As
      more
      fully described in Item 9A, the Company’s management assessed the
      effectiveness of the Company’s internal controls over financial reporting as of
      June 30, 2006. In making this assessment, it used the criteria set forth by
      the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO) in Internal Control - Integrated Framework. As a result of
      management’s assessment, management has concluded that, as of June 30,
      2006, Ronco Corporation did not maintain effective internal controls over
      financial reporting.




The
      Public Company Accounting Oversight Board has defined a material weakness as
      a
      control deficiency, or combination of control deficiencies, that results in
      more
      than a remote likelihood that a material misstatement of the annual or interim
      statements will not be prevented or detected. Accordingly, a material weakness
      increases the risk that the financial information we report contains material
      errors.





We
      have
      identified control deficiencies in our internal control over financial
      reporting, and we are implementing new or revised controls to address these
      matters. The steps we have taken and are taking to address the material
      weaknesses may not be effective, however. Any failure to effectively address
      control deficiencies or implement required new or improved controls, or
      difficulties encountered in their implementation, could limit our ability to
      obtain financing, harm our reputation, disrupt our ability to process key
      components of our result of operations and financial condition timely and
      accurately and cause us to fail to meet our reporting obligations under SEC
      rules and our various debt arrangements. Any failure to remediate the material
      weakness or significant deficiencies identified in our evaluation of our
      internal controls could preclude our management from determining our internal
      control over financial reporting is effective or, otherwise, from issuing in
      a
      timely manner its management report in the future.




17





*We
      do
      not expect to pay cash dividends on our common stock.*




We
      presently do not expect to pay dividends on our common stock in the foreseeable
      future. The payment of dividends, if any, will be contingent upon our revenues
      and earnings, if any, capital requirements, and general financial condition.
      The
      holders of our Series A Convertible Preferred Stock are entitled to receive,
      out
      of funds legally available therefore, cumulative dividends at a rate equal
      to
      $0.1885 per annum, per share, which is equivalent to 5% of the Series A
      Convertible Preferred Stock's original issue price, in cash or at our option
      in
      additional shares of the Series A Convertible Preferred Stock. Any accrued
      dividends on the Series A Convertible Preferred Stock must be paid in full
      before we can pay a dividend on our common stock. Because we do not plan to
      pay
      dividends on our common stock, our stock may be less attractive to some
      investors, which could adversely affect our stock price.




*We
      face risks associated with the use of debt to fund our operations, such as
      refinancing risk, and if we are unable to satisfy our debt service obligations
      and default, we could lose significant rights to our products and intellectual
      property assets, which would harm our business.*




We
      are
      subject to the risks normally associated with debt financing, including the
      risk
      that our cash flow will be insufficient to meet required payments of principal
      and interest. If principal payments due at maturity cannot be refinanced,
      extended or repaid with proceeds from other sources, such as new equity capital,
      our cash flow may not be sufficient to repay amounts under the promissory notes
      that we issued in connection with our purchase of the Ronco business. A default
      on these notes by us could cause us to lose significant intellectual property
      rights, which could have a material adverse effect on our business and results
      of operations.




*If
      our common stock becomes subject to the SEC's penny stock rules, broker-dealers
      may experience difficulty in completing customer transactions and trading
      activity in our securities may be severely limited.*




If
      at any
      time we have net tangible assets of $5,000,000 or less and our common stock
      has
      a market price per share of less than $5.00, transactions in our common stock
      may be subject to the “penny stock” rules promulgated under the Securities
      Exchange Act of 1934. Under these rules, broker-dealers who recommend such
      securities to persons other than institutional investors:




·
            must
                make a special written suitability determination for the
                purchaser;




·
            receive
                the purchaser's written agreement to a transaction prior to
                sale;




·
            provide
                the purchaser with risk disclosure documents which identify risks
                associated with investing in “penny stocks” and which describe the market
                for these “penny stocks” as well as a purchaser's legal remedies;
                and




·
            obtain
                a signed and dated acknowledgment from the purchaser demonstrating
                that
                the purchaser has actually received the required risk disclosure
                document
                before a transaction in a “penny stock” can be
                completed.




As
      a
      result of these requirements, broker-dealers may find it difficult to effectuate
      customer transactions and trading activity in our stock will be significantly
      limited. Accordingly, the market price of our stock may be depressed, and you
      may find it more difficult to sell your shares.





*Our
      directors and our 5% or greater stockholders own a large percentage of us,
      and
      they could make business decisions with which you disagree that will affect
      the
      value of your investment.*




Our
      directors and our 5% or greater stockholders beneficially own approximately
      95%
      of our outstanding common stock. Beneficial ownership is determined in
      accordance with the rules and regulations of the SEC. See “Security Ownership of
      Officers, Directors and Principal Stockholders.” These stockholders will be able
      to influence significantly all matters requiring approval by our stockholders,
      including the election of directors. Thus, actions might be taken even if other
      stockholders, including those who purchase shares in this offering, oppose
      them.
      This concentration of ownership might also have the effect of delaying or
      preventing a change of control of us, which could cause our stock price to
      decline.




*Provisions
      in our corporate documents and our certificate of incorporation and bylaws,
      as
      well as the Delaware General Corporation Law, may prevent attempts to replace
      or
      remove our current management by our stockholders.*





18


Provisions
      of our certificate of incorporation and bylaws, as well as provisions of the
      Delaware General Corporation Law, could discourage unsolicited proposals to
      acquire us, even though such proposals may be beneficial to you. For example,
      our certificate of incorporation allows our board of directors to issue
      preferred stock with designations and rights that the board of directors may
      determine in its sole discretion. Our board of directors may be able to use
      this
      authority in a manner that could delay, defer or prevent a change in control.
      Additional provisions that could discourage unsolicited proposals to acquire
      us
      include:




·
            vacancies
                as a result of a director's resignation may be filled by our board
                of
                directors; and




·
            restrictions
                on our ability to cause the conversion of shares of Series A Convertible
                Preferred Stock into shares of our common
                stock.




We
      are
      also subject to the provisions of Section 203 of the Delaware General
      Corporation Law, which could prevent us from engaging in a business combination
      with a 15% or greater stockholder for a period of three years from the date
      it
      acquired that status unless appropriate board or stockholder approvals are
      obtained.




These
      provisions may make it more difficult or expensive for a third party to acquire
      a majority of our outstanding voting stock or may delay, prevent or deter a
      merger, acquisition, tender offer or proxy contest, which may negatively affect
      our stock price.




**Risks
      Related to Our Industry**




*We
      serve markets that are highly competitive and we may be unable to compete
      effectively against businesses that have greater resources than we
      do.*




The
      direct response industry includes numerous companies that market their products
      on television through infomercials. We compete with several other companies
      and
      products in the direct response industry, including GT Brands, Telebrands
      Corporation, Idea Village, Guthy-Renker, Tilia (a division of Jarden, Inc.),
      and
      Sylmark. Many of our competitors, including some of those identified above,
      have
      been in business for a number of years, have established customer bases, are
      larger, and have greater financial resources than us. There can be no assurance
      that we will be able to compete successfully in our industry.




*Our
      business is affected by general economic conditions in the U.S. retail industry,
      such as consumer confidence and spending, and any downturn in the retail
      industry could result in a decrease in our earnings and harm our
      business.*




We
      are
      subject to broad economic factors that drive consumer spending and maintain
      the
      health of the retail industry in the United States of America. These factors
      include, but are not limited to, unemployment rates, consumer credit levels,
      consumer confidence, and household discretionary income. If any of these or
      other economic factors should erode, consumer spending would fall and the retail
      industry in the United States of America would suffer a downturn. Consequently,
      our earnings would be adversely impacted by lower sales.




*The
      trend towards retail trade consolidation could cause our margins to decline
      and
      harm our business.*




As
      we
      pursue our retail distribution strategy, our sales will be contingent upon
      the
      favorable wholesale prices that we can obtain from retailers. If retailers
      merge
      or the retail industry consolidates, the larger, combined retailers will have
      significant pricing power because of the sheer size of their retail networks.
      As
      a result, we may not be able to obtain reasonable prices for our products.
      Consequently, our margins will decline and our results of operations would
      be
      reduced. There can be no assurance that we will be able to obtain reasonable
      wholesale prices for our products under a scenario where retailers merge and
      consolidate into larger entities.





*Government
      regulations could adversely impact our operations.*




Throughout
      the world, most federal, state, provincial and local authorities require
      Underwriters Laboratory, Inc. or other safety regulation certification prior
      to
      marketing electrical appliances in those jurisdictions. Most of our electrical
      appliance products have such certifications. However, our products may not
      continue to meet such specifications. A determination that we are not in
      compliance with such rules and regulations could result in the imposition of
      fines or an award of damages to private litigants.




**Item
                1B.**
            **Unresolved
                Staff Comments.**




None.





**Item
                2.**
            **Properties.**




Our
      principal executive offices are located at 61 Moreland Road, Simi Valley, CA
      93065 where we lease office space and a storage facility consisting of
      approximately 81,646 square feet. This facility serves as our principal
      administrative offices, customer service center and media-buying offices. Our
      current lease expires April 30, 2016. We anticipate that we will be able to
      extend the lease on terms satisfactory to us and believe that our existing
      facilities are well maintained and in good operating condition.




We
      do not
      own or lease any additional space.





**Item
                3.**
            **Legal
                Proceedings****.**




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. 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 to us. 
Human Electronics asserts that the invoices totaled $2,058,871 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.  On October 5, 2006, Human
      Electronics filed a complaint in California Superior Court for the County of
      Los
      Angeles, Central District (case number BC359815). We have not yet been served
      with the complaint. The complaint alleges, among other things, that we breached
      our contract with Human Electronics and that we defrauded Human Electronics
      by
      knowingly making false assertions and representations. The complaint also
      alleges that we became indebted to Human Electronics for goods and services
      delivered to us and seeks damages in the amount of at least $488,549 plus
      interest and attorneys’ fees.





19





**Item
                4.**
            **Submission
                of Matters to a Vote of Securities
                Holders.**




None




**PART
      II**





**Item
                5.**
            **Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity
                Securities.**




**Common
      Stock**




Our
      common stock is traded on the OTC Bulletin Board® under the symbol “RNCP.OB.”
Before July 1, 2005, our common stock traded under the symbol “FTYK.OB.” The
      following table sets forth, for the calendar quarters indicated, the high and
      low bid prices per share of common stock, as reported on the OTC Bulletin
      Board®. The information has been adjusted to reflect a 1 for 89 reverse stock
      split of our common stock which took effect on June 30, 2005 in connection
      with
      our acquisition of the Ronco business. Accordingly, the stock price information
      has no relationship to the predecessor entities' historical financial results
      and we do not believe this information provides any meaningful information
      concerning the performance of our stock price after June 30, 2005. On September
      22, 2006, the bid price of our common stock was $1.10. These quotations reflect
      inter-dealer prices, without retail mark-up, mark-down or commission and may
      not
      represent actual transactions.





Quarter
                Ended
            
            Low
            
            HighSeptember
                30, 2004
            
            4.45
            
            4.45December
                31, 2004
            
            2.67
            
            8.90March
                31, 2005
            
            5.78
            
            13.35June
                30, 2005
            
            4.54
            
            26.70September
                30, 2005
            
            4.75
            
            10.15December
                31, 2005
            
            3.75
            
            6.52March
                      31, 2006
            
            3.50
            
            4.30June
                30, 2006
            
            1.50
            
            3.20




On
      September 28, 2006, the closing sales price of our common stock as reported
      on
      the OTC Bulletin Board® was $1.10 per share. As of September 28, 2006, there
      were 38 holders of record of our common stock.




**Dividends**




We
      do not
      currently intend to pay any cash dividends on our common stock. Any decision
      to
      declare and pay dividends in the future will be made at the discretion of our
      board of directors and will depend on, among other things, our results of
      operations, capital requirements, financial condition, contractual restrictions
      and other factors that our board of directors may deem relevant. In addition,
      the terms of our Series A Convertible Preferred Stock restrict our ability
      to
      pay dividends on our common stock. The holders of the Series A Convertible
      Preferred Stock are entitled to receive cumulative preferential dividends at
      the
      rate of $0.1885 per share per annum (equal to 5% of the purchase price of the
      preferred stock) payable quarterly in arrears in cash or, at our option in
      shares of Series A Convertible Preferred Stock, on January 1, April 1, July
      1, and October 1 of each year. We failed to make our scheduled October 1, 2005,
      January 1, 2006, and April 1, 2006 dividend payments totaling approximately
      $1,875,000. Due to our failure to make these dividend payments and because
      a certain registration statement required to be filed pursuant to the terms
      of
      the Registration Rights Agreement between us and the Series A Convertible
      Preferred Stock shareholders we lost the option to choose unilaterally to make
      these dividend payments in additional shares of Series A Convertible Preferred
      Stock as opposed to cash. See “Description of Securities-Preferred Stock.” We
      may not pay any dividends on our common stock before we pay all dividends on
      our
      Series A Convertible Preferred Stock. On June 28, 2006 the Series A shareholders
      agreed to be paid in Series A Preferred Stock instead of cash at the rate of
      0.038464 shares per share (or 510,136 shares in total) for the three quarters
      ended September 30, 2005, December 31, 2005 and March 31, 2006 and they agreed
      to settle all penalties related to the registration rights agreement for
      1,530,418 shares of Series A Convertible Preferred Stock. We agreed to pay
      a
      dividend of 0.020933 shares per share (or 277,778 shares in total) for the
      quarter ended June 30, 2006 to the Series A holders.





20





**Recent
      Sales of Unregistered Securities**




None.





**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 (as restated
      as
      described more fully in Note 23 “Restatement of Previously Issued Financial
      Statements” in the Notes to Consolidated and Combined Financial Statements
      included in Item 8 of this Form 10K/A) 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.





21




**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****(As
                Restated)**
            
            
            
            
            
            
            
            
            
            
            
            
            
            **(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
            
            
            —
            
            
            —
            
            
            —Registration
                penalties expense
            
            
            4,048
            
            
            —
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Gain
                on settlement of registration penalties and dividends
            
            
            (1,028
            )
            
            —
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Operating
                (loss) income
            
            
            ($45,795
            )
            
            ($766
            )
            
            
            $
            1,695
            
            
            ($7,585
            )
            
            ($3,427
            )
            
            ($9,728
            )
            
            ($5,922
            )*Operating
                exp. (as % of revenue)*
            
            
            144
            %
            
            N/A
            
            
            
            
            73
            %
            
            85
            %
            
            72
            %
            
            73
            %
            
            74
            %Interest
                and other expense(income)
            
            
            1,335
            
            
            —
            
            
            
            
            2,833
            
            
            120
            
            
            (386
            )
            
            (254
            )
            
            (443
            )Pretax
                loss
            
            
            ($47,130
            )
            
            ($766
            )
            
            
            
            ($1,138
            )
            
            ($7,705
            )
            
            ($3,041
            )
            
            ($9,474
            )
            
            ($5,479
            )Income
                taxes (benefit)
            
            
            310
            
            
            (310
            )
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            
            ($47,440
            )
            
            ($456
            )
            
            
            
            ($1,138
            )
            
            ($7,705
            )
            
            ($3,041
            )
            
            ($9,474
            )
            
            ($5,479
            )Preferred
                stock dividends
            
            
            2,500
            
            
            —
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss attributable to common shareholders
            
            
            ($49,940
            )
            
            ($456
            )
            
            
            
            ($1,138
            )
            
            ($7,705
            )
            
            ($3,041
            )
            
            ($9,474
            )
            
            ($5,479
            )Net
                loss per share
            
            
            ($23.88
            )
            
            ($0.22
            )
            
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A




**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




**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.





22




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.




23





**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.




24





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.





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.





25




**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.




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;




26




·
            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**(As
                  Restated)
              
              
              
              
              
              (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
              
              
              —Registration
                  penalties expense
              
              
              4.0
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Gain
                  on settlement of registration penalties and dividends
              
              
              (1.0
              )
              
              —
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Operating
                  (loss) income
              
              
              ($45.8
              )
              
              ($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
              
              
              ($47.4
              )
              
              ($0.5
              )
              
              
              
              ($2.4
              )
              
              ($1.1
              )
              
              ($6.3
              )
              
              ($7.7
              )
              
              ($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.





27




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 predecessor 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.





** *Registration
      Penalties Expense and Gain on Settlement*





We
      have
      restated our financial statements to reflect the settlement of registration
      penalty expense, related to the Series A registration agreement, of $4,048,387
      as an expense in accordance with SFAS 5.  The Series A shareholders agreed
      to settle all accrued penalties for 1,530,418 shares of common stock. In
      accordance with APB 26 we accounted for the difference of $604,966between the
      accrued penalty liability of $4,048,387 and the settlement amount of $3,443,421
      resulting in a gain on settlement of $467,336, and $137,630 associated with
      related parties as a contribution to capital in accordance with APB 26, footnote
      1, by crediting additional paid in capital . Also,
      in
      accordance with APB 26 we accounted for the difference of $727,193 between
      the
      accrued dividend liability of $2,500,000 and the settlement amount of $1,772,807
      as a gain on settlement of $561,757, and the portion of the gain associated
      with
      related parties as a return of capital of $165, 436 in accordance with APB
      26,
      footnote 1 by crediting additional paid in capital..




*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.





28





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




*Operating
      income/loss*




Our
      operating loss for the year ended June 30, 2006 was $45.8 million, compared
      with
      income of $0.4 million for the year ended June 30, 2005. The increase in our
      operating loss of approximately $45.4 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, registration penalties expense, partially offset by a reduction
      in
      selling general and administrative expenses and gain on settlement of penalties
      and dividends.




*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 $ 47.4 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 $45.0 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 $2.5 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.





29


*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.





30


*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.




*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.




31





*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.




32


***Sources
      and Uses of Cash***





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




**Successor**
            
            **Successor**
            
            
            
            **Predecessor**
            
            **Predecessor**
            
            **Predecessor**
            
            **Predecessor****Year
                ended**
            
            **Period
                for One Day (Date of Acquisition)**
            
            
            
            **Year
                ended**
              **June
                30,**
            
            **Nine
                months ended**
            
            **Nine
                months ended**
            
            **Year
                ended****June
                30, 2006**
            
            **June
                30, 2005**
            
            
            
            **2005(Unaudited)**
            
            **June
                29, 2005**
            
            **September
                30, 2004**
            
            **December
                31, 2003**Net
                cash (used in) operating activities
            
            
            (1,032,920
            )
            
            (675,538
            )
            
            
            
            (41,862,660
            )
            
            (2,383,605
            )
            
            (41,227,132
            )
            
            659,443Net
                cash provided by (used in)investing
                activities
            
            
            (12,802
            )
            
            (44,934,093
            )
            
            
            
            493,761
            
            
            146,481
            
            
            256,919
            
            
            (554,842
            )Net
                cash provided by (used in)financing
                activities
            
            
            636,509
            
            
            46,443,989
            
            
            
            
            39,282,801
            
            
            12,339
            
            
            39,068,564
            
            
            (363,400
            )Net
                increase (decrease) in cash
            
            
            (409,213
            )
            
            834,358
            
            
            
            
            (2,086,098
            )
            
            (2,224,785
            )
            
            (1,901,649
            )
            
            (258,799
            )Cash
                and cash equivalents, beginningof
                period
            
            
            834,358
            
            
            -
            
            
            
            
            2,920,456
            
            
            2,421,984
            
            
            4,323,633
            
            
            4,582,432Cash
                and cash equivalents, endof
                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 $47.4
      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
      registration penalties expense of $4.0 million and a gain on settlement of
      registration penalties and dividends of $1.0 million. 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.





33





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.




34


***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.





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 occurrence 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.





***Going
      Concern***




We
      incurred net losses of approximately $47.4 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. The 2006 loss included an impairment
      of
      goodwill and intangibles of $24.5 million.





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.





35





***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, reclassifiedas
                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.





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
      7A. Quantitative and Qualitative Disclosures about Market
      Risk**





We
      are
      exposed to market risks, which includes changes in interest rates and, to a
      lesser extent, foreign exchange rates. We do not engage in financial
      transactions for trading, speculative or hedging purposes.





Our
      revolving line of credit with Wells Fargo in the original principal amount
      of
      $1,234,000 bears interest at 1% above LIBOR, which was 6.375% at June 30, 2006
      or 1⁄2% below prime, at the Company’s option. This facility expires, and all
      outstanding amounts become due, on September 20, 2006. As of August 31, 2006,
      the loan was fully repaid.





The
      fees
      due under our factoring agreement also vary between 2% and 5.75% depending
      on
      whether the account is collected in less than 15 days or in up to 75 days.
      The
      rate goes up by 1% every 15 days thereafter and there is no maximum rate. The
      fees are not tied to interest rates. As of September 28, 2006 we had assigned
      $2.9 million of our accounts receivable to this factor. Our factoring agreement
      terminated on May 1, 2006, but the agreement has been extended on a month to
      month basis. On October 6, 2006 we extended our factoring agreement until
      October 1, 2007.





36





We
      enter
      into a significant amount of purchase obligations outside of the United States,
      primarily in China, which are settled in U.S. dollars. Therefore, we believe
      we
      have minimal exposure to foreign currency exchange risks. We do not hedge
      against foreign currency risks.




**Item
      8. Financial Statements and Supplementary Data**




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




**Item
      9. Changes In and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None.





**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.





37




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.





**Item
      9B. Other Information**




None





38





**PART
      III**





**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**




The
      following table sets forth the name, age and position of each of our directors,
      executive officers and significant employees as of September 30,
      2006.





Name
            
            Age
            
            Position(s)Paul
                Kabashima
            
            62
            
            Interim
                Chief Executive Officer, Interim President, Chief Operating
                OfficerRonald
                C. Stone
            
            48
            
            Chief
                Financial OfficerHarold
                D. Kahn
            
            60
            
            DirectorThomas
                J. Lykos, Jr.
            
            50
            
            DirectorJohn
                S. Reiland
            
            57
            
            DirectorRichard
                F. Allen, Sr.
            
            58
            
            Director




**Paul
      Kabashima** was
      appointed as the Company's Chief Operating Officer on November 8, 2005 and
      as
      its interim Chief Financial Officer on April 18, 2006, In addition, Mr.
      Kabashima was also appointed as the Interim Chief Executive Officer and Interim
      President on August 9, 2006. From 1990 to 2005, Mr. Kabashima was employed
      by
      Mitsui & Co. (U.S.A.), Inc., the largest wholly owned subsidiary of Mitsui
& Co. Ltd. Japan which, through its operating divisions, is an exporter of
      American products throughout the world. Mr. Kabashima served in several
      capacities at Mitsui U.S.A., including business coordinator, administrative
      manager, senior manager, accounting and administration and deputy general
      manager. From 1997 to the present, he was a director and member of the executive
      compensation committee of Hannibal Industries, Inc. a privately owned fabricator
      of industrial tubing and warehouse storage racks. From 1993 to 2003, Mr.
      Kabashima was a director of Weisner Steel Products, Inc., a privately owned
      distributor of steel safety and harnessing products and from 1991 to 1999 he
      was
      a director of Davis Wire Corporation, a privately owned manufacturer of wire
      products for agricultural, construction, communication and industrial users.
      Mr.
      Kabashima received a Bachelor of Science in Business Administration from
      California State University at Los Angeles and is a certified public
      accountant.





**Richard
      F. Allen, Sr.** is
      our former Chief Executive Officer, President and a member of our board of
      directors since February 2005. Between February 2005 and June 2005, Mr. Allen
      was the Chief Executive Officer and President of the predecessor entities.
      Between 2003 and February 2005, Mr. Allen was a consultant to the predecessor
      entities, assisting them with structuring financial components for their
      marketing and sales departments. From 2000 through 2003, Mr. Allen was the
      President and Chief Executive Officer of Design Textiles International, LLC,
      a
      distributor and manufacturer of textile products. Mr. Allen has more than 30
      years of experience in international marketing, product development, sourcing,
      manufacturing, international and domestic retail sales, brand management,
      financing, exporting and importing. Mr. Allen was the President of American
      Marketing & Events, Inc. between 1993 and 1995. Mr. Allen served in various
      executive positions with Milliken & Company (New York) and West Point
      Pepperell (New York) between 1972 and 1975. Mr. Allen graduated from the
      University of Arizona with a degree in Political Science and Economics and
      received a Masters degree in International Management from the American Graduate
      School of International Management.





**Harold
      D. Kahn** is a
      member of our board of directors, a position he has held since June 2005. From
      March 2004 until present, Mr. Kahn was an independent retail consultant. For
      nearly 30 years, Mr. Kahn served in a variety of capacities for R. H. Macy
&
Co., Inc. and its successor, Federated Department Stores, Inc. Most recently,
      he
      was the Chairman and Chief Executive Officer of Macy's East, a position he
      held
      from 1994 to 2004 and for which he had full operating responsibility for a
      $5
      billion, 90 branch retail business. Prior to 1994, Mr. Kahn served in a
      succession of senior executive roles within Macy's / Federated, including:
      President of Montgomery Ward (1992 - 1994), Chairman and Chief Executive Officer
      of Macy's South & Bullock's (1989 - 1992), Chairman and Chief Executive
      Officer of Macy's California (1985 - 1989), and President of Macy's Atlanta
      (1981 - 1985). Mr. Kahn received a Bachelors degree in Business Administration
      from City College of New York and a Masters in Business Administration from
      the
      University of Maryland.





**Thomas
      J. Lykos, Jr** ., is a
      member of our board of directors, a position he has held since December 2005.
      From May 1995 to the present, Mr. Lykos has been a founder and President of
      Home
      and Hearth, Inc., a developer and operator of economy extended-stay hotels.
      From
      1990 to 1995, Mr. Lykos served as Director of the Financial Institutions Group
      at Rauscher Pierce Refsnes, a full service investment bank, where he specialized
      in public and private offerings and mergers and acquisitions in a variety of
      industries including banks, thrifts, real estate investment trusts, mortgage
      banks and insurance companies. From 1988 to 1990, Mr. Lykos served as a Deputy
      Director of the FSLIC specializing in the resolution of insolvent financial
      institutions. From 1983 to 1988, Mr. Lykos served as Legal Counsel to the Senate
      Committee on Banking, Housing and Urban Affairs and Legal Counsel to the House
      Committee of Energy and Commerce in Washington, D.C. From 1982 to 1983, Mr.
      Lykos was an attorney for the United States Securities and Exchange Commission
      in the Division of Enforcement, and between 1981 and 1982, he was a corporate
      litigation attorney with the law firm of Bracewell and Patterson in Washington,
      D.C. Mr. Lykos received a Bachelor of Arts degree from Harvard College and
      a
      Juris Doctor from the University of Texas School of Law.





39




**John
      S. Reiland** was
      appointed to the Company’s Board of Directors on June 9, 2006 pursuant to the
      terms of the Loan Agreement described above. Subject to the Board of Directors
      final confirmation of Mr. Reiland’s compliance with all of the independence and
      knowledge requirements imposed by the Sarbanes-Oxley Act of 2002, the NASDAQ
      Stock Market, and the other rules and regulations promulgated by the Securities
      and Exchange Commission, the Board of Directors appointed Mr. Reiland to serve
      on its audit committee. Mr. Reiland also serves on the board of directors of
      Nova Oil, Inc. and New England Pantry, Inc. Since March 2006, Mr. Reiland has
      been a Senior Financial Analyst for Sanders Morris Harris, the largest
      investment banking firm headquartered in Texas. From March 2003 until March
      2006, he served as the Chief Financial Officer of US Dataworks, a developer
      of
      payment processing software focused on the financial services market, federal,
      state and local governments, billers and retailers. From March 2002 until
      December 2002, Mr. Reiland was the Interim Chief Executive Officer of New
      England Pantry, a New England-based convenience store chain. From
      November 2000 to February 2002, he was Chief Executive Officer of
      ServiceIQ, a privately held developmental stage company developing wireless
      communications devices for the field service industry. Mr. Reiland is a
      certified public accountant and began his career at Price Waterhouse &
Co. from 1973 to 1978. He received his B.B.A. from the University of Houston
      in
      1973.





**Ronald
      C. Stone, was appointed as the Company’s Chief Financial Officer on September
      29, 2006. Mr. Stone** served
      as the Company’s Vice President of Finance and Corporate Controller from
      September 2005 through September 2006. From May 2005 to August 2005, Mr. Stone
      served as the named principle of Stone Consulting, a provider of business
      consulting services. Mr. Stone served as the Chief Financial Officer and Chief
      Operating Officer of Jill Kelly Productions, Inc., a production company, from
      September 2003 to April 2005. From May 2002 to August 2003, Mr. Stone served
      as
      the Controller of Jill Kelly Productions. Mr. Stone served as Chief Financial
      Officer of Linear Industries, Ltd. and Lintech Motion Control, Inc., which
      are
      each manufacturing and engineering companies in the motion control field, from
      January 1997 to April 2002. Mr. Stone received a B.A. in History from the
      University of California, Los Angeles and is a certified public
      accountant.




Karen
      Allen, our former Vice President of Product Development, is the wife of Mr.
      Allen, our former Chief Executive Officer, President and member of our board
      of
      directors. Mrs. Allen received an annual salary of $170,000. There are no other
      family relationships among our directors and executive officers.





None
      of
      our directors, executive officers, promoters or control persons has, within
      the
      last five years: (i) had a bankruptcy petition filed by or against any business
      of which such person was a general partner or executive officer at the time
      of
      the bankruptcy.; (ii) been convicted in a criminal proceeding or is currently
      subject to a pending criminal proceeding (excluding traffic violations or
      similar misdemeanors); (iii) been subject to any order, judgment or decree,
      not
      subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his involvement in any type of business, securities or
      banking activities; (iv) been found by a court of competent jurisdiction (in
      a
      civil action), the SEC or the Commodity Futures Trading Commission to have
      violated a federal or state securities or commodities law, and where judgment
      has not been reversed, suspended or vacated.




**Board
      of Directors and Committees**




As
      of
      September 30, 2006, our board of directors consisted of four members. We
      established audit and compensation committees that meet the criteria for
      independence under, and other applicable requirements of, the Sarbanes-Oxley
      Act
      of 2002, the current rules of the NASDAQ Stock Market and the rules and
      regulations adopted by the SEC. In addition, we plan to establish a nominating
      committee consisting of our entire board of directors. Our board of directors
      has adopted charters for these three committees. We are currently redesigning
      our website and intend to make the text of these charters available on our
      website at www.ronco.com.




**Audit
      Committee**




The
      audit
      committee provides assistance to our board of directors in fulfilling its legal
      and fiduciary obligations in matters involving our accounting, auditing,
      financial reporting, internal control and legal compliance functions by
      approving the services performed by our independent accountants and reviewing
      the adequacy of our accounting practices and systems of internal accounting
      controls. The audit committee oversees the audit efforts of our independent
      accountants and reviews their independence.





John
      S.
      Reiland, Thomas J. Lykos Jr. and Harold D. Kahn are members of our audit
      committee. Our board of directors has appointed John S. Reiland as the chairman
      of the audit committee. Mr. Reiland is qualified as an audit committee financial
      expert. Before June 30, 2005, our business was operated by companies that were
      not subject to public reporting requirements and these companies were not
      historically required to include on their board any person meeting the
      qualifications of an audit committee financial expert. We plan to change the
      composition of our board of directors to include at least one person qualifying
      as an audit committee financial expert.





40




**Compensation
      Committee**




The
      compensation committee is responsible for recommending to our board of directors
      the compensation for our executives. The compensation committee determines
      our
      general compensation policies and the compensation provided to our directors
      and
      executive officers. The compensation committee reviews and recommends bonuses
      for our officers and certain other employees. In addition, the compensation
      committee will review and determine equity-based compensation for our directors,
      officers, employees and consultants, and administer our stock option plans,
      employee stock purchase plans and other benefit plans. Our compensation
      committee members are John S. Reiland, Thomas J. Lykos Jr. and Harold D.
      Khan.




**Executive
      Committee**




Our
      executive committee consists of John S. Reiland, Thomas J. Lykos, Jr. and Harold
      D. Kahn. Our executive committee has been established by the Board and is
      authorized to the fullest extent permitted by the Delaware General Corporation
      Law and the Bylaws. The executive committee has the power and the authority,
      among other things, to declare a dividend and to authorize the issuance of
      stock, setting the agenda for board of directors meetings, establishing
      procedures for our shareholders to communicate with our board of directors
      and
      reviewing and approving our management operating plan.




**Nominating
      Committee**




Our
      executive committee will act as our nominating committee and will be responsible
      for assisting in the selection of individuals as nominees for election to the
      board of directors at annual meetings of our stockholders and for filling any
      vacancies or newly created directorships on our board of directors. The
      nominating committee will make recommendations to our board of directors
      regarding candidates for directorships and the size and composition of our
      board
      of directors.




**Election
      of Directors and Officers**




Holders
      of our common stock and Series A Convertible Preferred Stock are entitled to
      one
      vote for each share held on all matters submitted to a vote of our stockholders,
      including the election of directors. Cumulative voting with respect to the
      election of directors is not permitted by our certificate of incorporation.
      Our
      board of directors is elected at the annual meeting of our stockholders or
      at a
      special meeting called for that purpose. Each director holds office until the
      next annual meeting of the stockholders and until the director's successor
      is
      elected and qualified. If a vacancy occurs on our board of directors, including
      a vacancy resulting from an increase in the number of directors, the vacancy
      may
      be filled by the board of directors or by the stockholders at the next annual
      stockholders' meeting or at a special meeting of the stockholders called for
      that purpose.




**Code
      of Business Conduct and Ethics**




In
      August
      2005, our board of directors adopted a code of business conduct and ethics
      applicable to all of our employees, officers and directors. Our code of business
      conduct and ethics is currently not available on our website. We recently
      completed the acquisition transactions of the Ronco business. Before such time,
      we were a “blank check” company with no operations. As a result of these
      changes, we are redesigning and reconfiguring our website at www.ronco.com
      to
      include links to the text of our code of business conduct and ethics. We intend
      to satisfy the disclosure requirement relating to amendments to or waivers
      from
      any provision of our code of business conduct and ethics applicable to our
      principal executive officer, principal financial officer, principal accounting
      officer or controller by either filing a Form 8-K with the SEC or posting this
      information on our website within five business days following the date of
      any
      amendment or waiver. Upon request, we will provide to any person, without
      charge, a copy of our code of business conduct and ethics.





**Corporate
      Governance Guidelines**




In
      August
      2005, we also adopted corporate governance guidelines, which provide the
      framework for our governance. Our corporate governance guidelines require
      non-employee directors to meet independently from the other members of our
      board
      of directors and set qualification standards for prospective members of the
      board of directors. These guidelines require our board of directors to evaluate
      its effectiveness annually and the effectiveness of management, define director
      independence and establish a minimum number of meetings per year for the board
      of directors and its committees. The text of our corporate governance guidelines
      is currently not available on our website. As described above, we are
      redesigning and reconfiguring our website and intend to make our corporate
      governance guidelines available on our website. Upon request, we will provide
      to
      any person, without charge, a copy of our corporate governance
      guidelines.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers and persons who own more than ten percent of our common
      stock
      file with the SEC initial reports of ownership and reports of changes in
      ownership of our common stock. These individuals are required by the SEC's
      regulations to furnish us with copies of all Section 16(a) reports filed by
      such
      persons. To our knowledge, based solely on our review of the copies of such
      reports furnished to us, all Section 16(a) filing requirements applicable to
      our
      directors, executive officers and greater than ten percent beneficial owners
      for
      the fiscal year ended June 30, 2006 were complied with on a timely
      basis.





41




**Item
      11. Executive Compensation**




The
      following table sets forth compensation for services rendered to us in all
      capacities for the year ended June 30, 2006, nine months ended June 30, 2005,
      September 30, 2004 and year ended December 31, 2003, for our Chief Executive
      Officer and our Chief Financial Officer.





**Summary
      Compensation Table**




Annual
                  Compensation
              
              
              Long-Term
                Compensation
                AwardsName
                  and Principal Position
              
              
              Year
              
              Salary
                  (1)($)
              
              
              
              Bonus
                  ($)
              
              
              
              Other
                  Annual Compensation ($)
              
              
              
              Restricted
                  Stock
                Awards
                  ($)Richard
                  F. Allen, Sr.
              
              
              2006
              
              $
              246,154
              
              
              
              
              -
              
              
              
              $
              58,546
              
              (3)
              
              
              -Former
                  President, Chief
              
              
              2005
              
              $
              108,933
              
              (4)
              
              $
              315,000
              
              (5)
              
              
              
              
              
              
              $
              3,009,177
              
              (6)Executive
                  Officer and Current Director
              
              
              2004
              
              
              -
              
              
              
              
              -
              
              
              
              
              -
              
              
              
              
              -Evan
                  Warshawsky
              
              
              2006
              
              $
              169,024
              
              
              
              
              -
              
              
              
              $
              18,508
              
              (2)
              
              
              -Chief
                  Financial Officer
              
              
              2005
              
              $
              112,500
              
              (7)
              
              $
              150,000
              
              (8)
              
              
              
              
              
              
              
              601,837
              
              (9)and
                  Secretary
              
              
              2004
              
              $
              112,500
              
              (10)
              
              
              -
              
              
              
              
              -
              
              
              
              
              -2003
              
              $
              123,333
              
              (12)
              
              
              -
              
              
              
              
              -
              
              
              
              
              -Paul
                  Kabashima
              
              
              2006
              
              $
              130,769
              
              (11)
              
              
              -
              
              
              
              $
              9,305
              
              (2)
              
              
              -President,
                  Interim Chief Executive OfficerChief
                  Operating Officer
              
              
              2005
              
              
              -
              
              
              
              
              -
              
              
              
              
              -
              
              
              
              
              -




(1)
            Includes
                medical insurance reimbursements.




(2)
            Perquisites,
                including car allowances, and other personal benefits received by
                the
                named executive officers, in the aggregate, do not exceed the lesser
                of
                $50,000 or 15% of any such named executive officer's total annual
                compensation.




(3)
            Perquisites
                received by Mr. Allen, include car allowances of $22,420 and other
                personal benefits of $36,126.




(4)
            Reflects
                amount received by Mr. Allen as Chief Executive Officer of Ronco
                Inventions, LLC, one of the predecessor entities, for the nine months
                ended June 29, 2005.





42




(5)
            Reflects
                bonus paid to Mr. Allen upon completion of the acquisition of the
                Ronco
                business that closed on June 30,
                2005.





(6)
            Reflects
                value of 480,188 shares of our common stock issued, and 320,125 shares
                of
                our common stock to be issued, to Mr. Allen pursuant to the terms
                of his
                employment agreement and restricted stock purchase agreement with
                us. Half
                of the 320,125 shares will be issued to Mr. Allen on each of the
                first two
                anniversaries of June 30, 2005. Mr. Allen purchased 480,188 shares
                from us
                at $0.01 per share on June 30, 2005 and will purchase the remaining
                320,125 shares at the same price. The fair market value of Mr. Allen's
                common stock is based on the $3.77 per share price of the Series
                A
                Convertible Preferred Stock sold to investors on June 30, 2005. These
                shares are subject to repurchase by us, at our option, for $0.01
                per
                share, exercisable if Mr. Allen voluntarily terminates his employment
                with
                us prior to June 30, 2008 or if certain performance targets are not
                satisfied. Additionally, if we terminate Mr. Allen's employment on
                or
                before June 30, 2007 for “cause,” we have the option to repurchase, for
                $0.01 per share, the shares issued to him on the first and second
                anniversaries of his employment.




(7)
            Reflects
                amount paid to Mr. Warshawsky as an executive of Ronco Inventions,
                LLC,
                one of the predecessor entities, for the nine months ended June 29,
                2005.




(8)
            Reflects
                bonus paid to Mr. Warshawsky upon completion of the acquisition of
                the
                Ronco business that closed in June
                2005.




(9)
            Reflects
                value of 160,063 shares of our common stock issued to Mr. Warshawsky
                under
                his employment agreement and restricted stock purchase agreement
                with us.
                Mr. Warshawsky purchased these shares for $0.01 per share on June
                30,
                2005, subject to our right to repurchase the shares upon Mr. Warshawsky's
                voluntary termination of his employment or our termination of his
                employment for “cause.” The fair market value of Mr. Warshawsky's common
                stock is based on the $3.77 per share price of the Series A Convertible
                Preferred Stock sold to investors on June 30, 2005. Our repurchase
                option
                lapsed with respect to 50% of the shares on June 30, 2005. Our repurchase
                right will lapse with respect to 25% of the shares on each of the
                first
                two anniversaries of June 30, 2005. In addition, our option to repurchase
                the shares will immediately lapse if Mr. Warshawsky's employment
                is
                terminated without “cause.”




(10)
            Reflects
                amount paid to Mr. Warshawsky as President of Ronco Inventions, LLC,
                one
                of the predecessor entities, for the nine months ended September
                30,
                2004.




(11)
            Reflects
                the amounts paid to Mr. Kabashima from November 2005 to June 30,
                2006.




(12)
            Reflects
                amount paid to Mr. Warshawsky as President of Ronco Inventions, LLC,
                one
                of the predecessor entities, for the year ended December 31,
                2003.





43




***Employment
      Agreement with Richard F. Allen, Sr.***




We
      entered into an employment agreement with Richard F. Allen, Sr., commencing
      on
      June 30, 2005, which has an initial term of four years and a provision for
      automatic renewal for additional one year periods if the employment agreement
      is
      not earlier terminated. Mr. Allen served as our President and Chief Executive
      Officer and is a member of our board of directors. Mr. Allen receives a base
      salary of $250,000 per year and is entitled to a discretionary bonus of up
      to
      $600,000 per year. The amount of Mr. Allen's bonus will be determined by our
      compensation committee, and will be based on the achievement of certain
      financial milestones as determined by the compensation committee.




On
      June
      30, 2005, the commencement date of Mr. Allen's employment agreement, we paid
      Mr.
      Allen a one-time cash bonus of $315,000 in consideration of his role in the
      consummation of the transactions that resulted in the acquisition of the Ronco
      business. Mr. Allen also received the right to purchase 800,313 restricted
      shares of our common stock pursuant to a restricted stock purchase agreement
      at
      a price of $0.01 per share. Mr. Allen purchased 60% of these shares (480,188)
      on
      June 30, 2005, and is entitled to purchase an additional 160,063 shares on
      June
      30, 2006 and an additional 160,062 shares on June 30, 2007. These shares are
      subject to repurchase by us, at our option, for $0.01 per share, if Mr. Allen
      voluntarily terminates his employment with us prior to June 30, 2008 or if
      certain performance targets are not satisfied. Additionally, if we terminate
      Mr.
      Allen's employment on or before June 30, 2007 for “cause,” we have the option to
      repurchase, for $0.01 per share, the shares issued to him on the first and
      second anniversaries of his employment. In addition, our option to repurchase
      these shares will immediately lapse if we terminate Mr. Allen's employment
      without “cause.”




Mr.
      Allen's employment agreement would be terminated under its terms upon the death
      or disability of Mr. Allen. We will also pay for a $1,000,000 life insurance
      policy for Mr. Allen with the proceeds to be paid to his estate. If we terminate
      his employment agreement for “cause” (as defined in the agreement) or if Mr.
      Allen terminates his employment voluntarily for any reason before the end of
      the
      term, Mr. Allen will be entitled to receive his base salary through the
      termination date in addition to his pro rata bonus. If Mr. Allen's employment
      is
      terminated by us without “cause,” then he will be entitled to receive: (i)
      accrued compensation through the termination date; (ii) a single sum payment
      of
      $1,000,000; and (iii) reimbursement for the cost of up to the first 12 months
      of
      continuing group health plan coverage that Mr. Allen and his covered dependents
      would be entitled to receive under federal law.




Mr.
      Allen's employment agreement entitles him to participate in our employee benefit
      plans, including any pension, group health, long term disability, group life
      insurance, and any other welfare and fringe benefit plans, arrangements and
      programs we sponsor or maintain for our employees or senior executives. We
      will
      also reimburse Mr. Allen for any reasonable expenses he incurs in carrying
      out
      his duties and responsibilities for and on our behalf and we will provide him
      with the use of an automobile of his choice including monthly lease payments
      of
      up to $1,000 and other costs including fuel, maintenance and insurance
      coverage.





Mr.
      Allen's employment agreement also contains non-competition and non-solicitation
      provisions, which restrict him from (1) competing with our business during
      his
      employment with us and for a period of three years after his employment
      terminates, and (2) soliciting any of our employees or customers during his
      employment with us and for a period of two years after his
      employment


terminates.





On
      August
      9, 2006, we terminated the employment of Richard F. Allen, Sr. as President
      and
      Chief Executive Officer of the Company effective as of this date. Mr. Allen
      continues to serve as a director of the Company.




***Employment
      Agreement with Evan J. Warshawsky***




Effective
      June 30, 2005, we entered into an employment agreement with Evan J. Warshawsky,
      which has an initial term of three years. Mr. Warshawsky serves as our Chief
      Financial Officer. Mr. Warshawsky receives a base salary of $200,000 per year
      and will be entitled to a discretionary bonus of up to $300,000. The amount
      of
      Mr. Warshawsky's bonus will be determined by our board of directors, or
      compensation committee, based on the achievement of certain financial milestones
      as determined by our board of directors or compensation committee.




On
      June
      30, 2005, the commencement date of Mr. Warshawsky's employment agreement, we
      paid Mr. Warshawsky a one-time cash bonus of $150,000 in consideration of his
      role in the transactions that resulted in our acquisition of the Ronco business.
      In addition, Mr. Warshawsky also received the right to purchase 160,063
      restricted shares of our common stock pursuant to a restricted stock purchase
      agreement, at a price of $0.01 per share, subject to our right to repurchase
      the
      shares upon Mr. Warshawsky's voluntary termination of his employment or our
      termination of his employment for “cause.” Our repurchase option lapsed on June
      30, 2005 with respect to 50% of the shares. Our repurchase right will lapse
      with
      respect to 25% of the shares on each of the first two anniversaries of June
      30,
      2005. In addition, our option to repurchase the shares will immediately lapse
      if
      Mr. Warshawsky's employment is terminated without “cause.” On June 30, 2005, Mr.
      Warshawsky exercised his right to purchase the shares and we issued such shares
      of our common stock to Mr. Warshawsky as of that date.





44




Mr.
      Warshawsky's employment agreement would be terminated under its terms upon
      his
      death or disability. In the event of his death or disability, we will pay Mr.
      Warshawsky any accrued base salary through the termination date and the cost
      of
      six months (in the event of his death) or twelve months (in the event of his
      disability) of continuing group health plan coverage that he and his covered
      dependents would be entitled to receive under federal law. If we terminate
      his
      employment agreement for “cause” or if Mr. Warshawsky terminates his employment
      voluntarily for any reason before the end of the term, Mr. Warshawsky will
      be
      entitled to receive his base salary through the date his employment terminates
      in addition to his pro rata bonus. If Mr. Warshawsky's employment is terminated
      by us without “cause” then he will be entitled to receive: (i) accrued
      compensation through the termination date; (ii) an amount equal to three times
      his then current base salary; and (iii) reimbursement for the cost of up to
      the
      first 12 months of continuing group health plan coverage that Mr. Warshawsky
      and
      his covered dependents would be entitled to receive under federal
      law.




Mr.
      Warshawsky's employment agreement entitles him to participate in our employee
      benefit plans, including any pension, group health, long term disability, group
      life insurance, and any other welfare and fringe benefit plans, arrangements
      and
      programs we sponsor or maintain for our employees or senior executives. We
      will
      also reimburse Mr. Warshawsky for any reasonable expenses he incurs in carrying
      out his duties and responsibilities for and on our behalf and we will provide
      him with the use of an automobile of his choice including monthly lease payments
      of up to $750 and other costs including fuel, maintenance and insurance
      coverage.




Mr.
      Warshawsky's employment agreement also contains non-competition and
      non-solicitation provisions, which restrict him from (1) competing with our
      business during his employment with us and for a period of two years after
      his
      employment terminates voluntarily or for cause or for a period of one year
      if
      his employment is terminated by us without cause, and (2) soliciting any of
      our
      employees or customers during his employment with us and for a period of two
      years after his employment terminates.




In
      April
      2006, we terminated Mr. Warshawsky’s employment.




***Compensation
      of Directors***




Each
      member of our board of directors who is not one of our employees receives an
      annual retainer of $25,000 and $1,500 for each meeting of our board of directors
      attended. In addition, we will pay for reasonable travel expenses. Under the
      stock incentive plan that we intend to adopt, non-employee directors may be
      granted options to purchase shares of our common stock. Former directors,
      Messrs. Martin and Mockenhaupt have each waived the right to the $25,000 annual
      retainer and the grant of stock options. Mr. Reiland has also waived the right
      to the $25,000 annual retainer.




Our
      former employee director did not receive any additional compensation for serving
      on our board of directors or any committee of our board of directors, and our
      non-employee directors do not receive any compensation from us other than the
      retainer, attendance fees and stock option grants described above. We currently
      have no employee directors.





***Stock
      Incentive Plan***




We
      intend
      to adopt a stock incentive plan that we anticipate will provide for the grant
      of
      options and other equity based awards to purchase our common stock. We intend
      to
      reserve not less than 100,000 shares of our common stock for issuance under
      the
      stock incentive plan.




***Compensation
      Committee Interlocks and Insider Participation***




None
      of
      our executive officers serves as a member of the board of directors or the
      compensation committee of any other company that has one or more executive
      officers serving as a member of our board of directors. None of our employees
      or
      current or former officers will be appointed to our compensation
      committee.





45





**ITEM
      12. SECURITY OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL
      STOCKHOLDERS**




Set
      forth
      below is information as of September 28,2006, as to each class of our equity
      securities, beneficially owned by all of our directors and each of our executive
      officers, and all of our directors and executive officers as a group, and each
      beneficial owner of more than 5% of any class of our voting
      securities.





**Name
                and Address of****Beneficial
                Owner**
            
            **Title
                of Class**
            
            **Number
                of Shares****Beneficially
                Owned(1)**
            
            **Percent
                of****Class****Directors
                and Executive Officers**Richard
                F. Allen, Sr.(2)
            
            
            Common
                Stock
            
            
            511,346
            (4)
            
            19.5
            %Series
                A Convertible
            
            
            31,158
            (5)
            
            *Preferred
                StockEvan
                J. Warshawsky (3)
            
            
            Common
                Stock
            
            
            191,226
            (6)
            
            7.3
            %Series
                A Convertible
            
            
            31,163
            
            
            *Preferred
                StockHarold
                D. Kahn
            
            
            Common
                Stock
            
            
            0
            
            
            *Series
                A Convertible
            
            
            0
            
            
            *Preferred
                StockThomas
                J. Lykos, Jr.
            
            
            Common
                Stock
            
            
            0
            
            
            *Series
                A Convertible
            
            
            0
            
            
            *Preferred
                StockPaul
                Kabashima
            
            
            Common
                Stock
            
            
            0
            
            
            *Series
                A Convertible
            
            
            0
            
            
            *Preferred
                StockJohn
                S. Reiland (7) (8)
            
            
            Common
                Stock
            
            
            0
            
            
            *Series
                A Convertible
            
            
            0
            
            
            *Preferred
                StockAll
                directors and executive
            
            
            Common
                Stock
            
            
            702,572
            (11)
            
            26.5
            %(current
                and former) officers
            
            
            Series
                A Convertible
            
            
            62,321
            
            
            *as
                a group (7 persons)
            
            
            Preferred
                Stock





46





**Name
                and Address of****Beneficial
                Owner**
            
            **Title
                of Class**
            
            **Number
                of Shares Beneficially Owned(1)**
            
            **Percent
                of Class****5%
                or greater holders**Entities
                affiliated with
            
            
            Common
                Stock
            
            
            1,867,598
            (7)
            
            42.2
            %Sanders
                Morris Harris, Inc.
            
            
            Series
                A Convertible
            
            
            1,600,931
            (8)
            
            10.6
            %600
                Travis, Suite 3100
            
            
            Preferred
                StockHouston,
                TX 77002Don
                A. Sanders
            
            
            Common
                Stock
            
            
            1,847,641
            (9)
            
            41.6
            %600
                Travis, Suite 3100
            
            
            Series
                A Convertible
            
            
            1,847,641
            (9)
            
            12
            %Houston,
                TX 77002
            
            
            Preferred
                StockSanders
                Opportunity Fund
            
            
            Common
                Stock
            
            
            1,227,932
            (10)
            
            32
            %(Institutional),
                L.P.
            
            
            Series
                A Convertible
            
            
            1,227,932
            (10)
            
            8
            %600
                Travis, Suite 3100
            
            
            Preferred
                StockHouston,
                TX 77002Bookbend
                & Co.
            
            
            Common
                Stock
            
            
            1,869,694
            (12)
            
            41.9
            %C/O
                State Street Bank & Trust
            
            
            Series
                A Convertible
            
            
            1,869,694
            (12)
            
            12.4
            %Box
                5756
            
            
            Preferred
                StockBoston,
                MA 02206Heartland
                Group, Inc.,
            
            
            Common
                Stock
            
            
            1,762,186
            (13)
            
            40.5
            %solely
                on behalf of theHeartland
                Value Fund
            
            
            Series
                A Convertible
            
            
            1,762,186
            (13)
            
            11.7
            %789
                North Water Street
            
            
            Preferred
                StockSuite
                500GLG
                Partners American Opp Fund
            
            
            Common
                Stock
            
            
            1,174,790
            (14)
            
            31.2
            %P.O.
                Box 9080t
            
            
            Series
                A Convertible
            
            
            1,174,790
            (14)
            
            7.8
            %Georgetown,
                Grand Cayman
            
            
            Preferred
                StockCayman
                IslandsLBI
                Group, Inc.
            
            
            Common
                Stock
            
            
            934,847
            (15)
            
            26.5
            %Lehman
                Brothers
            
            
            Series
                A Convertible
            
            
            934,847
            (15)
            
            6.2
            %399
                Park Avenue
            
            
            Preferred
                StockNew
                York, NY 10022The
                Quaker Investment Trust -
            
            
            Common
                Stock
            
            
            892,842
            (16)
            
            25.6
            %Quaker
                Strategic
            
            
            Series
                A Convertible
            
            
            892,842
            (16)
            
            5.9
            %Growth
                Fund
            
            
            Preferred
                Stock260
                Franklin St., 16th Floor#1600Boston,
                MA 02110Topwater
                Exclusive Fund II LLC
            
            
            Common
                Stock
            
            
            508,685
            (17)
            
            16.4
            %80
                Washington Street
            
            
            Series
                A Convertible
            
            
            508,685
            (17)
            
            3.4
            %Suite
                2-2
            
            
            Preferred
                StockSouth
                Norwalk, CT 06854Palisades
                Master Fund L.P.
            
            
            Common
                Stock
            
            
            587,396
            (18)
            
            21.9
            %C/O
                PEF Advisors LLC
            
            
            Series
                A Convertible
            
            
            87,396
            
            
            *200
                Mansell Court East Suite 5
            
            
            Preferred
                StockRoswell,
                GA 30076




47





**Name
                and Address of Beneficial Owner**
            
            **Title
                of Class**
            
            **Number
                of Shares Beneficially Owned(1)**
            
            **Percent
                of Class**BFS
                US Special Opportunities Trust PLC
            
            
            Common
                Stock
            
            
            311,616
            (19)
            
            10.7
            %8080
                North Central Pkwy
            
            
            Series
                A Convertible
            
            
            311,616
            (19)
            
            2.1
            %#210
            
            
            Preferred
                StockDallas,
                TX 75206Renaissance
                US Growth Investment Trust PLC
            
            
            Common
                Stock
            
            
            311,616
            (20)
            
            10.7
            %8080
                North Central Express
            
            
            Series
                A Convertible
            
            
            311,616
            (20)
            
            2.1
            %Suite
                210, LB59
            
            
            Preferred
                StockDallas,
                TX 75206Stanley
                Shopkorn
            
            
            Common
                Stock
            
            
            311,616
            (21)
            
            10.7
            %Shopkorn
                Associates
            
            
            Series
                A Convertible
            
            
            311,616
            (21)
            
            2.1
            %410
                Park Avenue
            
            
            Preferred
                StockNew
                York, NY 100922Tom
                and Nancy Juda Living Trust
            
            
            Common
                Stock
            
            
            311,616
            (22)
            
            10.7
            %410
                S. Lucerne Boulevard
            
            
            Series
                A Convertible
            
            
            311,616
            (22)
            
            2.1
            %Los
                Angeles, California 90020
            
            
            Preferred
                StockApogee
                Fund, L.P.
            
            
            Common
                Stock
            
            
            233,713
            (23)
            
            8.3
            %201
                Main St, #1555
            
            
            Series
                A Convertible
            
            
            233,713
            (23)
            
            1.5
            %Ft
                Worth, TX 76102
            
            
            Preferred
                StockColl
                International
            
            
            Common
                Stock
            
            
            177,778
            
            
            6.9
            %1330
                Avenue of the Americas,
            
            
            Series
                A Convertible
            
            
            0
            
            
            *40th
                Floor
            
            
            Preferred
                StockNew
                York, NY 10019Content
                Holding LLC
            
            
            Common
                Stock
            
            
            177,778
            
            
            6.9
            %1330
                Avenue of the Americas,
            
            
            Series
                A Convertible
            
            
            0
            
            
            *40th
                Floor
            
            
            Preferred
                StockNew
                York, NY 10019Gilbert
                Azafrani
            
            
            Common
                Stock
            
            
            160,063
            (24)
            
            6.2
            %1725
                Oceanfront Walk #318
            
            
            Series
                A Convertible
            
            
            0
            
            
            *Santa
                Monica, CA 90401
            
            
            Preferred
                StockSandor
                Capital Master Fund, L.P.
            
            
            Common
                Stock
            
            
            158,597
            (25)
            
            5.8
            %2828
                Routh Street, #500
            
            
            Series
                A Convertible
            
            
            158,597
            (25)
            
            1.1
            %Dallas,
                TX 75201
            
            
            Preferred
                Stock




48





**Name
                and Address of Beneficial Owner**
            
            **Title
                of Class**
            
            **Number
                of Shares Beneficially Owned(1)**
            
            **Percent
                of Class**Copper
                Beech Equity Partners LLC
            
            
            Common
                Stock
            
            
            156,862
            
            
            6.1
            %445
                Park Avenue, 10th Floor
            
            
            Series
                A Convertible
            
            
            0
            
            
            *New
                York, NY 10022
            
            
            Preferred
                StockAnthony
                & Sandra Mansour Family
            
            
            Common
                Stock
            
            
            155,809
            (26)
            
            5.7
            %Revocable
                Trust 12/17/85
            
            
            Series
                A Convertible
            
            
            155,809
            (26)
            
            1.0
            %4477
                Golden Foothill Parkway
            
            
            Preferred
                StockEl
                Dorado Hills, CA 95762Alpha
                Capital
            
            
            Common
                Stock
            
            
            155,808
            (27)
            
            5.7
            %LH
                Financial
            
            
            Series
                A Convertible
            
            
            155,808
            (27)
            
            1.0
            %160
                Central Park, S., #2701
            
            
            Preferred
                StockNew
                York, NY 10021Paul
                Wallace
            
            
            Common
                Stock
            
            
            133,334
            
            
            5.1
            %156
                West 56th Street, Suite 1604
            
            
            Series
                A Convertible
            
            
            0
            
            
            *New
                York, NY 10019
            
            
            Preferred
                Stock




*
      Indicates less than one percent.





(1)
            Beneficial
                ownership is determined in accordance with the rules and regulations
                of
                the SEC. Under these rules, a person is deemed to beneficially own
                a
                security if that person has or shares voting power or investment
                power
                with respect to that security, or has the right to acquire beneficial
                ownership of that security within 60 days, including through the
                exercise
                of any option, warrant or other right or the conversion of any other
                security. More than one person may be considered to beneficially
                own the
                same security. Percentage of class is based on 2,591,605 shares of
                common
                stock outstanding as of September 28, 2006. Percentage of Series
                A
                Convertible Preferred Stock is based on 15,080,932 shares of Series
                A
                Convertible Preferred Stock outstanding as of September 28, 2006,
                not
                including an additional four shares of Series A Convertible Preferred
                Stock that were paid for but that have not yet been issued. Securities
                that are exercisable or convertible into shares of our common stock
                within
                60 days of the date of this prospectus are deemed outstanding for
                computing the percentage of the person or entity holding such securities
                but are not deemed outstanding for computing the percentage of any
                other
                person or entity. Percentage of class does not include shares of
                Series A
                Convertible Preferred Stock payable as a dividend on the outstanding
                shares of Series A Convertible Preferred Stock or issuable in payment
                of
                penalties associated with this registration statement. See “Description of
                Securities-Preferred Stock.”(2)
            The
                address for Mr. Allen is 21344 Superior
                Street, Chatsworth, California 91311.(3)
            The
                address for Mr. Warshawsky is 21344 Superior Street, Chatsworth,
                California 91311.(4)
            Consists
                of 480,188 shares of our common stock held individually by Mr. Allen
                and
                31,158 shares of our Series A Convertible Preferred Stock, including
                an
                additional four shares of Series A Convertible Preferred Stock that
                were
                paid for but that were not issued as of the date of this prospectus
                held
                by The Allen Peyser Family Trust of which Mr. Allen and his spouse,
                Karen
                Allen, are trustees and who both exercise voting and investment power
                over
                the shares. Mr. Allen and his spouse disclaim beneficiary ownership
                of the
                shares held by The Allen Peyser Family Trust. The shares of common
                stock
                are subject to repurchase by us, at our option, for $0.01 per share,
                exercisable if Mr. Allen voluntarily terminates his employment with
                us
                prior to June 30, 2008 or if certain performance targets are not
                satisfied. Each share of Series A Convertible Preferred Stock may
                be
                converted into one share of common stock at the option of the
                holder.(5)
            Consists
                of 31,158 shares of Series A Convertible Preferred Stock including
                four
                shares of Series A Convertible Preferred Stock that were paid for
                but that
                were not issued as of the date of this prospectus held by The Allen
                Peyser
                Family Trust of which Mr. Allen and his spouse, Karen Allen, are
                trustees
                and who both exercise voting and investment power over the shares.
                Mr.
                Allen and his spouse disclaim beneficiaries ownership of the shares
                held
                by The Allen Peyser Family Trust.(6)
            Consists
                of 160,063 shares of our common stock and 31,163 shares of our Series
                A
                Convertible Preferred Stock. Mr. Warshawsky acquired the shares of
                common
                stock subject to repurchase by us, at our option, for $0.01 per share,
                exercisable if Mr. Warshawsky voluntary terminates his employment
                or we
                terminate his employment for “cause.” Our repurchase option lapsed with
                respect to 50% of these shares on June 30, 2005. Our repurchase option
                will lapse with respect to 25% of these shares on each of the first
                two
                anniversaries of June 30, 2005. Each share of Series A Convertible
                Preferred Stock may be converted into one share of common stock at
                the
                option of the holder.(7)
            Consists
                of an aggregate of 1,600,931 shares of our Series A Convertible Preferred
                Stock held by Sanders Opportunity Fund (Institutional), L.P., and
                Sanders
                Opportunity Fund, L.P. (the “SOF Funds”) and a warrant to purchase 266,667
                shares of our common stock held by Sanders Morris Harris, Inc.   The
                general partner of the SOF Funds is SOF Management, LLC, a wholly
                owned
                subsidiary of Sanders Morris Harris Inc.  Each share of Series A
                Convertible Preferred Stock may be converted into one share of common
                stock at the option of the holder.   Mr. Reiland, a member of our
                board of directors, is a Senior Financial Analyst at Sanders Morris
                Harris, Inc. Mr. Reiland disclaims beneficial ownership of the shares
                owned by the SOF Funds and Sanders Morris Harris, Inc.(8)
            Consists
                of an aggregate of 1,600,931 shares of our Series A Convertible Preferred
                Stock held by the SOF Funds . The general partner of the SOF Funds
                is SOF
                Management, LLC, a wholly owned subsidiary of Sanders Morris Harris
                Inc.  Each share of Series A Convertible Preferred Stock may be
                converted into one share of common stock at the option of the holder.
                  Mr. Reiland, a member of our board of directors, is a Senior
                Financial Analyst at Sanders Morris Harris, Inc. Mr. Reiland disclaims
                beneficial ownership of the shares owned by the SOF Funds and Sanders
                Morris Harris, Inc.(9)
            Consists
                of an aggregate of 1,600,931 shares of our Series A Convertible Preferred
                Stock held by the SOF Funds, 119,830 shares of Series A Convertible
                Preferred held by Mr. Sanders, 74,012 shares of Series A Convertible
                Preferred Stock held by Katherine U. Sanders, over which Mr. Sanders
                exercises investment discretion, 29,371 shares of Series A Convertible
                Preferred Stock held by Christine M. Sanders, Mr. Sanders spouse,
                and
                23,497 shares of Series A Convertible Preferred Stock held by the
                Tanya Jo
                Drury Trust, of which Mr. Sanders is a Trustee.   The general partner
                of the SOF Funds is SOF Partners, LLC, a wholly owned subsidiary
                of
                Sanders Morris Harris Inc.  Don A. Sanders is the Chief Investment
                Officer of SOF Management, LLC, and exercises voting and investment
                powers
                for these shares. Mr. Sanders disclaims beneficial ownership of the
                shares
                owned by the SOF Funds, Katherine U. Sanders, Christine M. Sanders,
                and
                the Tanya Jo Drury Trust . Each share of Series A Convertible Preferred
                Stock may be converted into one share of common stock at the option
                of the
                holder.




49




(10)
            Consists
                of an aggregate of 1,227,932 shares of our Series A Convertible Preferred
                Stock held by Sanders Opportunity Fund (Institutional), L.P.   The
                general partner of the Sanders Opportunity Fund (Institutional),
                L.P. is
                SOF Management, LLC, a wholly owned subsidiary of Sanders Morris
                Harris
                Inc.  Don A. Sanders is the Chief Investment Officer of the SOF
                Management, LLC and exercises voting and investment powers for these
                shares. Mr. Sanders disclaims beneficial ownership of the shares
                owned by
                the Sanders Opportunity Fund (Institutional), L.P.(11)
            Consists
                of shares beneficially owned by Messrs. Allen and
                Warshawsky.(12)
            Consists
                of 1,869,694 shares of our Series A Convertible Preferred Stock.
                William
                Bales exercises voting and investment powers for these shares. Although
                Mr. Bales may be deemed to be the beneficial owner, Mr. Bales disclaims
                beneficial ownership of the shares owned by Bookbend & Co. Each share
                of Series A Convertible Preferred Stock may be converted into one
                share of
                common stock at the option of the holder.(13)
            Consists
                of 1,762,186 shares of our Series A Convertible Preferred Stock.
                Paul
                Beste exercises voting and investment powers for these shares. Although
                Mr. Beste may be deemed to be the beneficial owner, Mr. Beste disclaims
                beneficial ownership of the shares owned by Heartland Group, Inc.
                Each
                share of Series A Convertible Preferred Stock may be converted into
                one
                share of common stock at the option of the holder.(14)
            Consists
                of 1,174,790 shares of our Series A Convertible Preferred Stock.
                Noam
                Gottesman exercises voting and investment powers for these shares.
                Although Mr. Gottesman may be deemed to be the beneficial owner,
                Mr.
                Gottesman disclaims beneficial ownership of the shares owned by GLG
                Partners American Opp Fund. Each share of Series A Convertible Preferred
                Stock may be converted into one share of common stock at the option
                of the
                holder.(15)
            LBI
                Group, Inc. is a wholly-owned subsidiary of Lehman Brothers, Inc.,
                which
                is a wholly-owned subsidiary of Lehman Brothers Holdings, Inc., which
                is a
                public company.(16)
            Consists
                of 892,842 shares of our Series A Convertible Preferred Stock. Manu
                Daftary exercises voting and investment powers for these shares.
                Each
                share of Series A Convertible Preferred Stock may be converted into
                one
                share of common stock at the option of the holder.(17)
            Consists
                of 508,685 shares of our Series A Convertible Preferred Stock. Travis
                Taylor and Manu Daftary exercise voting and investment powers for
                these
                shares. Each share of Series A Convertible Preferred Stock may be
                converted into one share of common stock at the option of the
                holder.(18)
            Consists
                of 500,000 shares of our common stock and 87,396 shares of our Series
                A
                Convertible Preferred Stock. The shares of common stock are subject
                to
                repurchase by us, at our option, for $0.01 per share, Paul Mannion
                and
                Andy Reckles exercise voting and investment powers for these shares.
                Each
                share of Series A Convertible Preferred Stock may be converted into
                one
                share of common stock at the option of the holder.(19)
            Consists
                of 311,616 shares of our Series A Convertible Preferred Stock. Russell
                Cleveland exercises voting and investment powers for these shares.
                Each
                share of Series A Convertible Preferred Stock may be converted into
                one
                share of common stock at the option of the holder.(20)
            Consists
                of 311,616 shares of our Series A Convertible Preferred Stock. Russell
                Cleveland exercises voting and investment powers for these shares.
                Each
                share of Series A Convertible Preferred Stock may be converted into
                one
                share of common stock at the option of the holder.(21)
            Consists
                of 311,616 shares of our Series A Convertible Preferred Stock. Each
                share
                of Series A Convertible Preferred Stock may be converted into one
                share of
                common stock at the option of the holder.(22)
            Consists
                of 311,616 shares of our Series A Convertible Preferred Stock. Tom
                Juda
                and Nancy Juda exercise voting and investment powers for these shares.
                Each share of Series A Convertible Preferred Stock may be converted
                into
                one share of common stock at the option of the holder.(23)
            Consists
                of 233,713 shares of our Series A Convertible Preferred Stock. Emmett
                Murphy exercises voting and investment powers for these shares. Each
                share
                of Series A Convertible Preferred Stock may be converted into one
                share of
                common stock at the option of the holder.(24)
            Mr.
                Azafrani was our general counsel.





50




(25)
            Consists
                of 158,597 shares of our Series A Convertible Preferred Stock. John
                Lemak
                exercises voting and investment powers for these shares. Each share
                of
                Series A Convertible Preferred Stock may be converted into one share
                of
                common stock at the option of the holder.(26)
            Consists
                of 155,809 shares of our Series A Convertible Preferred Stock. Anthony
                Mansour exercises voting and investment powers for these shares.
                Each
                share of Series A Convertible Preferred Stock may be converted into
                one
                share of common stock at the option of the holder.(27)
            Consists
                of 155,808 shares of our Series A Convertible Preferred Stock. Konrad
                Ackerman and Rainer Posch exercise voting and investment powers for
                these
                shares. Each share of Series A Convertible Preferred Stock may be
                converted into one share of common stock at the option of the
                holder.





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




**Origins
      of the Ronco Asset Purchase**




In
      October 2003, Richard F. Allen, Sr., our former President and Chief Executive
      Officer, commenced discussions with Mr. Ronald M. Popeil regarding the
      possibility of affecting the purchase of the business of Ronco Inventions,
      LLC
      and other entities affiliated with Mr. Popeil, which we refer to as the
      predecessor entities. Mr. Allen enlisted the assistance of UCC Capital
      Corporation, an advisory firm based in New York, and certain of its principals,
      who we refer to collectively as the promoters to provide advice on the specific
      structure of the proposed asset purchase.




Ronco
      Marketing Corporation was formed in October 2004 for the purpose of acquiring
      the assets of the predecessor entities. Pursuant to the terms of an advisory
      agreement in connection with the structuring, negotiation and financing of
      the
      purchase of these assets, we paid cash fees consisting of (i) a base fee of
      $1,800,000 and (ii) an incremental fee equal to five percent (5%) of any of
      our
      cash and cash equivalents in excess of $6 million at the closing to Copperfield
      Equity Partners LLC, Coll International LLC, and Content Holding LLC. As
      compensation for their services in connection with the merger, we also issued
      Cooper Beech Equity Partners, Coll International and Content Holding an
      aggregate of 533,334 shares of common stock at a price of $0.01 per share.
      We
      also reimbursed Copperfield Equity Partners, Coll International, and Content
      Holding for certain expenses totaling approximately $700,000 that Copperfield
      Equity Partners, Coll International, and Content Holding incurred in connection
      with the purchase of these assets. As of December 31, 2005, Copper Beech Equity
      Partners, Coll International and Content Holding each beneficially owned 8.5%
      of
      our outstanding common stock. See “Business-The Ronco Acquisition.”




Prior
      to
      the execution of the asset purchase agreement on December 10, 2004, Ronco
      Marketing Corporation secured its initial working capital through the sale
      of
      restricted shares and approximately $392,000 in promissory notes of Ronco
      Marketing Corporation to a group of private accredited investors consisting
      of
      Frank Milewski, Paul Wallace and the Terra Nova Group. Upon the closing, the
      promissory notes held by these individuals and entity were redeemed at face
      value. In addition, as of June 30, 2005, Frank Milewski, Paul Wallace and the
      Terra Nova Group collectively owned 266,668 shares of common stock or 12.7%
      of
      our outstanding common stock.




The
      shares of our common stock held by Copper Beech Equity Partners, Coll
      International, Content Holding, Frank Milewski, Paul Wallace and the Terra
      Nova
      Group are restricted shares, as defined by the Securities Act. We are in the
      process of registering the shares held by Copper Beech LLC , Content Holding
      LLC, Frank Milewski, Paul Wallace and the Terra Nova Group. The shares of common
      stock held by Copper Beech LLC and Content Holding LLC are held under the terms
      of a 12-month lock-up agreement, which permits re-hypothecation and private
      sales of such shares of common stock, but prohibits the sale of common stock
      through the public market. The placement agent, Sanders Morris Harris, may
      waive
      such lockup agreement in its discretion.




We
      have
      agreed to indemnify and hold harmless and generally release Content Holding,
      Copper Beech Equity Partners, Copperfield Equity Partners (an affiliate of
      Copper Beech Equity Partners), Coll International, their managers, directors
      and
      officers from and against any loss, claim, damage, liability or expense arising
      out of or in connection with the purchase of assets from the predecessor
      entities and Mr. Popeil, including, without limitation, attorneys' fees,
      disbursements and any other costs and expenses in connection therewith, except
      to the extent such loss, claim, damage, liability or expense related to or
      resulted from the fraud, gross negligence, bad faith or willful misconduct
      of
      such party.




Copper
      Beech Equity Partners, Coll International, Content Holding, Frank Milewski,
      Paul
      Wallace and the Terra Nova Group have discussed with the placement agent the
      possibility of engaging in private re-sales of some or all of the 800,002 shares
      of our common stock that they received as a group in connection with these
      various transactions. Such re-sales would be permitted under the terms of the
      lock-up agreements between us and Copper Beech Equity Partners and Content
      Holding and would have to be done in compliance with an exemption from the
      registration requirements of the federal securities laws and any applicable
      state securities laws. The proceeds from any such private re-sales would go
      to
      Copper Beech Equity Partners, Coll International, Content Holding, Frank
      Milewski, Paul Wallace or the Terra Nova Group and would not go to
      us.





**Preferred
      Stock Financing**




On
      June
      30, 2005, we issued and sold 13,262,600 shares of Series A Convertible Preferred
      Stock for a purchase price of $3.77 per share to certain investors, including
      to
      certain beneficial owners of more than 5% of our voting securities and Messrs.
      Richard F. Allen, Sr. and Evan J. Warshawsky, our former Chief Executive Officer
      and former Chief Financial Officer, respectively. We sold the Series A
      Convertible Preferred Stock for total proceeds of $50 million to finance the
      cash portion of the purchase price of the assets that we acquired from Mr.
      Ronald M. Popeil and the predecessor entities. The shares of Series A
      Convertible Preferred Stock are convertible into an aggregate of 14,534,884
      shares of our common stock, as such number may be adjusted in the future.





51




**Registration
      Rights Agreement**




On
      June
      30, 2005, we entered into a registration rights agreement with the purchasers
      of
      our Series A Convertible Preferred Stock (including certain beneficial owners
      of
      more than 5% of our voting securities, Messrs. Richard F. Allen, Sr. and Evan
      J.
      Warshawsky, our former Chief Executive Officer and former Chief Financial
      Officer, respectively), Sanders Morris Harris and certain holders of our common
      stock. Under the terms of the agreement, we were obligated to file a
      registration statement covering the resale of certain outstanding shares of
      common stock, the shares of common stock into which the outstanding shares
      of
      Series A Convertible Preferred Stock are convertible and into which the warrant
      issued to Sanders Morris Harris is exercisable. We were obligated to have the
      registration statement declared effective by October 28, 2005. Because we were
      unable to meet this deadline, we are liable for a cash payment to the
      stockholders who are party to the registration rights agreement, equal to one
      percent of the per share price of the Series A Convertible Preferred Stock,
      or
      $500,000, per month. The registration rights agreement also provides that
      parties to the agreement have the right, under certain circumstances and subject
      to certain conditions, to require us to register under the Securities Act shares
      of our common stock held by them, but not registered as discussed above. The
      registration agreement also provides that we will pay all expenses in connection
      with any registration. To date we have been unable to complete the registration
      statement. In June 2006 the Series A Preferred shares holders agreed to settle
      all penalties related to the registration statement and also agreed to settle
      all accrued dividends for 1,530,418 shares and 510,136 shares, respectively,
      of
      Series A Preferred Stock.




**Placement
      Agent Agreement**




On
      May
      26, 2005, we entered into a placement agent agreement with Sanders Morris Harris
      in connection with the preferred stock financing described above. Pursuant
      to
      the terms of the placement agent agreement and in consideration of services
      provided by Sanders Morris Harris, we paid Sanders Morris Harris $3,500,000,
      issued Sanders Morris Harris a warrant to purchase 266,667 shares of our common
      stock and reimbursed it for certain out-of-pocket expenses. The warrant has
      an
      exercise price of $3.77 per share and is exercisable for five years from July
      1,
      2005. Messrs. A. Emerson Martin, II and Gregg A. Mockenhaupt are each managing
      directors of Sanders Morris Harris and were also members of our board of
      directors when the warrants were issued.




**Ronco
      Marketing Corporation Merger**




On
      June
      29, 2005, we closed a merger transaction pursuant to an agreement and plan
      of
      merger dated May 23, 2005, by and among us, certain of our stockholders, Ronco
      Acquisition Corporation (our wholly-owned subsidiary) and Ronco Marketing
      Corporation. Pursuant to the merger agreement, we acquired Ronco Marketing
      Corporation by merging Ronco Acquisition Corporation with and into Ronco
      Marketing Corporation. Ronco Marketing Corporation was the surviving corporation
      and became our wholly-owned subsidiary. Pursuant to the agreement: (i) each
      share of our common stock issued and outstanding immediately prior to June
      29,
      2005 remained issued and outstanding; (ii) each share of Ronco Acquisition
      Corporation's common stock issued and outstanding immediately prior to June
      29,
      2005 ceased to be outstanding and was converted into one share of common stock
      of Ronco Marketing Corporation; and (iii) each share of Ronco Marketing
      Corporation's common stock issued and outstanding immediately prior to June
      29,
      2005 ceased to be outstanding and was converted into and exchanged for 1.6452794
      shares of our common stock, for an aggregate of 800,002 shares of our common
      stock.




**Indemnification
      of Directors and Officers**




Our
      certificate of incorporation and bylaws provide for the indemnification of
      our
      officers and directors. We intend to enter into indemnification agreements
      with
      each of our directors and executive officers.





52





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




The
      following is a summary of the fees billed to us by Mahoney Cohen & Company,
      CPA, P.C., our independent registered public accounting firm, for professional
      services rendered for the period ended June 30, 2006:





Fee
                Category
            
            Period
                  EndedJune
                  30, 2006Audit
                Fees (1)
            
            $
            427,000Audit-related
                fees (2)
            
            
            205,000Tax
                fees (3)
            
            
            13,000All
                other fees
            
            
            0Total
                Fees
            
            $
            645,000




(1)
            Consists
                of fees associated with the annual audit and quarterly review of
                our
                financial statements.




(2)
            Consists
                of fees associated with the filing of our
                S-1.




(3)
            Consists
                of fees associated with the preparation of our corporate income tax
                return.




Our
      Board
      of Directors appointed Mahoney Cohen & Company, CPA, P.C. as our independent
      auditors for the period ended June 30, 2006. We did not procure any other
      services from Mahoney Cohen & Company, CPA, P.C. in fiscal 2006 other than
      as described above.




The
      board
      of directors pre-approves all audit services and permitted non-audit services
      (including the fees and terms thereof) to be performed by our independent
      registered public accounting firm, subject to the de minimus exceptions for
      non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange
      Act of 1934, which are approved by the board of directors prior to the
      completion of the audit. The board of directors may form and delegate authority
      to committees consisting of one or more members when appropriate, including
      the
      authority to grant pre-approvals of audit and permitted non-audit services,
      provided that decisions of such committee to grant pre-approvals shall be
      presented to the full board of directors at its next scheduled
      meeting.




During
      fiscal 2006, the board of directors pre-approved all audit services and
      permitted non-audit services performed by our independent registered public
      accounting firm and did not rely upon the de minimus exceptions described in
      Section 10A(i)(1)(B) of the Securities Exchange Act of 1934.




The
      board
      of directors has considered and determined that Mahoney Cohen & Company,
      CPA, P.C.'s provision of these services is compatible with maintaining its
      independence.





**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.





53





**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:
        February 8, 2007




**RONCO
      CORPORATION**




By: 
        /
        s/ Paul Kabashima


Paul
        Kabashima.
 Chief
        Executive Officer




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




Signature
            
            Title
            
            Date/s/
                Richard F. Allen, Sr.Richard
                F. Allen, Sr.
            
            Director
            
            February
              8,
              2007/s/
                Harold D. KahnHarold
                D. Kahn
            
            Director
            
            February
              8,
              2007/s/
                Thomas J. Lycos, Jr.Thomas
                J. Lykos, Jr.
            
            Director
            
            February
              8,
              2007/s/
                John S. ReilandJohn
                S. Reiland
            
            Director
            
            February
              8,
              2007/s/
                Ronald C StoneRonald
                C Stone
            
            Chief
                Financial Officer
            
            February
              8,
              2007




54





**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)*





55





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)
            Incorporated
                by reference from the corresponding exhibits to the Form 10-K filed
                on
                November 4, 2006.(6)
            Filed
                herewith.




*
      Management Compensation Plan or Arrangements





56




**RONCO
      CORPORATION AND SUBSIDIARY**




**INDEX
      TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS**


**AND
      FINANCIAL STATEMENT SCHEDULE**





**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-26Index
                to Interim Financial Statements for the three months ended September
                30,
                2006 and 2005The
                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 $47,440,000 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.




As
      discussed in Note 23, the Company restated its consolidated financial statements
      for the year ended June 30, 2006 for the settlement of registration penalties
      and dividends.





/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 and Note
      23,
      for which the date is February 6, 2007





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**
              **(As
                Restated)**
            
            **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
            
            
            53,065,157
            
            
            49,513,066Deferred
                compensation
            
            
            -
            
            
            (3,310,096
            )Accumulated
                deficit
            
            
            (50,406,721
            )
            
            (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
                (As Restated)**
            
            **(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
            
            
            -Registration
                penalties expense
            
            
            4,048,387
            
            
            -
            
            
            
            
            -
            
            
            -
            
            
            -Gain
                on settlement of penalties and dividends
            
            
            (1,029,093
            )
            
            -
            
            
            
            
            -
            
            
            -
            
            
            -84,509,017
            
            
            765,967
            
            
            
            
            50,446,473
            
            
            53,987,810
            
            
            67,652,570Income
                (loss) from operations
            
            
            (45,794,636
            )
            
            (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)
            
            
            (47,129,674
            )
            
            (765,967
            )
            
            
            
            (1,137,529
            )
            
            (7,705,317
            )
            
            (3,040,502
            )Income
                taxes (benefit)
            
            
            310,000
            
            
            (310,000
            )
            
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            (47,439,674
            )
            
            (455,967
            )
            
            
            
            (1,137,529
            )
            
            (7,705,317
            )
            
            (3,040,502
            )Preferred
                stock dividends
            
            
            2,500,000
            
            
            -
            
            
            
            
            -
            
            
            -
            
            
            -Net
                loss attributable to common stockholders
            
            $
            (49,939,674
            )
            $
            (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
            
            $
            (23.88
            )
            $
            (0.22
            )
            
            
            
            N/A
            
            
            N/A
            
            
            N/AWeighted
                average shares outstanding - basic and diluted
            
            
            2,091,605
            
            
            2,091,605
            
            
            
            
            N/A
            
            
            N/A
            
            
            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****Common
                Stock**
            
            **Preferred
                Stock**
            
            **Common
                Stock To Be**
            
            **Additional****Paid-In**
            
            **Deferred**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **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 and penalty dividends
            
            
            
            
            
            
            
            
            
            
            
            2,318,332
            
            
            
            
            
            23
            
            
            
            
            
            5,216,205
            
            
            
            
            
            (2,500,000
            )
            
            2,716,228Amortization
                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
            
            
            
            
            
            -Contribution
                of debt to capital
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            303,066
            
            
            
            
            
            
            
            
            303,066Options
                issued to member of the Board of Directors
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            38,938
            
            
            
            
            
            
            
            
            38,938Net
                Loss (As Restated)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (47,439,674
            )
            
            (47,439,674
            )**BALANCE,
                June 30, 2006 (As Restated)**
            
            
            2,091,605
            
            
            
            
            $
            21
            
            
            15,580,932
            
            
            
            
            $
            156
            
            $
            1,206,870
            
            $
            53,065,157
            
            $
            -
            
            $
            (50,406,721
            )
            $
            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 (As Restated)**
            
            **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
            
            
            (47,439,674
            )
            
            (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
            )Registration
                penalty settled in Series A Convertible Preferred Stock
            
            
            4,048,387
            
            
            -
            
            
            
            
            -
            
            
            -
            
            
            -Gain
                on settlement of registration penalties and dividends
            
            
            (1,029,093
            )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 settled accrued registration penalties and dividends for
      the
      total of $5,216,228 of Series A Convertible Preferred Stock.




During
      2006, the Company recognized a gain of $303,066 on settlement of registration
      penalties and dividends that pertained to related parties and was contributed
      to
      additional paid-in capital.




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
            
            $
            2,953,481




On
        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
            )




**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.




**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 $47,440,000 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.




F-15


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
            )




**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-16




**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-17




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-18




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
      shareholders agreed to be paid in Series A Preferred Stock instead of cash
      at a
      rate of 0.038464 shares per share for the three quarters ended October 1, 2005,
      December 31, 2005 and March 31, 2006. 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.
      The Company recorded a gain on settlement of dividends of approximately $562,000
      in the consolidated and combined statement of operations for the year ended
      June
      30, 2006 and the portion of the gain pertaining to related parties as a
      contribution to capital in Additional paid in capital in the amount of
      approximately $165,000 as of June 30, 2006.





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-19




**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 shareholders
      agreed to settle all accrued penalties related to the registration statement
      noted above for 0.115393 shares per share of Series A Preferred stock and no
      future penalty will be incurred. The Company recorded registration penalties
      expense in the amount of approximately $4,048,000 for the year ended June 30,
      2006. The Company recorded gain on settlement of penalties in the amount of
      approximately $467,000 in the consolidated and combined statement of operations
      for the year ended June 30, 2006 and the portion of the gain pertaining to
      related parties as a contribution to capital in Additional paid in capital
      in
      the amount of approximately $138,000 as of June 30, 2006.





**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-20




**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) toJune
                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-21




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-22




**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-23




**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-24





**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****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 (As restated)
            
            
            5,896,137
            
            
            2,183,176
            
            
            (36,000,077
            )
            
            (40,933,832
            )
            
            (39,010,845
            )
            
            (18.65
            )$
            58,723,826
            
            $
            38,714,381
            
            $
            (45,794,636
            )
            $
            (47,439,674
            )
            $
            (49,939,674
            )
            $
            (23.88
            )







**Predecessor****Fiscal
                2005 Quarter ended**September
                30, 2004
            
            $
            21,083,983
            
            $
            16,551,980
            
            $
            (1,350,835
            )
            $
            (1,300,222
            )
            $
            (1,300,222
            )
            $
            N/ADecember
                31, 2004
            
            
            43,690,709
            
            
            32,715,771
            
            
            2,843,052
            
            
            1,898,407
            
            
            1,898,407
            
            
            N/AMarch
                31, 2005
            
            
            14,593,089
            
            
            10,271,908
            
            
            (444,810
            )
            
            (1,377,650
            )
            
            (1,377,650
            )
            
            N/AJune
                30, 2005
            
            
            10,701,303
            
            
            9,153,365
            
            
            (703,671
            )
            
            (1,658,286
            )
            
            (1,658,286
            )
            
            N/A$
            90,069,084
            
            $
            68,693,024
            
            $
            343,736
            
            $
            (2,437,751
            )
            $
            (2,437,751
            )
            $
            N/A




F-25





**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.





**NOTE
      23 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS**





The
      Company has determined that it is necessary to restate its consolidated
      financial statements for the year ended June 30, 2006 in order to reclassify
      settlement of penalties relating to the registration rights agreement previously
      recorded as dividends to registration penalties expense in the amount of
      approximately $4,048,000 in accordance with SFAS 5. In accordance with APB
      26,
      the Company accounted for the difference of $605,000 between the accrued penalty
      liability of approximately $4,048,000 and the settlement amount of approximately
      $3,443,000 as a gain on settlement of $467,000, and approximately $138,000
      associated with related parties as a contribution to capital in accordance
      with
      APB 26, footnote 1, by crediting additional paid in capital. Further, in
      accordance with APB 26, the Company accounted for the difference of
      approximately $727,000 between the accrued dividend liability of $2,500,000
      and
      the settlement amount of approximately $1,773,000 as a gain on settlement of
      $562,000, and approximately $165,000 associated with related parties as a
      contribution to capital in accordance with APB 26, footnote 1, by crediting
      additional paid in capital. In addition, the Company previously recorded the
      value of the shares approved on June 28, 2006 to settle the penalties and
      accrued dividends in shares of Preferred A stock using the fair market value
      on
      July 26, 2006. The Company has restated the financial statements to reflect
      the
      value of the settlement shares as of June 28, 2006, the effective date of the
      settlement.





The
      following is the effect of the restatement:




As
                  Previously Reported
              
              As
                  RestatedNet
                  loss
              
              $
              44,420,380
              
              $
              47,439,674Net
                  loss attributable to common stockholders
              
              $
              49,056,720
              
              $
              49,939,674Net
                  loss per share
              
              $
              23.45
              
              $
              23.88




F-26