**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549








**FORM
      10** **K/A**







(Mark
      One)


o
              Annual
                  Report pursuant to Section 13 or 15(d) of the Securities Act of
                  1934


or





x
              Transition
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934


For
      the
      transition period of  October 1, 2004 to June 30, 2005





Commission
      file number: 0-27471





**RONCO
      CORPORATION**


(Exact
      name of registrant as specified in its charter)





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





21344
                Superior Street, Chatsworth, California
            91311(Address
                of principal executive offices)
            (Zip
                Code)


Registrant's
      telephone number, including area code (818) 775-4602





Securities
      registered pursuant to Section 12(b) of the Exchange Act: None





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





Common
      Stock, par value $0.00001 per share


(Title
      of
      Class)





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/A or any amendment
      to
      this Form 10-K/A.  x




Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of accelerated
        filer and large accelerated fileræ in Rule 12b-2 of the Exchange Act.
  Large
        accelerated filer oAccelerated 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 Exchange Act). Yes o  No x





State
      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: $2,513,197 as of December 31, 2004.





Indicate
      the number of shares outstanding of each of the registrant's classes of common
      stock as of the latest practicable date: 2,091,605 shares as of October 15,
      2005.





DOCUMENTS
      INCORPORATED BY REFERENCE




None




**EXPLANATORY
      NOTE**


This
        Form
        10-K/A for the transition period of October 1, 2004 to June 30, 2005 modifies
        our Form 10-K for the period from October 15, 2004 (Date of Inception) to
        June 30, 2005 filed on November 4, 2005, which was subsequently amended by
        our
        Form 10-K/A filed on November 16, 2005. This Form 10-K/A does not purport
        to
        provide a general update or discussion of any developments subsequent to
        the
        original filing of November 4, 2005. The filing of this Form 10-K/A shall
        not be
        deemed an admission that the original filing, when made, included any untrue
        statement of material fact or omitted to state a material fact necessary
        to make
        a statement not misleading.












RONCO
      CORPORATION.


FORM
      10-K/A


TRANSITION
      PERIOD OF


OCTOBER
      1, 2004 TO


JUNE
      30, 2005





**TABLE
      OF CONTENTS**





Page
                No.PART
                IItem
                1. Business
            3Item
                1A. Risk Factors
            20Item
                2. Properties
            33Item
                3. Legal Proceedings
            33Item
                4. Submission of Matters to a Vote of Security
                Holders
            33PART
                IIItem
                5. Market for Registrant's Common Equity, Related
                Stockholder Matters and Issuer Purchases of Equity
                Securities
            34Item
                6. Selected Financial Data
            36Item
                7. Management's Discussion and Analysis of Financial
                Condition and Results of Operations
            39Item
                7A. Quantitative and Qualitative Disclosures About
                Market Risk
            58Item
                8. Financial Statements and Supplementary
                Data
            58Item
                9. Changes In and Disagreements With Accountants on
                Accounting and Financial Disclosures
            58Item
                9A. Controls and Procedures
            59Item
                9B. Other Information
            59PART
                IIIItem
                10. Directors and Executive Officers of the
                Registrant
            60Item
                11. Executive Compensation
            64Item
                12. Related Stockholder Matters
            69Item
                13. Certain Relationships and Related
                Transactions
            73Item
                14. Certain Principal Accountant Fees and
                Services
            75Item
                15. Exhibits, Financial Statement
                Schedules
            75






-1-
 **Table
            of Contents**
 **Index
            to Financial
            Statements**


**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





Many
      of
      the statements included in this Annual Report on Form 10-K/A contain
      forward-looking statements and information relating to our company. We generally
      identify forward-looking statements by the use of terminology such as "may,"
      "will," "could," "should," "potential," "continue," "expect," "intend," "plan,"
      "estimate," "anticipate," "believe," or similar phrases or the negatives of
      such
      terms. We base these statements on our beliefs as well as assumptions we made
      using information currently available to us. Such statements are subject to
      risks, uncertainties and assumptions, including those identified in Item 1A
      under the heading "Risk Factors," as well as other matters not currently
      considered material by us. Should one or more of these risks or uncertainties
      materialize, or should underlying assumptions prove incorrect, actual results
      may vary materially from those anticipated, estimated or projected. Important
      factors that may affect these projections or expectations include, but are
      not
      limited to those discussed in "Risk Factors."





The
      results of our operations have varied significantly in the past and we expect
      our operations to continue to vary in the future. A number of factors, some
      of
      which are outside of our control, will cause our results to fluctuate,
      including:


·
              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;
 
 ·
              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.




Given
      such risks and uncertainties, prospective investors are cautioned not to place
      undue reliance on such forward-looking statements. Forward-looking statements
      do
      not guarantee future performance and should not be considered as statements
      of
      fact.





These
      forward-looking statements speak only as of the date of this report and, unless
      required by law, we undertake no obligation to publicly update or revise any
      forward-looking statements to reflect new information or future events or
      otherwise. You should, however, review the factors and risks we describe in
      other reports and documents we will file with the Securities and Exchange
      Commission after the date of this report.




All
      references to "we," "our," "our company," or "us" in this Annual
      Report on Form 10-K/A refer to Ronco Corporation and its subsidiary. As
      explained elsewhere in this report, we were previously named Fi-Tek VII,
      Inc. and operated as a "blank check" company (a company with no significant
      business operations or specific business purpose) before June 2005. In late
      June
      2005, we (then named Fi-Tek VII, Inc.) closed a merger transaction
      resulting in a change of control. In connection with this transaction, we
      changed our name to Ronco Corporation. In late June 2005, we also acquired
      certain business and assets owned and operated by Mr. Ronald M. Popeil and
      certain entities affiliated with Mr. Popeil, as described in this report. All
      references to "our business," "Ronco's business" and similar references to
      the
      business and assets described in this report refer to the business and assets
      that were acquired in June 2005, and not to our operations under the name Fi-Tek
      VII, Inc. before June 2005.




-2-
 **Table
            of Contents**
 **Index
            to Financial Statements**





**PART
      I**





ITEM
      1.BUSINESS **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 the
        Ronco business, began selling products under the Ronco brand over forty years
        ago.
 
 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 that time, we engaged in no significant operations other
        than
        the search for, and identification and evaluation of, possible acquisition
        candidates.
 
 In
        June
        2005, we (at the time operating under the name Fi-Tek VII, Inc.) completed
        a
        series of related transactions, pursuant to which we acquired assets comprising
        the Ronco business. The acquired assets and business were previously owned
        and
        operated by Ronco Inventions, LLC, Popeil Inventions, Inc., and RP Productions,
        Inc., which we refer to collectively as the predecessor entities. We also
        acquired certain patents and other intellectual property rights from Mr.
        Popeil.
        Mr. Popeil is the primary beneficiary of a family trust, RMP Family Trust,
        which
        owns and controls the predecessor entities. On June 30, 2005, we changed
        our
        name to Ronco Corporation.
 
 ***The
        Ronco Acquisition***
 
 In
        October 2003, Richard F. Allen, Sr., our current President and Chief Executive
        Officer, commenced discussions with Mr. Popeil regarding the possibility
        of
        purchasing the business of the predecessor entities. Mr. Allen enlisted the
        assistance of UCC Capital Corporation, an advisory firm based in New York,
        and
        certain of its principals to provide advice on the specific structure of
        the
        proposed acquisition.
 
 On
        October 15, 2004, these parties formed Ronco Marketing Corporation for the
        purpose of acquiring the assets comprising the business of the predecessor
        entities and certain patents and intellectual property rights from Mr. Popeil.
        Upon formation, shares of Ronco Marketing Corporation’s common stock were
        initially issued to a group of entities owned and controlled by the principals
        of UCC Capital Corporation, including Copper Beech Equity Partners LLC, Coll
        International LLC and Content Holding LLC. We refer to these entities,
        collectively with their affiliates, as the “venture group.” Ronco Marketing
        Corporation secured its initial working capital through the sale of additional
        shares of its common stock and the issuance of approximately $392,000 in
        promissory notes to three investors, Frank Milewski, Paul Wallace and the
        Terra
        Nova Group, who we refer to as the “Ronco private group.”
 
 On
        December 10, 2004, Ronco Marketing Corporation entered into an asset purchase
        agreement with the predecessor entities to acquire substantially all of the
        assets of the predecessor entities and certain patents and intellectual property
        rights from Mr. Popeil for a total purchase price of $56.509 million, consisting
        of $40.209 million in cash and $16.3 million in the form of promissory notes.
        Costs associated with the transaction were approximately $5.7 million, including
        fees to investment bankers and other professional advisors who assisted with
        the
        transaction. Transaction costs also included the issuance of an aggregate
        of
        173,713 of our shares to Profit Planners, Inc. and Gilbert Azafrani, our
        current
        general counsel, for services rendered in connection with the purchase of
        the
        Ronco business. In connection with the asset sale, the predecessor entities
        also
        entered into an assignment and assumption agreement with Ronco Marketing
        Corporation on June 30, 2005, whereby the predecessor entities assigned all
        of
        their rights, title and interest in and to certain trademarks, copyrights,
        patents and other intangible assets to Ronco Marketing Corporation. Pursuant
        to
        the agreement, Ronco Marketing Corporation also assumed certain of the
        predecessor entities’ liabilities. The sale of assets and other transactions
        contemplated under the asset purchase agreement closed on June 30,
        2005.
  -3-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  On
        May
        23, 2005, we entered into an agreement and plan of merger with Ronco Marketing
        Corporation. Ronco Marketing Corporation’s primary asset, as of May 23, 2005,
        was its asset purchase agreement with the predecessor entities and Mr. Popeil.
        Pursuant to the merger agreement, our wholly-owned subsidiary, Ronco Acquisition
        Corporation, merged with and into Ronco Marketing Corporation and Ronco
        Marketing Corporation subsequently became our wholly-owned subsidiary. The
        closing of the merger occurred on June 29, 2005. Upon the closing of
        the merger we completed a 1 for 89 reverse stock split of our outstanding
        shares of common stock. In addition, upon the closing of the merger (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 the 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 post reverse
        split shares. Our then existing stockholders (our stockholders prior to
        the merger) retained the remaining 477,639 shares of our outstanding common
        stock following the merger.
 
 On
        May
        20, 2005, Ronco Marketing Corporation entered into an advisory agreement
        with
        Copper Beech Equity Partners LLC, Copperfield Equity Partners LLC, Coll
        International LLC, and Content Holding LLC whereby they would act as exclusive
        financial advisor to Ronco Marketing Corporation. Pursuant to the agreement,
        as
        compensation for their services in connection with Ronco Marketing Corporation’s
        purchase of assets from the predecessor entities, we paid cash fees consisting
        of (i) a base fee of $1,800,000 and (ii) an incremental fee equal to five
        percent of any of our cash and cash equivalents in excess of $6 million at
        the
        closing. As compensation for their services in connection with the merger,
        we
        also issued Copper Beech, Coll and Content Holding an aggregate of 533,334
        shares of common stock at a price of $0.01 per share. We also reimbursed
        a total
        of $700,000 to Copperfield Equity Partners, Coll International, and Content
        Holding for certain expenses incurred in connection with the purchase of
        these
        assets.
 
 On
        May
        26, 2005, Ronco Marketing Corporation entered into an exclusive placement
        agent
        agreement with Sanders Morris Harris, Inc. pursuant to which Sanders Morris
        Harris identified subscribers to purchase shares in our Series A Convertible
        Preferred Stock financing that closed on June 30, 2005. 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 them 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.
        The agreement terminated following the financing. Messrs. A. Emerson Martin,
        II
        and Gregg A. Mockenhaupt are each managing directors of Sanders Morris Harris
        and are also members of our board of directors.
  -4-
 **Table
              of Contents**
 **Index
              to Financial
              Statements**
  
 In
        order
        to finance the cash portion of the purchase price of the Ronco business,
        we
        issued and sold 13,262,600 shares of our Series A Convertible Preferred Stock
        for an aggregate of $50 million. Each share of Series A Convertible Preferred
        Stock is currently convertible into one share of our common stock. Holders
        of
        the Series A Convertible Preferred Stock are entitled to one vote per share,
        and
        the Series A Convertible Preferred Stock votes together with our common stock
        on
        all matters. Holders of our Series A Convertible Preferred Stock are also
        entitled to cumulative dividends at a rate of $0.1885 per share per annum
        payable quarterly in arrears, at our option in cash or Series A Convertible
        Preferred Stock. We offered and sold these shares of Series A Convertible
        Preferred Stock in a private transaction that closed contemporaneously with
        the
        asset purchase. In connection with the sale of the Series A Convertible
        Preferred Stock, we agreed to file a registration statement with the SEC to
        register the sale of the shares of common stock underlying the Series A
        Convertible Preferred Stock. We agreed that if the registration statement
        was
        not declared effective on or before October 29, 2005, we would be obligated
        to
        pay a penalty equal to $500,000 (1% of the aggregate offering price of the
        preferred stock) per month until the registration statement was declared
        effective.
 
 In
        connection with the purchase of the Ronco business, Ronco Marketing Corporation
        also issued promissory notes in the aggregate principal amount of $16.3 million.
        The aggregate principal amount issued was based on the estimated net value
        of
        the acquired assets, as defined in the asset purchase agreement, and may
        be
        adjusted based on the actual net value of these assets. The aggregate principal
        amount may be increased if the actual net value of the acquired assets exceeds
        the estimated amount, and decreased if the actual net value is less than
        the
        estimated amount, as provided in the promissory notes. Under the asset purchase
        agreement, we completed an accounting after the closing to determine the
        actual
        net value of the acquired assets as of the closing date of the asset purchase.
        According to our accounting, the actual net value of these assets is lower
        than
        the estimated value specified in the purchase agreement, and we expect the
        aggregate principal amount of the 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
        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 of 9.5% per annum. The required
        payment amounts under these promissory notes in any period are based on the
        per-unit dollar value of products shipped by us within the period, as provided
        in the purchase agreement. Any outstanding principal and interest on the
        notes
        will become due and payable in full on the earlier of a change of control
        transaction or June 29, 2010. We may prepay all or any portion of the
        then-outstanding balance of these promissory notes at any time without incurring
        a premium or penalty. Upon occurrence of an event of default that is not
        cured
        within the time period specified in the promissory notes, the interest rate
        on
        the promissory notes will increase immediately 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 under the asset purchase agreement and
        will
        receive a right of first refusal to purchase the intellectual property rights
        acquired under the asset purchase agreement before these rights may be sold
        or
        transferred to any other party.
   -5-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  The
        following table summarizes these transactions and our corporate
        structure:
 
 -6-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  **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. 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:
 ·
                  Showtime
                      Rotisserie & BBQ
                  
                  ·
                  Electric
                      Food Dehydrator·
                  Six
                      Star+TM Cutlery Set
                  
                  ·
                  Popeil’s
                      Pasta Maker·
                  Solid
                      Flavor Injector
  We may also reintroduce other products into the market overtime, including
            the
            Chop-O-Matic, Bagel Slicer, Dial-O-Matic and Inside the Shell Egg
            Scrambler.
  -7-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
 Our
          most
          prominent and successful product line today is our family of Showtime Rotisserie
          & BBQ electric rotisserie ovens and accessories. We offer several models
          of
          Showtime 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 Showtime
          rotisserie products have had very low return rates, averaging 3% of units
          sold.
          Since the 1998 launch of this product family, over $750 million in
          Showtime-related products have been sold. The majority of the sales originated
          from direct response television marketing. In January 2005, our Showtime
          rotisserie oven was rated by the Wall Street Journal to be a superior
          infomercial product offering and a superior cooking appliance.
 
 Our
          second most prominent product line is the family of Six Star+ Cutlery Sets
          of
          knives for use in residential kitchens. We offer a range of accessories
          that
          complement our Six Star+ Cutlery Sets, including flatware, knife sharpeners,
          scissors and wooden blocks. Since this product family’s introduction in November
          2003, over 500,000 Six Star+ Cutlery Sets have been sold with a return
          rate of
          less than 3%.
 
 Since
          2002, the Showtime family of products and the Six Star+ cutlery family
          of
          products have accounted for in excess of 92% of our revenues.
 
 ***Household
          Products***
 
 We
          also manufacture or source, market
          and distribute the Pocket Fisherman and GLH Formula Number 9 Hair System.
          These
          products are not marketed directly through infomercials. We may re-introduce
          other Ronco brand household products to the market over time, including
          the
          Rhinestone and Stud Settler, Mr. Microphone, Mr. Dentist, the Smokeless
          Ashtray,
          CleanAire Filter, Miracle Broom, the Cordless Electric Portable Sewing
          Machine
          and Ronco record compilations.
 
  -8-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  We
          believe that our products are characterized by their fundamental utility,
          innovation, quality and value. 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 the Ronco business. We have established
          multiple sourcing relationships with manufacturers that provide us with
          low-cost, high-volume production capacity, consistent product quality and
          quick
          response times. We have also established a highly-efficient order fulfillment
          system which integrates our own systems and processes with those of
          nationally-recognized third-party telemarketing and fulfillment vendors.
          We
          believe that our order fulfillment process provides a high degree of customer
          satisfaction and leads to product up-sells and repeat business.
 
 **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 (Bowflex, Buns of Steel, 60-Second
          Abs);
          housewares (Magic Bullet, Miracle Blade, Perfect Pancake, Food Saver, George
          Foreman Grill, Turbo Cooker); beauty products (Proactive, Natural Advantage,
          Youthful Essence); healthcare and diet products (Six Week Makeover, CyberSonic,
          Ionic Breather, CortiSlim), and coins and collectibles (The Franklin Mint,
          Morgan Mint, American Historic Society).
 
 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.
  -9-
 **Table
                of Contents**
 **Index
                to Financial Statements**
 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. Management
          believes that the international market is generally considered to have
          the
          potential of fifty to one-hundred percent of the U.S. market size.
 
 **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.
  -10-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  ***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 70% 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 up-sell 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 through our internal media group, 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 is also entitled to 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***
 
 In
          addition to television marketing, we sell our products through the television
          retailer QVC and selected traditional retailers. These wholesale arrangements
          are made through agents and distributors and directly to large retail chains.
          To
          manage our relationship with QVC, we utilize a representation company,
          CSA,
          although the product purchase orders are issued directly from QVC. Since
          2002,
          between 19% and 26% of our gross product sales have been through wholesale
          and
          retail distribution channels.
 
 Our
          distribution is accomplished primarily through retail distribution companies
          that issue purchase orders directly to us for product for which orders
          have
          already been taken. The terms of sale require that irrevocable letters
          of credit
          be in place before we make delivery of any product, or alternatively, that
          100%
          of the product cost is paid for, by wire transfer, in advance of the product
          reaching our West Coast port of entry. In addition, we do not accept returns
          for
          cash or credit from the distributors unless the product is defective. Returns
          are accepted only in exchange for new product, and distributors pay a $10
          per
          unit turnaround fee. We are in the process of expanding our business
          relationship with QVC to potentially include certain of its foreign affiliates.
          Finally, there are a small number of direct wholesale accounts that have
          purchased regularly from us, including Big Lots, Koolatron, AOL, and
          Amazon.
  -11-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  Our
          wholesale distribution is accomplished through distribution agreements
          with M.
          Block & Sons and Englewood Marketing Group. M. Block & Sons has a
          telemarketing fulfillment system that specializes in small accounts and
          is
          expected to significantly improve our penetration into the single store
          and
          small chain channels. Englewood Marketing Group has expertise in internet
          fulfillment services that is expected to increase our penetration of the
          online
          sector as well.
  We
          plan
          to expand our retail distribution 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. We are also re-focusing our
          existing wholesale distribution relationships to target selected smaller
          or
          regional retail chains while we attempt to develop direct relationships
          with the
          larger retailers in an effort to improve our gross margins.
  ***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 (leveraging annual television media expenditures) 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, product recommendations, automated
          customer service, product demonstrations, customer affinity programs and
          branding. The website redesign should increase our ability to sell and
          up-sell
          online, and will position our site for search engine optimization. Historically,
          online sales has represented approximately 7% 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 Showtime
          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:
  -12-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  *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 the Showtime
            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 three
            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 Showtime 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” in order to increase market share and retail shelf space in their
            categories; we believe this product differentiation is an additional
            opportunity
            to increase revenues.
  *Introduce
            New Ronco-branded Product Lines that Innovate Through Packaging and
            Pricing***
  We
            believe the success experienced thus far with the Six Star+ 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.
  *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.
 
 ***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 intend to selectively
            re-introduce 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 economic clout 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. From a media outlet perspective, we are in discussions with
            several
            leading, diversified Hispanic broadcasting companies to create national
            campaigns.
 -13-
 **Table
                of Contents**
 **Index
                to Financial Statements**
 *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 include:
          (i) improving our technology infrastructure to accommodate higher traffic
          counts
          and simultaneous transaction processes; (ii) increasing online features
          to
          enable product up-sells, product recommendations, automated customer service,
          product demonstrations, customer affinity programs and overall branding;
          (iii)
          providing higher quality online streaming of past and future infomercials;
          and
          (iv) 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.
  *Expand International Distribution*
 We
          sell a
          nominal amount of product in a few international markets--Korea (through
          SII),
          Australia (through Guthy-Renker), Great Britain and Germany (through QVC).
          In
          addition, the Showtime product is marketed in Canada either through
          television/telemarketing (via Northern U.S. television stations) 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 also present an additional market
          opportunity. We are currently devising a plan to target these markets for
          export; this program will include both multi-national import/export companies,
          as well as individual in-country importers.
 
 *Leverage our Customer Database for Relational Marketing
            Programs*
  We
          maintain a database of over four million customers while adding many thousands
          of 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,
          email, email newsletter campaigns, and a Ronco Club concept.
 
 **Manufacturing**
 
 We
          currently outsource manufacturing of our products, primarily to China.
          We have
          been sourcing Six Star+ Cutlery and related products in China since November
          2003. Delivery of Showtime Rotisseries from China began in September 2004.
          Our
          manufacturing was sourced in Korea prior to China. While production had
          continued in Korea for much of 2004 during the transition to China, most
          of our
          Showtime Rotisseries were produced in China in 2005. 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.
  -14-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  We
          enjoy
          the protection of sixteen patents covering the design and manufacture of
          the
          Showtime Rotisserie & BBQ, and own the tooling and dies currently used by
          our manufacturers and their sub-contractors for production. Manufacturing
          of the
          Showtime product line is streamlined. Since the primary differentiation
          among
          all three Showtime 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 product
          arriving
          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 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.
 
 Potential
          customers call into a toll-free number, received by our telemarketing partners.
          Our telemarketing vendors route a customer’s order through OrderMotion (a
          commercial software product provided by a third-party software vendor called
          CommercialWare) for approval. We use third-party vendors to process customer
          payments - Wells Fargo Merchant Services for processing credit card orders
          and
          Select Payment for processing e-checks. A notification of an approved or
          declined order is re-submitted by these vendors to OrderMotion.
 
 If
          an
          order was declined, our customer service department contacts the potential
          customer to obtain an alternate method of payment. It is our experience
          that
          approximately 25% of such orders are recovered. We operate an in-house
          50-seat
          call center as well as a 20-seat data entry center, which generate sales
          revenues from inbound customer service inquiries, as well as outbound campaigns
          to existing customers. This telemarketing center not only handles 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 OrderMotion. The majority of our physical
          inventory is warehoused by our fulfillment partners.
  -15-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  **Arrangements
            with Ronald M. Popeil**
 Although
          Mr. Popeil has not assumed day-to-day operational duties or executive
          responsibilities for 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 will, 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 (such as Oprah), 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;
                      and·
                  Attend
                      and participate in the Gourmet Show and Housewares Show (at
                      our
                      discretion).
 
 -16-
 **Table
                of Contents**
 **Index
                to Financial Statements**
 
 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 our stock incentive
          plan, that we intend to implement, 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.
   -17-
 **Table
                of Contents**
 **Index
                to Financial Statements**
 **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.
   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.
  -18-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **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 these businesses are not comparable to ours mainly 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.
        Currently, we believe there are no competitive brands that market appliances
        equivalent to our proprietary models (such as the rotisserie, pasta maker
        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+ 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. In addition, we 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.
  -19-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  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.
 **Regulation**
 
 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.
        In
        general, we have not experienced difficulty complying with such regulations
        and
        compliance with them has not had an adverse effect on our business. 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 152 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**
  You
          should carefully consider the following risks, in addition to the other
          information presented in this report, before making an investment decision.
          If
          any of these risks or uncertainties actually occur, our business, results
          of
          operations, financial condition, or prospects could be substantially harmed,
          which would adversely affect your investment.
  **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. We believe these losses were
          primarily caused by the combination of non-recurring expenses, license
          and
          product development arrangements and inter-company financing arrangements.
          It is
          our expectation that we can achieve positive operating profits under our
          current
          corporate structure and business plan, in part because we did not assume
          these
          burdensome obligations when we purchased the Ronco business. There can
          be no
          assurance, however, that we will achieve or maintain our profitability
          targets.
 
 ***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.
 
 ***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.
 -20-
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                  of Contents**
 **Index
                  to Financial Statements**
  ***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. 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.
 -21-
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                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
 
 ***Since
          2003, sales from our wholesale business distributors accounted for between
          11%
          and 16% of our gross product sales annually, in the aggregate, and the
          loss of
          business from any of our major wholesale distributors could reduce our
          sales and
          substantially harm our business.***
 
 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 9.2% and 5.5%, and
          Englewood Marketing Group accounted for approximately 6.4% and 5.6%, of
          our net
          sales for the nine months ended June 29, 2005 and September 30, 2004,
          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 underperform 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 Showtime
          RotisserieTM 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.
 
 ***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.
 -22-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
 -23-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
 
 ***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.
 -24-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
 -25-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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 or litigation 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.
 -26-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***We
          rely on our management team for the success of our business and the loss
          of the
          services of any of these executives could negatively affect our
          operations.***
 
 We
          rely
          on the contributions of our entire management team, but particularly on
          the
          contributions of Richard F. Allen, Sr., our President and Chief Executive
          Officer. In addition to his other executive duties, Mr. Allen is primarily
          responsible for the development of new distribution channels for our products.
          We have entered into an employment agreement with Mr. Allen for an initial
          period of four years beginning June 30, 2005. Our operations may be adversely
          affected should we lose the services of Mr. Allen for any reason.
 
 ***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 goodwill 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.
  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.
 -27-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
 -28-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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 therefor, 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.
 -29-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
  ***We
            are required to make substantial penalty payments to holders of our Series
            A
            Convertible Preferred Stock since our registration statement was not
            declared
            effective by the Securities and Exchange Commission on or before October
            28,
            2005 and such penalty payments could negatively affect our liquidity
            and cash
            flow.***
 
 In
            connection with the private sale of our Series A Convertible Preferred
            Stock, we
            agreed to file a registration statement with respect to the common stock
            into
            which the Series A Convertible Preferred Stock may be converted, and
            to cause
            such registration statement to be declared effective on or before October
            29,
            2005. We initially filed the registration statement on July 29, 2005
            to fulfill
            this obligation. Although we filed the registration statement on a timely
            basis,
            because the registration statement was not effective by October 28, 2005,
            we are
            obligated to pay a cash penalty equal to $500,000 (1% of the aggregate
            offering
            price of the preferred stock) per month until the registration statement
            is
            declared effective. We are in negotiations with the holders of our Series
            A
            Convertible Preferred Stock regarding the payment of the penalty and
            whether we
            will pay the penalty in cash or shares. In the event we are required
            to make
            these payments in cash, however, there could be a material negative impact
            on
            our liquidity and cash flow.
  ***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
                officers, 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
                executive officers, 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.***
 
 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.
 
 -30-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  ***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.
 
  -31-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
       -32-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
 **ITEM
        2. PROPERTIES**
  Our
        principal executive offices are located at 21344 Superior Street, Chatsworth,
        California, 91311, where we lease office space and a storage facility.
        Information concerning the location, use and approximate square footage of,
        and
        rent for our principal facilities, all of which are currently leased on a
        month-to-month basis, is set forth below:
  LOCATION
              PRINCIPAL
                  ACTIVITIES
              AREA
                  (SQ. FEET)
              RENTChatsworth,
                  CA
              Principal
                  administrative offices,
                customer
                  service center, and media
                buying
                  offices
              17,532
              $12,556Chatsworth,
                  CA
              Products
                  storage facility and
                administrative
                  offices
              29,000
              $18,758
  We
        anticipate that we will be able to extend these leases on terms satisfactory
        to
        us until we relocate to new facilities. We believe that our existing facilities
        are well maintained and in good operating condition.


**ITEM
      3. LEGAL
      PROCEEDINGS**





We
      are
      not a party to any legal proceedings. In the past, the predecessor entities
      have
      been defendants in several nominal legal actions related to the products sold
      by
      those entities. Generally, such actions have resulted in the predecessor
      entities making a payment to the plaintiff in settlement of the claim. None
      of
      the prior actions brought against the predecessor entities had a material effect
      on their businesses.




**ITEM
      4. SUBMISSION OF MATTERS TO
      A VOTE OF
      SECURITY HOLDERS**




On
      May
      31, 2005, a majority of our stockholders, acting by written consent in
      accordance with our bylaws, approved our name change to “Ronco Corporation,” a 1
      for 89 reverse stock split of our issued and outstanding common stock and an
      amendment to our certificate of incorporation to provide for the
      reclassification of our common stock in connection with the 1 for 89 reverse
      stock split. The written consent was approved by stockholders holding an
      aggregate of 251,690 shares, or 54%, of our issued and outstanding common stock
      on May 31, 2005.




-33-
 **Table
            of Contents**
 **Index
            to Financial Statements**




**PART
      II**




**ITEM
        5.****MARKET FOR REGISTRANT'S
        COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
        SECURITIES**


****


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 October 31, 2005, the bid price of our common stock was $6.25.
      These quotations reflect inter-dealer prices, without retail mark-up, mark-down
      or commission and may not represent actual transactions.





Quarter
                Ended
            
            Low
            HighMarch
                31, 2003
            
            $0.89
            $
                1.78June
                30, 2003
            
            0.89
            1.78September
                30, 2003
            
            0.89
            2.67December
                31, 2003
            
            1.78
            8.90March
                31, 2004
            
            2.67
            4.45June
                30, 2004
            
            2.67
            5.34September
                30, 2004
            
            4.45
            4.45December
                31, 2004
            
            2.67
            8.90March
                31, 2005
            
            5.78
            13.35June
                30, 2005
            
            4.54
            26.70




As
      of October 15, 2005, there were approximately 43 holders of record of
      our common stock.






-34-
 **Table
              of Contents**
 **Index
              to Financial Statements**




**Dividend
      Policy**




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
      dividend payment and we remain responsible for the October 1, 2005 dividend
      payment in the aggregate amount of $625,000. We may not pay any dividends on
      our
      common stock before we pay all dividends on our Series A Convertible Preferred
      Stock.




**Recent
      Sales of Unregistered Securities**




Set
      forth
      below are the securities we sold between September 30, 2004 and June 30, 2005
      which were not registered under the Securities Act of 1933.




In
      connection with the purchase of the Ronco business on June 30, 2005, we issued
      13,650 shares of common stock to Profit Planners, Inc., an accounting and
      financial services consulting company for services rendered. Exemption from
      registration under the Securities Act was based upon the grounds that the
      issuance of such securities did not involve a public offering within the meaning
      of Section 4(2) of the Securities Act.




-35-
 **Table
            of Contents**
 **Index
            to Financial Statements**




In
      connection with the purchase of the Ronco business on June 30, 2005, we
      issued 160,063 shares of common stock to Gilbert Azafrani, an attorney, in
      exchange for $1,601 in cash and for services rendered. Subsequent to June 30,
      2005, Mr. Azafrani became our general counsel. Exemption from registration
      under the Securities Act was based upon the grounds that the issuance of such
      securities did not involve a public offering within the meaning of Section
      4(2)
      of the Securities Act.





In
      connection with the purchase of the Ronco business, on June 30, 2005 we sold
      13,262,600 shares of its Series A Convertible Preferred Stock to certain
      investors for a purchase price of $3.77 per share. Each share of Series A
      Convertible Preferred Stock is currently convertible into one share of common
      stock. Exemption from registration under the Securities Act was based upon
      Regulation D promulgated under Section 4(2) of the Securities Act.




On
      June
      30, 2005, we issued a warrant to purchase 266,667 shares of common stock to
      Sanders Morris Harris, Inc. for services rendered as our placement agent. The
      warrant has an exercise price of $3.77 per share and is exercisable for five
      years from July 1, 2005. The warrant may be exercised for cash or pursuant
      to a
      cashless exercise provision. Exemption from registration under the Securities
      Act was based upon the grounds that the issuance of such securities did not
      involve a public offering within the meaning of Section 4(2) of the Securities
      Act.




On
      June
      30, 2005, we sold 160,063 shares of our common stock to Evan J.
      Warshawsky for a purchase price of $0.01 per share. We have an option to
      repurchase a portion of the shares for $0.01 per share if Mr. Warshawshy
      voluntarily terminates his employment or if his employment is terminated for
      “cause.” Our repurchase option has lapsed with respect to 50% of the shares
      and will lapse as to 25% of the shares on June 30, 2006 and as to the remaining
      25% of the shares on June 30, 2007. Exemption from registration under the
      Securities Act was based upon the grounds that the issuance of securities did
      not involve a public offering within the meaning of Section 4(2) of the
      Securities Act.




On
      June
      30, 2005, we sold 480,188 shares of our common stock to Richard F.
      Allen, Sr. for a purchase price of $0.01 per share. These shares are subject
      to
      repurchase by us, at our option, for $0.01 per share, upon the termination
      of Mr. Allen’s employment voluntarily before the third anniversary of the
      effective date of his employment agreement or if certain performance targets
      are
      not satisfied. Mr. Allen will be entitled to receive an additional 160,063
      shares of common stock on June 30, 2006 and 160,062 shares of common stock
      on
      June 30, 2007 subject to repurchase by us upon the termination of Mr. Allen’s
      employment voluntarily before the third anniversary of the effective date of
      his
      employment agreement, if certain performance targets are not satisfied or,
      on or
      before June 30, 2007, if Mr. Allen is terminated for “cause” on or prior to June
      30, 2007. Exemption from registration under the Securities Act was based upon
      the grounds that the issuance of securities did not involve a public offering
      within the meaning of Section 4(2) of the Securities Act.




On
      June
      29, 2005, in connection with the merger of Ronco Acquisition Corporation (our
      wholly-owned subsidiary) with and into Ronco Marketing Corporation, we
      issued 800,002 shares of our common stock to the holders of Ronco Marketing
      Corporation’s common stock. Exemption from registration under the Securities Act
      was based upon the grounds that the issuance of securities did not involve
      a
      public offering within the meaning of Section 4(2) of the Securities
      Act.




**ITEM
      6. SELECTED FINANCIAL
      DATA**




The
      merger on June 29, 2005 and our subsequent acquisition of the assets comprising
      the Ronco business on June 30, 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 the acquisition of the Ronco
      business 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 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 years ended December 31, 2001 and 2000, which has been
      derived from our unaudited combined financial statements. Our consolidated
      and
      combined financial statements for 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 Weinberg & Company. 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 report. Historical results are
      not
      necessarily indicative of the results to be expected in the future.




-36-
 **Table
            of Contents**
 **Index
            to Financial Statements**





**SUCCESSOR**
                        
                        
                        
                        **PREDECESSOR****One
                            Day**
                          **for**
                        
                        
                        
                        **Nine**
                          **months**
                          **ended**
                        
                        **Nine**
                          **months**
                          **ended**
                        
                        **Twelve
                            months ended December 31,****June**
                          **30,
                            2005**
                        
                        
                        
                        **June
                            29,**
                          **2005**
                        
                        **September**
                          **30,
                            2004**
                        
                        **2003**
                        
                        **2002**
                        
                        **2001**
                        
                        **2000****(Date
                            of Acqui-**
                          **sition)**
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        **(restated)**
                        
                        **(unaudited)**
                        
                        **(unaudited)*****(dollars
                            in thousands, except per share data and
                            percentages)***Income
                            Statement Data:Net
                            Sales
                        
                        $
                        --
                        
                        
                        
                        $
                        68,985
                        
                        $
                        63,245
                        
                        $
                        93,500
                        
                        $
                        98,362
                        
                        $
                        105,420
                        
                        $
                        186,305Cost
                            of goods sold
                        
                        
                        --
                        
                        
                        
                        
                        16,844
                        
                        
                        16,842
                        
                        
                        29,274
                        
                        
                        36,153
                        
                        
                        33,517
                        
                        
                        61,437Gross
                            profit
                        
                        $
                        --
                        
                        
                        
                        $
                        52,141
                        
                        $
                        46,403
                        
                        $
                        64,226
                        
                        $
                        62,209
                        
                        $
                        71,903
                        
                        $
                        124,868*Gross
                            margin*
                        
                        
                        --
                        
                        
                        
                        
                        76
                        %
                        
                        73
                        %
                        
                        69
                        %
                        
                        63
                        %
                        
                        68
                        %
                        
                        67
                        %Selling,
                            general and administrative
                        
                        
                        766
                        
                        
                        
                        
                        50,446
                        
                        
                        53,988
                        
                        
                        67,653
                        
                        
                        71,937
                        
                        
                        77,825
                        
                        
                        129,183Operating
                            (loss) income
                        
                        $
                        (766
                        )
                        
                        
                        $
                        1,695
                        
                        $
                        (7,585
                        )
                        $
                        (3,427
                        )
                        $
                        (9,728
                        )
                        $
                        (5,922
                        )
                        $
                        (4,315
                        )*Operating
                            exp. (as % of revenue)*
                        
                        
                        N/A
                        
                        
                        
                        
                        73
                        %
                        
                        85
                        %
                        
                        72
                        %
                        
                        73
                        %
                        
                        74
                        %
                        
                        69
                        %Interest
                            and other expense (income)
                        
                        
                        --
                        
                        
                        
                        
                        2,833
                        
                        
                        120
                        
                        
                        (386
                        )
                        
                        (254
                        )
                        
                        (443
                        )
                        
                        (547
                        )Pretax
                            loss
                        
                        $
                        (766
                        )
                        
                        
                        $
                        (1,138
                        )
                        $
                        (7,705
                        )
                        $
                        (3,041
                        )
                        $
                        (9,474
                        )
                        $
                        (5,479
                        )
                        $
                        (3,768
                        )Benefit
                            for income taxes
                        
                        
                        310
                        
                        
                        
                        
                        --
                        
                        
                        --
                        
                        
                        --
                        
                        
                        --
                        
                        
                        --
                        
                        
                        --Net
                            loss
                        
                        $
                        (456
                        )
                        
                        
                        $
                        (1,138
                        )
                        $
                        (7,705
                        )
                        $
                        (3,041
                        )
                        $
                        (9,474
                        )
                        $
                        (5,479
                        )
                        $
                        (3,768
                        )Pro
                            forma benefit for income taxes (unaudited)
                        
                        
                        
                        
                        
                        
                        
                        455
                        
                        
                        3,082
                        
                        
                        1,216
                        
                        
                        3,790
                        
                        
                        2,192
                        
                        
                        1,507Pro
                            forma net loss (unaudited)
                        
                        
                        --
                        
                        
                        
                        $
                        (683
                        )
                        $
                        (4,623
                        )
                        $
                        (1,825
                        )
                        $
                        (5,684
                        )
                        $
                        (3,287
                        )
                        $
                        (2,261
                        )Net
                            loss per share
                        
                        $
                        (0.22
                        )Pro
                            forma net loss per share (unaudited)
                        
                        
                        
                        
                        
                        
                        $
                        (0.33
                        )
                        $
                        (2.21
                        )
                        $
                        (0.87
                        )
                        $
                        (2.72
                        )
                        $
                        (1.57
                        )
                        $
                        (1.08
                        )


-37-
 **Table
              of Contents**
 **Index
              to Financial Statements**






**Successor**
            
            
            
            **Predecessor**Balance
                Sheet Data (dollars in thousands):
            
            **June
                30, 2005**
            
            
            
            **September
                30, 2004**Total
                assets
            
            $
            63,762
            
            
            
            $
            24,404Long-term
                liabilities
            
            
            10,282
            
            
            
            
            40,392Stockholders’
                and members’ equity (deficiency)
            
            
            46,943
            
            
            
            
            (36,390
            )




**Notes
      to Selected Financial Data**





**Note
      1: Pro forma income taxes**





The
      predecessor entities were not liable for income taxes as they were pass through
      entities. We have shown for comparative purposes the pro forma effect of income
      taxes based on an effective tax rate of 40%.





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





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




-38-
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            of Contents**
 **Index
            to Financial Statements**




**ITEM
        7.** **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATION**


****


The
      following discussion and analysis of our results of operations and financial
      condition should be read in conjunction with our and the predecessor entities’
financial statements and the notes to those financial statements, which are
      contained elsewhere in this report. This discussion includes forward-looking
      statements based upon current expectations that involve risks and uncertainties,
      such as our plans, objectives, expectations and intentions. Actual results
      and
      the timing of events could differ materially from those anticipated in these
      forward-looking statements as a result of a number of factors, including those
      set forth under the headings “Risks Factors” and “Cautionary Note Regarding
      Forward-Looking Statements.”





**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.





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 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 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 and did not conduct any business on such day. Therefore,
      our
      financial statements for the one day of 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).




-39-
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            of Contents**
 **Index
            to Financial Statements**




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 a stockholder and afflicated entities
      of the predecessor entities to the predecessor entities.





We
      also
      did not assume certain contracts of the predecessor entities. On April 23,
      2002,
      the predecessor entities entered into a product development agreement with
      Alan
      Backus, a third party who co-invented the ShowtimeTM Rotisserie products, as well
      as other products. Pursuant to this agreement, as such agreement has been
      interpreted by the parties, the predecessor entities paid Mr. Backus 25% of
      the
      net profits, or were reimbursed by Mr. Backus for 25% of the net losses, from
      these products. On January 2, 1999, the predecessor entities also entered into
      asset purchase agreement and patent licensing agreements with AdVantage Partners
      LLC, an unrelated company that owned the patents on certain of the Ronco
      products. Pursuant to these agreements, as amended, the predecessor entities
      paid license fees that ranged from $6 to $17 per unit sold, and in the case
      of
      cooking implement patents, a fee of $150,000 per year. These agreements were
      scheduled to expire in 2007, but were terminated on August 31, 2004 when the
      seller purchased the related patents from AdVantage Partners LLC. As of
      September 30, 2004, the predecessor entities owed fees under these agreements
      in
      the aggregate amount of approximately $7.3 million. We did not assume these
      obligations when we purchased the Ronco business.





**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 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. We plan to
      expand our wholesale business in the future. Management estimates that shipping
      and handling and extended service contracts accounts for approximately 23%
      of
      our direct sales.





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 Showtime 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 to 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.




-40-
 **Table
            of Contents**
 **Index
            to Financial Statements**




**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 held by third-parties in future products.






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.





***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. In the
      future, we will have interest expense on the promissory notes related to our
      purchase of the Ronco business.




-41-
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            of Contents**
 **Index
            to Financial Statements**




***Income
      Taxes.***





The
      predecessor entities were incorporated as pass-through entities and, therefore,
      did not record income tax expense for federal or state purposes. In the future,
      we will be subject to federal and state taxation as a corporation.





**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, which
      directly results in higher profits. 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 are able to extend the product line on
      television, which increases the cumulative brand awareness and increases the
      sell-through at retail.




The
      results of operations and liquidity of the predecessor entities are likely
      to
      change as a result of our acquisition 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 from affiliates 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 did issue 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 will be subject
      to federal income taxes. We will also incur 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. We recently 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 will permit
      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 factors’ fees) when the account is
      collected. 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.




-42-
 **Table
            of Contents**
 **Index
            to Financial Statements**




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. We do not anticipate
      that
      the growth of our wholesale business will offset the decline in the direct
      response business in 2005; however, we believe that the wholesale business
      will
      ultimately prove to be a successful one for us.





**Recent
      Accounting Pronouncements**





In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
      APB No. 43, Chapter 4.” SFAS No. 151 retains the general principle of APB No.
      43, Chapter 4, “Inventory Pricing (AC Section I78),” that inventories are
      presumed to be stated at cost; however, it amends APB No. 43 to clarify that
      abnormal amounts of idle facility expense, freight, handling costs, and wasted
      materials (spoilage) should be recognized as current-period charges and requires
      the allocation of fixed production overheads to inventories based on the normal
      capacity of the production facilities. The guidance is effective for inventory
      costs incurred during fiscal years beginning after June 15, 2005. Earlier
      application is permitted for inventory costs incurred during fiscal years
      beginning after November 23, 2004. We have evaluated SFAS No. 151 and do not
      anticipate that the adoption of SFAS No. 151 will have a significant impact
      on
      our overall results of operations or financial position.





In
      December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment", which
      establishes standards for transactions in which an entity exchanges its equity
      instruments for goods or services. This standard requires a public entity to
      measure the cost of employee services received in exchange for an award of
      equity instruments based on the grant date fair value of the award. This
      eliminates the exception to account for such awards using the intrinsic method
      previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective
      for the interim period beginning July 1, 2005.  We anticipate that the
      adoption will have an effect on our results of operations.





In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 20, Accounting for Nonmonetary Transactions.”
The amendments made by SFAS No. 153 are based on the principle that exchanges
      of
      nonmonetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. A nonmonetary exchange has commercial substance if the future cash
      flows of the entity are expected to change significantly as a result of the
      exchange. This statement shall be applied prospectively and is effective for
      nonmonetary asset exchanges occurring in fiscal periods beginning after June
      15,
      2005. Earlier application is permitted for nonmonetary asset exchanges occurring
      in fiscal periods beginning after the date of issuance. We do not anticipate
      that the adoption of SFAS No. 153 will have a significant impact on our overall
      results of operations or financial position.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,"
      that applies to all voluntary changes in accounting principle. This statement
      requires retrospective application to prior periods' financial statements of
      changes in accounting principle, unless it is impracticable to determine either
      the period-specific effects or the cumulative effect of the change. When it
      is
      impracticable to determine the period-specific effects of an accounting change
      on one or more individual prior periods presented, this statement requires
      that
      the new accounting principle be applied to the balances of assets and
      liabilities as of the beginning of the earliest period for which retrospective
      application is practicable and that a corresponding adjustment be made to the
      opening balance of retained earnings (or other appropriate components of equity
      or net assets in the statement of financial position) for that period rather
      than being reported in an income statement. When it is impracticable to
      determine the cumulative effect of applying a change in accounting principle
      to
      all prior periods, this statement requires that the new accounting principle
      be
      applied as if it were adopted prospectively from the earliest date practicable.
      SFAS No. 154 will be effective for us for the fiscal year ended June 30,
      2007.  We do not anticipate that the adoption of SFAS No. 154 will have an
      impact on our overall results of operations or financial position.




-43-
 **Table
            of Contents**
 **Index
            to Financial Statements**




Cr**itical
      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.




-44-
 **Table
            of Contents**
 **Index
            to Financial Statements**




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. Generally, we write
      off portions of the allowance against accounts receivable when direct response
      accounts are more than 180 days old or when we otherwise determine that accounts
      receivable will not be collected.




The
      variation in our allowance for bad debts since 2002 relates to the application
      of the criteria we apply in establishing this allowance, including changes
      in
      our gross accounts receivable and the age of our accounts receivable. 
Because over 90% of our allowance relates to our direct response business,
      which
      represents a very large number of small purchases from individual customers,
      we
      are unable to determine the reason for the variation in the amount of past
      due
      direct response accounts.  The variation in our allowance also exists
      because of the practice of the predecessor companies of writing off portions
      of
      the allowance against accounts receivable less than annually.  As a result,
      for years in which no write-offs occurred, the allowance increased
      substantially, and then declined substantially when write-offs ultimately were
      taken.




-45-
 **Table
            of Contents**
 **Index
            to Financial Statements**




***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 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;





· 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 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, 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.




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.




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 **Table
            of Contents**
 **Index
            to Financial Statements**




***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**




***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.




-47-
 **Table
            of Contents**
 **Index
            to Financial Statements**




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




Because
      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. Accordingly, the results of
      operations of the predecessor entities prior to June 30, 2005 are shown as
      our
      results of operations.





*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 Showtime 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.





*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 $7.0 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 $7.1 million in 2005, which was due to the decline
      in
      net sales. 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.




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*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 Showtime Rotisserie products of approximately $9.5 million in 2004
      compared to the same period ended in 2003. The decrease in sales from our
      Showtime Rotisserie products is due to the shift in television media from our
      Showtime 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.




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*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 $7.5
      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.





***Twelve
      Months Ended December 31, 2003 Compared to Twelve Months 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 Showtime
      Rotisserie line of products, as we only introduced our cutlery line of products
      in November 2003. Showtime Rotisserie product prices remained flat during both
      years. Of the Showtime Rotisseries, our compact rotisserie generated $26.1
      million in net sales and our standard rotisserie generated $59.0 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 Showtime
      Rotisseries ovens during the first seven months of 2003 in order to reduce
      the
      number of poor performing air dates, thereby increasing overall
      profitability.




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*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 Showtime 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, fulfillment costs for our cutlery
      product line, which we sell for less than our ovens, represent a larger
      percentage of sales than they do with respect to our ovens.





*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 $4.2 million decrease in selling, general and administrative
      expenses.




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**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. Such liquidity need is likely to increase as our wholesale
      business continues to grow. The increase in our wholesale business, however,
      is
      also expected to cause our cost for television media to decline. This savings
      and boost to our liquidity will be offset by our need to purchase more inventory
      to support the 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 business.





As
      of June 30, 2005, our total working capital was $8.2 million. In order to
      assist in meeting our liquidity needs, we borrowed $1.2 million under a
      revolving line of credit we entered into on September 30, 2005 and entered
      into
      a factoring agreement in October 2005 to fund our working capital needs. We
      also
      reached agreements with the 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, our revolving line of credit (which we paid
      down
      to approximately $400,000 in October 2005 and cannot borrow additional amounts
      under) and advances under our factoring agreement are not expected to be
      sufficient to meet our 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 of between $15
      and $20 million. We are in negotiations with several lenders regarding such
      a
      facility but have not yet been able to secure an unsecured credit facility
      on
      acceptable terms. If we are unable to secure a facility by March 31, 2006,
      we
      will likely need to make 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.




***Cash Flows – Nine Month Periods***





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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 Showtime 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 activaties 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
      was
      offset in part by office equipment purchases of approximately $243,000.





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.




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***Cash
      Flows - Twelve Months Ended December 31, 2003 Compared to Twelve Months Ended
      December 31, 2002***





For
        the year ended December 31, 2003, our operations generated approximately
        $659,000 in cash.  This amount represents adjustments to our net loss from
        an increase in net accounts receivable ($671,000) and royalty and license
        fees
        payable ($1,497,000) due to additional sales during the fourth quarter of
        the year and an increase in accounts payable ($1,031,000) due to
        obtaining an extension in the payment terms from our factories in China and
        accrued expenses ($237,000) which represent additional amounts payable for
        freight, sales tax and deposits, due primarily to increased sales volume
        in the
        fourth quarter of 2003.  This was partially offset by a decrease in
        inventory volume ($1,338,000)  due to an increase in sales during the
        fourth quarter of the year and a decrease of deferred income ($705,000) as
        products were shipped out prior to year end.


For
      the
      year ended December 31, 2003, we used approximately $555,000 in investing
      activities.  Substantially all of this amount was used to purchase
      equipment including, computer equipment in the amount of $60,000, tooling in
      the
      amount of $159,000, automobiles in the amount of $180,000 and furniture and
      equipment in the amount of $97,000. During the year ended December 31, 2002,
      we
      used approximately $1,331,000 to purchase automobiles in the amount of $170,000,
      computer equipment in the amount of $22,000, furniture and equipment in the
      amount of $178,000, leasehold improvements in the amount of $29,000 and tooling
      in the amount of $905,000 for showtime rotisseries and sold approximately
      $112,000 in investments.





For
      the
      year ended December 31, 2003, we used approximately $363,000 in our
      financing activities.  We used $375,000 in 2003 to repay the balance due
      under a $750,000 loan from a financial institution in 2002, half of which was
      repaid in 2002. The proceeds from this loan were used for working capital.
      We
      also received a net amount of $12,000 in advances from loans made during 2003
      among the various predecessor entities, compared to paying a net amount of
      $56,000 pursuant to such affiliated loans during 2002. We did not pay any
      dividends during the year ended December 31, 2003.  During the year ended
      December 31, 2002, we paid dividends of approximately $482,000.





***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.




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***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. Based on management’s estimate of the
      products to be shipped, we anticipate that we will make principal payments
      for
      the next year in the amount of approximately $2,876,000. As the amount due
      under
      the notes is an estimate based on volumes of products shipped, as described
      above, we have not estimated the amounts that will be owed under the notes
      for
      subsequent fiscal years. Any outstanding principal amount and any accrued but
      unpaid interest will become due and payable in full on June 29, 2010. There
      is
      no pre-payment penalty on the promissory notes.





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





***Revolving Line of Credit***





On
      September 30, 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. There is no prepayment penalty
      on
      this revolving line of credit.





***Factoring Agreement***





On
      October 25, 2005, we entered into a factoring agreement with Prestige Capital
      Corporation. Pursuant to this agreement, we may sell up to $8 million of our
      eligible accounts receivable to Prestige. Prestige will pay us between 75%
      and
      80% of the face value of the accounts receivable at the time of assignment,
      and
      the balance, less amounts due to Prestige, when Prestige collects the accounts
      receivable. Prestige's fee is based on a percentage of the face value of each
      account receivable and varies between 2%, if the receivable is collected within
      15 days, to 5.75% if the receivable is collected within 75 days. The rate goes
      up by 1% every 15 days thereafter. There is no maximum rate. In addition,
      Prestige may require us to repay the amount it has advanced 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. This agreement
      is
      secured by all of our accounts receivable, our inventory and our general
      intangibles. As of October 28, 2005, we had assigned $4.2 million to Prestige.
      This agreement terminates on May 1, 2006, subject to certain renewal provisions
      or earlier termination by Prestige.




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***Letter of Credit Facility***





On
      August
      2, 1999, Popeil Inventions, Inc. entered into an $8 million letter of credit
      agreement with Mellon 1st Business Bank. This facility was secured by
      municipal bond and money market collateral accounts. The sum of the collateral
      held in the municipal bond and money market accounts was required to be at
      least
      equal to the amount of outstanding letters of credit under the agreement, and,
      in any event, the sum of the municipal bond and money market accounts could
      not
      be less than $1,000,000. The value of the municipal bond account, however,
      was
      reduced by 20% for purposes of calculating the value of the municipal bond
      collateral under the agreement. The predecessor entities used this facility
      for
      documentary letters of credit to pay the factories in Korea that manufactured
      their products. The agreement was scheduled to mature on March 31, 2006. In
      November 2003, however, the predecessor entities began moving their product
      sourcing to China, which factories agreed to accept thirty day payment terms
      following delivery of products to the predecessor entities. By the end of 2004,
      substantially all of the sourcing of products had been moved to China. As a
      result, the predecessor entities no longer required a letter of credit facility;
      thus we did not assume this facility when we purchased the Ronco business.
      This
      facility was terminated by the predecessor entities on June 29, 2005 and there
      is no balance due.





***Loans from the Predecessor Entities and Mr. Popeil***





In
      September 2004, RMP Family Trust, which is the stockholder of Ronco Inventions,
      LLC and Popeil Inventions, Inc., Popeil, who is the primary beneficiary of
      the trust, and his affiliated entities, loaned the predecessor entities
      $8,500,000, $28,750,000 and $1,900,000, respectively. These loans are evidenced
      by promissory notes, which bear interest at 10% per annum and are due on
      September 7, 2007. The proceeds from these loans were used to pay off the
      balance owed by the predecessor entities for license fees outstanding as of
      December 31, 2003. Interest expense related to these loans was approximately
      $2,929,000 and $247,000 for the nine months ended June 29, 2005 and September
      30, 2004, respectively. This amount is included in accrued expenses at September
      30, 2004. We did not assume these loans when we purchased the Ronco
      business.





***Capital Resources***





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





***Off-Balance
      Sheet Arrangements***





We
      do not
      have any off-balance sheet arrangements.




-56-
 **Table
            of Contents**
 **Index
            to Financial Statements**




**Contractual
      Obligations and Commercial Commitments**





The
      following table illustrates our contractual obligations and commercial
      commitments as of June 30, 2005 and include the effects of our acquisition
      of
      the Ronco business.


**Payments
                  due by period****Contractual
                  Obligations**
              
              
              **Total**
              
              
              **Less
                  than**
                **1
                  year (1)**
              
              
              **1-3
                  years**
              
              
              **3-5
                  years**
              
              
              **More
                  than 5 years**Long-Term
                  Debt Obligations (2)
              
              $
              13,158,180
              
              $
              2,876,000
              
              $
              0
              
              $
              0
              
              $
              0Employment
                and consulting obligations
              
              
              3,100,000
              
              
              950,000
              
              
              1,900,000
              
              
              250,000
              
              
              0Operating
                  Lease Obligations
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Purchase
                  Obligations (3)
              
              
              9,251,963
              
              
              9,251,963
              
              
              0
              
              
              0
              
              
              0Total
              
              
              25,510,143
              
              
              13,077,963
              
              
              1,900,000
              
              
              0
              
              
              0





(1)
            Excludes
                contractual obligations with a term of 30 days or
                less.


(2)
            The
                estimated annual maturity of our promissory notes for the year ending
                June
                30, 2006 is $2,876,000, which is based on management’s estimate of the
                products to be shipped in the next year and applying the per-unit
                dollar
                amount per the promissory notes. As our promissory notes are an estimate
                based on volumes of products shipped, we have not estimated the annual
                maturities after the current year ending June 30, 2006. All remaining
                amounts owed under the promissory notes are due on June 29,
                2010.


(3)
            $9,251,963
                are purchase orders for future
                sales.




Our
          principal executive offices are located at 21344 Superior Street, Chatsworth,
          California, 91311, where we lease office space and a storage facility on
          a month
          to month basis for $12,556 and $18,758 per month, respectively. We are
          considering other office space alternatives, which could potentially offer
          greater warehouse capacity. We are in the process of negotiating a lease
          for new
          office and warehouse space and expect to relocate our operations by March
          1,
          2006. The new space is located in close proximity to our existing
          offices.


We
      have
      entered into employment agreements with Richard F. Allen, Sr. and Evan J.
      Warshawsky that were effective on June 30, 2005. Mr. Allen serves as our
      President and Chief Executive Officer and is a member of our board of directors
      and Mr. Warshawsky is our Chief Financial Officer. The employment agreements
      for
      Messrs. Allen and Warshawsky have initial terms of four and three years,
      respectively. 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. Mr. Warshawsky
      receives a base salary of $200,000 per year and will be entitled to a
      discretionary bonus of up to $300,000. See “Directors and Executive Officers of
      the Registrant-Employment Agreement with Richard F. Allen, Sr.” and “Directors
      and Executive Officers of the Registrant-Employment Agreement with Evan J.
      Warshawsky.” The financial obligations under these agreements are included in
      the table shown above.




**Effects
      of Inflation and Foreign Currency Fluctuations**





We
      do not
      believe that inflation or foreign currency fluctuations significantly affected
      our financial position and results of operations as of and for the fiscal year
      ended June 30, 2005.




-57-
 **Table
            of Contents**
 **Index
            to Financial Statements**




**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. This facility expires, and all
      outstanding amounts become due, on September 20, 2006.




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 October 28, 2005 we had assigned
      $4.2
      million of our accounts receivable to this factor. Our factoring agreement
      terminates on May 1, 2006.




The
      predecessor entities were party to an $8 million letter of credit agreement
      with
      a bank. Pursuant to this agreement, any amounts due to the bank based on draws
      upon letters of credit would bear interest at the rate of 4% per annum. This
      agreement was terminated on June 29, 2005 as part of our acquisition of the
      Ronco business and we did not assume any obligations under this
      agreement.




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-28 at the end of this report.
  ****ITEM
          9.****CHANGES
          IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE****
 On
        July
        13, 2005, our board of directors appointed Mahoney Cohen & Company, CPA,
        P.C. as our independent registered public accounting firm for the period
        ended June 30, 2005 and dismissed Stark Winter Schenkein & Co., LLP,
        which had audited our financial statements for the year ended June 30,
        2004.
  Our
        board
        of directors believes that the appointment of Mahoney Cohen & Company, CPA,
        P.C. to audit our consolidated financial statements for the above period
        and
        thereafter is in the best interests of our stockholders.
  Stark
        Winter Schenkein & Co., LLP’s report on our financial statements for the
        year ended June 30, 2004 did not contain an adverse opinion or disclaimer
        of
        opinion, nor was it modified as to uncertainty, audit scope, or accounting
        principles. There were no disagreements with Stark Winter Schenkein & Co.,
        LLP on any matter of accounting principles or practices, financial statement
        disclosure, or auditing scope or procedure.
  -58-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **ITEM
        9A.  CONTROLS AND
        PROCEDURES**
  (a)
        Evaluation of disclosure controls and procedures. We maintain "disclosure
        controls and procedures," as such term is defined in the Securities Exchange
        Act
        of 1934, that are designed to ensure that information required to be disclosed
        by us in reports that we file or submit under the Securities Exchange Act
        of
        1934 is recorded, processed, summarized, and reported within the time periods
        specified in the SEC rules and forms, and that such information is accumulated
        and communicated to our management, involving our Chief Executive Officer
        and
        Chief Financial Officer, as appropriate, to allow timely decisions regarding
        required disclosure. In designing and evaluating our disclosure controls
        and
        procedures, management recognized that a control system no matter how well
        designed and operated, can provide only reasonable, not absolute, assurance
        that
        the control system's objectives will be met. Additionally, 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 all control systems, no evaluation of controls
        can
        provide absolute assurance that all control issues and instances of fraud,
        if
        any, within our company, have been detected. These inherent limitations include
        the realities that judgments in decision-making can be faulty, and that
        breakdowns can occur because of simple errors or mistakes. Controls can also
        be
        circumvented by the individual acts of some persons, by collusion of two
        or more
        people, or by management override of the controls. The design of any system
        of
        controls is based in part upon certain assumptions about the likelihood of
        future events, and there can be no assurance that any design will succeed
        in
        achieving its stated goals under all potential future conditions.
  Our
        management, with the participation of our Chief Executive Officer and Chief
        Financial Officer, determined that our disclosure controls and procedures
        were
        ineffective as of June 30, 2005. In connection with our management's evaluation
        and documentation of our disclosure controls and procedures, including our
        internal controls and procedures for financial reporting, our Chief Executive
        Officer and Chief Financial Officer recognized that improvements were necessary
        in the following areas:
  maintaining
        sufficient personnel with an appropriate level of accounting knowledge,
        experience and training in the application of generally accepted accounting
        principles commensurate with our financial reporting requirements,
  maintaining
        adequate segregation of duties in key functions,
  maintaining
        adequate controls over spreadsheets used in our financial reporting
        process,
  adequately
        documenting certain transactions and manual journal entries, and
  adhering
        to a comprehensive closing calendar.
  We
        have
        taken measures to improve the effectiveness of our internal controls and
        we
        believe these efforts are addressing the matters describe above.  These
        efforts include segregation of duties in key functions, creating formal
        accounting controls, policies and procedures, hiring additional management
        and
        staff experienced in financial reporting, and documentation of our accounting
        and disclosure internal controls and procedures. We also performed additional
        analysis and other post-closing procedures to ensure our consolidated financial
        statements are prepared in accordance with US Generally Accepted Accounting
        Principles.
  (b)
        Changes in internal control over financial reporting. There were no changes
        in
        our internal control over financial reporting (as defined in Rule 13a-15(f)
        under the Securities Exchange Act of 1934) identified in connection with
        the
        evaluation described in Item 9(a) above that occurred during the year ended
        June
        30, 2005 and that have materially affected, or are reasonably likely to
        materially affect, our internal control over financial reporting.
  **ITEM
        9B.  OTHER INFORMATION**
  None.
  -59-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **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 October 31,
        2005.
 
 Name
              Age
              Position(s)Richard
                  F. Allen, Sr.
              57
              President,
                  Chief Executive Officer and DirectorEvan
                  J. Warshawsky
              46
              Chief
                  Financial Officer and SecretaryHarold
                  D. Kahn
              59
              DirectorA.
                  Emerson Martin, II
              55
              DirectorGregg
                  A. Mockenhaupt
              35
              Director
  **Richard
        F. Allen, Sr.** is our Chief Executive Officer, President and a member of
        our board of directors, positions he has held 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.
  -60-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **Evan
        J. Warshawsky** is our Chief Financial Officer and Secretary, positions
        he has held since June 30, 2005. Between February 2005 and June 2005, Mr.
        Warshawsky was the Chief Financial Officer of the predecessor entities. Mr.
        Warshawsky joined Ronco Inventions, LLC in 2002 as its Executive Vice President
        with responsibilities for operations and information technology systems,
        and
        served as its President from May 2003 until February 2005. In his capacity
        as
        President of Ronco Inventions, LLC, Mr. Warshawsky was responsible for
        substantially all of the operations of the predecessor entities, including
        media, customer service, sourcing, fulfillment and marketing. Between 1999
        and
        2002, Mr. Warshawsky was President of Definity Design Group, a marketing
        and
        design company, and between 1996 and 1999, Mr. Warshawsky served as director
        of
        business affairs for Skycastle Entertainment, Inc., NBC’s in-house promotions
        company. Mr. Warshawsky received a Bachelor of Arts degree in Economics from
        the
        University of California at Los Angeles and is a certified public
        accountant.
  **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.
  **A.
        Emerson Martin, II** is a member of our board of directors, a position he
        has held since June 2005. Mr. Martin is a Managing Director at Sanders Morris
        Harris, Inc., a full-service investment bank, based in Houston, Texas, and
        has
        served in this capacity since 2004. Between 2002 and 2004, he was head of
        investment banking at Touchstone Group, a transnational financial services
        firm
        with operations in the U.S. and the Arabian Gulf. From 1997 to 2002, he was
        head
        of investment banking at Spencer Trask, a leading private equity firm. Prior
        to
        1997, he was a Senior Managing Director at Donaldson, Lufkin, & Jenrette and
        First Albany, investment and merchant banks, where he was involved with various
        public and private financings and mergers and acquisitions. Mr. Martin started
        his corporate finance career at Salomon Smith Barney, Inc., a global
        full-service financial company. Mr. Martin received a Bachelor of Arts degree
        from Union College and a Masters in Business Administration from Columbia
        University.
  -61-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **Gregg
        A. Mockenhaupt** is a member of our board of directors, a position he has
        held since June 2005. Mr. Mockenhaupt is a Managing Director at Sanders Morris
        Harris, Inc., a full-service investment bank, based in Houston, Texas, and
        has
        served in this capacity since April 2004. Between 1996 and 2004, Mr. Mockenhaupt
        served as a Managing Director at Crest Advisors, LLC, a boutique investment
        banking firm, and as a Managing Director at Crest Communications Holdings
        LLC, a
        private investment firm managing approximately $160 million in capital focused
        on the communications industries. Prior to 1996, Mr. Mockenhaupt was a member
        of
        Smith Barney, Inc.’s Advisory Group, where he was involved with a breadth of
        merger and acquisition transactions and financial restructurings. Mr.
        Mockenhaupt has served on the board of directors for several private and
        public
        companies and is currently a director of TeraBurst Networks, Inc., d/b/a
        QualCore Logic. Mr. Mockenhaupt graduated from the University of Pennsylvania’s
        Wharton School of Business with a B.S. in Economics with concentrations in
        Finance and Political Science.
 
 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 either at
        the
        time of the bankruptcy or within two years prior to that time; (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.
 
 Karen
        Allen, our Vice President of Product Development, is the wife of Mr. Allen,
        our
        Chief Executive Officer, President and member of our board of directors.
        Mrs.
        Allen receives an annual salary of $170,000. There are no other family
        relationships among our directors and executive officers.
 
 **Board
        of Directors and Committees**
 
 As
        of
        October 31, 2005, our board of directors consisted of four members. We plan
        to establish 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.
  -62-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **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.
 
 Our
        board
        of directors is currently acting as our audit committee. Our board of directors
        has determined that we do not have a person qualifying as an audit committee
        financial expert serving on our board of directors. 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.
  **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.
 
 **Nominating
        Committee**
 
 Our
        entire board of directors 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.
  -63-
 **Table
              of Contents**
 **Index
              to Financial Statements**
  **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, 2005 were complied with on a timely basis.
  **ITEM
          11.  EXECUTIVE
          COMPENSATION**
 The
          following table sets forth compensation for services rendered to us in
          all
          capacities for the nine months ended June 30, 2005 and September 30, 2004,
          and
          for the fiscal year ended December 31, 2003, for our Chief Executive Officer
          and
          our Chief Financial Officer. None of our other executive officers received
          annual compensation in excess of $100,000 during such periods.
  -64-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  **Summary
          Compensation Table**
 
 Annual
                    Compensation
                
                Long-Term
                  Compensation
                  AwardsName
                    and
                  Principal
                    Position
                
                Year
                
                Salary
                  ($)(1)
                
                Bonus($)
                
                Other
                    Annual
                  Compensation
                  ($)(2)
                
                Restricted
                    Stock
                  Awards
                    ($)Richard
                    F. Allen, Sr.
                
                
                2005
                
                $
                108,933
                (3)
                $
                315,00
                (4)
                
                --
                
                $
                3,009,177(5
                )President,
                    Chief
                
                
                2004
                
                
                --
                
                
                --
                
                
                --
                
                
                --Executive
                    Officer and Director
                
                
                2003
                
                
                --
                
                
                --
                
                
                --
                
                
                --Evan
                    Warshawsky
                
                
                2005
                
                $
                112,500
                (6)
                $
                150,00
                (7)
                
                --
                
                $
                601,837(8
                )Chief
                    Financial Officer
                
                
                2004
                
                $
                112,500
                (9)
                
                --
                
                
                --
                
                
                --and
                    Secretary
                
                
                2003
                
                $
                123,333
                (10)
                
                --
                
                
                --
                
                
                --
 
 (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 10% of any such named executive officer’s total annual
                    compensation.
 (3)
                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.
 (4)
                Reflects
                    bonus paid to Mr. Allen upon completion of the acquisition of
                    the Ronco
                    business that closed on June 30,
                    2005.
 (5)
                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.
 (6)
                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.
 (7)
                Reflects
                    bonus paid to Mr. Warshawsky upon completion of the acquisition
                    of the
                    Ronco business that closed in June
                    2005.
 (8)
                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.”
 (9)
                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.
 (10)
                Reflects
                    amount paid to Mr. Warshawsky as President of Ronco Inventions,
                    LLC, one
                    of the predecessor entities, for the year ended December 31,
                    2003.
  -65-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  ***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 serves 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.
  -66-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  Mr.
          Allen’s employment agreement also contains noncompetition and nonsolicitation
          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.
 
 ***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.
 
 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.
  -67-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  Mr.
          Warshawsky’s employment agreement also contains noncompetition and
          nonsolicitation 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.
  *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. Messrs.
          Martin
          and Mockenhaupt have each waived the right to the $25,000 annual retainer
          and
          the grant of stock options.
 
 Our
          employee director does 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.
 
 ***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.
  -68-
 **Table
                of Contents**
 **Index
                to Financial Statements**
 **ITEM
          12.****SECURITY OWNERSHIP OF OFFICERS,
          DIRECTORS AND PRINCIPAL STOCKHOLDERS**
  Set
            forth
            below is information as of October 15, 2005, 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
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    506,713
                      
                      26,525
                    (3)
                    23.9%
                      
                      *Evan
                        J. Warshawsky(2)
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    186,588
                      
                      26,525
                    (4)
                    8.8%
                      
                      *Harold
                        D. Kahn
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    0
                      
                      0
                    
                    *
                      
                      *A.
                        Emerson Martin (5), (6)
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    0
                      
                      0
                    
                    *
                      
                      *Gregg
                        A. Mockenhaupt (5), (6)
                    Common
                        stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    0
                      
                      0
                    
                    *
                      
                      *All
                        directors and executive officers as a group
                        (5 persons)
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    693,301
                      
                      53,050
                    (7)
                    32.3%
                      
                      ***5%
                        or greater holders**Entities
                        affiliated with
                      Sanders
                        Morris Harris, Inc.
                      320
                        Park Avenue
                      New
                        York, NY 10022
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    1,629,804
                      
                      1,362,737
                    (5)
                      
                      (6)
                    43.8%
                      
                      10.3%Janus
                        Investment Fund
                      151
                        Detroit Avenue
                      Denver,
                        CO 80206
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    1,591,512
                      
                      1,591,512
                    (8)
                      
                      (8)
                    43.2%
                      
                      12.0%Heartland
                        Group, Inc.,
                      solely
                        on behalf of the
                      Heartland
                        Value Fund
                      789
                        North Water Street
                      Suite
                        500
                      Milwaukee,
                        WI 53202
                    Common
                        Stock
                      
                      Series
                        A Convertible
                      Preferred
                        Stock
                    1,500,000
                      
                      1,500,000
                    (9)
                      
                      (9)
                    41.8%
                      
                      11.3%
   -69-
 **Table
                    of Contents**
 **Index
                    to Financial Statements**
  GLG
                          Partners American Opp Fund
                        P.O.
                          Box 9080t
                        Georgetown,
                          Grand Cayman
                        Cayman
                          Islands
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      1,000,000
                        
                        1,000,000
                      (10)
                        
                        (10)
                      32.3%
                        
                        7.54%LBI
                          Group, Inc.
                        Lehman
                          Brothers
                        399
                          Park Avenue
                        New
                          York, NY 10022
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      795,756
                        
                        795,756
                      (11)
                        
                        (11)
                      27.6%
                        
                        6.0%The
                          Quaker Investment Trust - Quaker Strategic Growth Fund
                        260
                          Franklin St., 16thFloor
                        #1600
                        Boston,
                          MA 02110
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      760,000
                        
                        760,000
                      (12)
                        
                        (12)
                      26.7%
                        
                        5.7%Palisades
                          Master Fund LP
                        200
                          Hansell Ct East, Suite 550
                        Roswell,
                          GA 30076
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      500,000
                        
                        500,000
                      (13)
                        
                        (13)
                      19.3%
                        
                        3.8%Topwater
                          Exclusive Fund II LLC
                        80
                          Washington Street
                        Suite
                          2-2
                        South
                          Norwalk, CT 06854
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      433,000
                        
                        433,000
                      (14)
                        
                        (14)
                      17.2%
                        
                        3.3%BFS
                          US Special Opportunities Trust PLC
                        8080
                          North Central Pkwy
                        #210
                        Dallas,
                          TX 75206
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      265,252
                        
                        265,252
                      (15)
                        
                        (15)
                      11.3%
                        
                        2.0%Renaissance
                          US Growth Investment Trust PLC
                        8080
                          North Central Express
                        Suite
                          210
                        LB59
                        Dallas,
                          TX 75206
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      265,252
                        
                        265,252
                      (16)
                        
                        (16)
                      11.3%
                        
                        2.0%Stanley
                          Shopkorn
                        Shopkorn
                          Associates
                        410
                          Park Avenue
                        New
                          York, NY 100922
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      265,252
                        
                        265,252
                      (17)
                        
                        (17)
                      11.3%
                        
                        2.0%Tom
                          and Nancy Juda Living Trust
                        410
                          S. Lucerne Boulevard
                        Los
                          Angeles, California 90020
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      265,252
                        
                        265,252
                      (18)
                        
                        (18)
                      11.3%
                        
                        2.0%Apogee
                          Fund, L.P.
                        201
                          Main St, #1555
                        Ft
                          Worth, TX 76102
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      198,939
                        
                        198,939
                      (19)
                        
                        (19)
                      8.7%
                        
                        1.5%
   -70-
 **Table
                      of Contents**
 **Index
                      to Financial Statements**
  Coll
                          International
                        1330
                          Avenue of the Americas,
                        40thFloor
                        New
                          York, NY 10019
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      177,778
                        
                        0
                      
                      8.5%
                        
                        *Content
                          Holding LLC
                        1330
                          Avenue of the Americas,
                        40thFloor
                        New
                          York, NY 10019
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      177,778
                        
                        0
                      
                      8.5%
                        
                        *Copper
                          Beech Equity Partners LLC
                        445
                          Park Avenue, 10thFloor
                        New
                          York, NY 10022
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      177,778
                        
                        0
                      
                      8.5%
                        
                        *Gilbert
                          Azafrani
                        1725
                          Oceanfront Walk #318
                        Santa
                          Monica, CA 90401
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      160,063
                        
                        0
                      (20)
                      7.7%
                        
                        *Sandor
                          Capital Master Fund, L.P.
                        2828
                          Routh Street, #500
                        Dallas,
                          TX 75201
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      135,000
                        
                        135,000
                      (21)
                        
                        (21)
                      6.0%
                        
                        1.0%Paul
                          Wallace
                        156
                          West 56thStreet, Suite 1604
                        New
                          York, NY 10019
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      133,334
                        
                        0
                      
                      6.4%
                        
                        *Crescent
                          International LTD
                        Cantara
                          (Switzerland) SA
                        Portfolio
                          Manager to Crescent International Ltd.
                        84,
                          a. Louis-Casai
                        P.O.
                          Box 161, CH-1216
                        Cointrin,
                          Geneva, Switzerland
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      133,000
                        
                        133,000
                      (22)
                        
                        (22)
                      6.0%
                        
                        1.0%Anthony
                          & Sandra Mansour Family
                        Revocable
                          Trust 12/17/85
                        4477
                          Golden Foothill Parkway
                        El
                          Dorado Hills, CA 95762
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      132,626
                        
                        132,626
                      (23)
                        
                        (23)
                      6.0%
                        
                        1.0%Alpha
                          Capital AG
                        LH
                          Financial
                        160
                          Central Park, S., #2701
                        New
                          York, NY 10021
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      132,625
                        
                        132,625
                      (24)
                        
                        (24)
                      6.0%
                        
                        1.0%IRA
                          FBO Anthony Jacobs, Pershing LLC
                        as
                          Custodian Rollover Account
                        c/o
                          Sanders Morris Harris
                        600
                          Travis Street, Suite 3100
                        Houston,
                          TX 77002
                      Common
                          Stock
                        
                        Series
                          A Convertible
                        Preferred
                          Stock
                      112,500
                        
                        112,500
                      (25)
                        
                        (25)
                      5.1%
                        
                        *
   -71-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
 
 *
                  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 2,091,605
                      shares of
                      common stock outstanding as of October 15, 2005. Percentage
                      of Series A
                      Convertible Preferred Stock is based on 13,262,600 shares of
                      Series A
                      Convertible Preferred Stock outstanding as of October 15, 2005.
                      Securities
                      that are exercisable or convertible into shares of our common
                      stock within
                      60 days of October 15, 2005 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.
 (2)
                  The
                      address for Messrs. Allen and Warshawsky is 21344 Superior
                      Street,
                      Chatsworth, California 91311.
 (3)
                  Consists
                      of 480,188 shares of our common stock and 26,525 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, 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.
 (4)
                  Consists
                      of 160,063 shares of our common stock and 26,525 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.
 (5)
                  Consists
                      of an aggregate of 1,362,737shares of our Series A Convertible
                      Preferred
                      Stock held by Sanders Opportunity Fund (Institutional), L.P.,
                      Sanders
                      Opportunity Fund, L.P., and a warrant to purchase 266,667 shares
                      of our
                      common stock held by Sanders Morris Harris, Inc., our placement
                      agent and
                      a subsidiary of Sanders Morris Harris Group, Inc. Don Sanders
                      exercises voting and investment powers for these shares. Although Don
                      Sanders may be deemed to be the beneficial owner, Don Sanders
                      disclaims
                      beneficial ownership of the shares owned by Sanders Opportunity
                      Fund
                      (Institutional), L.P., Sanders Opportunity Fund, L.P and 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.
                      Messrs. Martin and Mockenhaupt are members of our board of
                      directors and
                      managing directors of Sanders Morris Harris, Inc. Messrs. Martin
                      and
                      Mockenhaupt disclaim beneficial ownership of the shares owned
                      by Sanders
                      Opportunity Fund (Institutional), L.P., Sanders Opportunity
                      Fund,
                      L.P and Sanders Morris Harris,
                      Inc.
 (6)
                  Consists
                      of an aggregate of 1,362,737 shares of our Series A Convertible
                      Preferred
                      Stock held by Sanders Opportunity Fund (Institutional), L.P. and
                      Sanders Opportunity Fund, L.P  Don Sanders exercises voting and
                      investment powers for these shares. Although Don Sanders may be
                      deemed to be the beneficial owner, Don Sanders disclaims beneficial
                      ownership of the shares owned by Sanders Opportunity Fund (Institutional)
                      L.P. and Sanders Opportunity Fund, L.P. Each share of Series A
                      Convertible Preferred Stock may be converted into one share
                      of common
                      stock at the option of the holder. Messrs. Martin and Mockenhaupt
                      are
                      members of our board of directors and managing directors of
                      Sanders Morris
                      Harris, Inc. Messrs. Martin and Mockenhaupt disclaim beneficial
                      ownership
                      of the shares owned by Sanders Opportunity Fund (Institutional),
                      L.P. and
                      Sanders Opportunity Fund, L.P.
 (7)
                  Consists
                      of shares owned by Messrs. Allen and
                      Warshawsky.
 (8)
                  Consists
                      of 1,591,512 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 Janus Investment
                      Fund. Each
                      share of Series A Convertible Preferred Stock may be converted
                      into one
                      share of common stock at the option of the
                      holder.
 (9)
                  Consists
                      of 1,500,000 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.
 (10)
                  Consists
                      of 1,000,000 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.
 (11)
                  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.
 (12)
                  Consists
                      of 760,000 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.
 (13)
                  Consists
                      of 500,000 shares of our Series A Convertible Preferred Stock.
                      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 th`e
                      holder.
 (14)
                  Consists
                      of 433,000 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.
 (15)
                  Consists
                      of 265,252 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.
 (16)
                  Consists
                      of 265,252 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.
 (17)
                  Consists
                      of 265,252 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.
 (18)
                  Consists
                      of 265,252 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.
 (19)
                  Consists
                      of 198,939 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.
 (20)
                  Mr.
                      Azafrani is our general counsel.
 (21)
                  Consists
                      of 135,000 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.
 (22)
                  Consists
                      of 133,000 shares of our Series A Convertible Preferred Stock.
                      Mel Crow,
                      Bachir Taleb-Ibrahimi and Maxi Brezzi 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 132,626 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.
 (24)
                  Consists
                      of 132,625 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.
 (25)
                  Consists
                      of 112,500 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.
  -72-
 **Table
                  of Contents**
 **Index
                  to Financial Statements**
  **Equity
            Compensation Plan Information For Fiscal Year 2005**
 
 The
          following table summarizes, as of June 30, 2005, the shares of our common
          stock
          subject to outstanding awards or that are available for future awards under
          our
          equity compensation plans.
 
 Plan
                    Category
                
                Number
                    of shares to
                  be
                    issued upon
                  exercise
                    of
                  outstanding
                    options,
                  warrants
                    and rights
                
                Weighted
                    average
                  exercise
                    price of
                  outstanding
                  options,
                    warrants
                  and
                    rights
                
                Number
                    of shares
                  remaining
                    available for
                  future
                    issuance under
                  equity
                    compensation
                  plans
                    (excluding shares
                  reflected
                    in the first
                  column)(2)Equity
                    compensation plans approved by security holders
                
                
                --
                
                $
                --
                
                
                --Equity
                    compensation plans not approved by security holders
                
                
                320,125(1
                )
                
                0.01
                
                
                **--**Total
                
                
                320,125
                
                $
                0.01
                
                
                **--**
 
 (1)
                These
                    shares were awarded to Mr. Allen pursuant to his employment agreement
                    with
                    us and pursuant to a restricted stock purchase agreement. Mr.
                    Allen will
                    be entitled to purchase 50% of these shares for $0.01 per share
                    on each of
                    the first two anniversaries of June 30, 2005. These shares are
                    subject to
                    repurchase by us, at our option, at $0.01 per share, exercisable
                    upon the
                    termination of Mr. Allen’s employment voluntarily or for “cause,” or if
                    certain performance targets are not satisfied. See “Item
                    10. Directors
                    and Executive Officers of the Registrant –Employment
                    Agreement with Richard F. Allen, Sr.”
 (2)
                We
                    intend to adopt a stock option plan and to reserve not less than
                    100,000
                    shares of our common stock for issuance under the
                    plan.
  **ITEM
          13.      **CERTAIN
          RELATIONSHIPS AND RELATED TRANSACTIONS****
  **Origins
          of the Ronco Asset Purchase**
  In
          October 2003, Richard F. Allen, Sr., our 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.
  -73-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  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 Chief Executive Officer
          and
          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 13,262,600 shares of our common stock,
          as such
          number may be adjusted in the future. See “Business-The Ronco
          Acquisition.”
  **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 Chief Executive Officer and 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.
 
 **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 are also members of our board of
          directors. See “Business-The Ronco Acquisition.”
  -74-
 **Table
                of Contents**
 **Index
                to Financial Statements**
   **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.
  **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, 2005:
  Period
                      EndedFee
                      Category
                  
                  June
                      30, 2005Audit
                      Fees(1)
                  
                  $
                  216,000Audit-related
                    fees
                  
                  
                  0Tax
                    fees
                  
                  
                  0All
                    other fees
                  
                  
                  0Total
                      Fees
                  
                  $
                  216,000
 
 (1)
                    Consists
                        of fees associated with the annual audit of our financial
                        statements.
  On
          July
          13, 2005, our Board of Directors appointed Mahoney Cohen & Company, CPA,
          P.C. as our independent auditors for the period ended June 30, 2005. We
          did not
          procure any other services from Mahoney Cohen & Company, CPA, P.C. in fiscal
          2005 or 2004.
  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 2005, 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**
  (a)
                Financial
                    Statements.
  See
          pages
          F-1 through F-28 at the end of this report.
  (b)
                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 returnsNine
                      months ended June 29, 2005
                  
                  $
                  1,480,000
                  
                  $
                  --
                  
                  $
                  (1,180,000
                  )(a)
                  $
                  300,000Nine
                      months ended September 30, 2004
                  
                  $
                  5,526,430
                  
                  $
                  1,474,147
                  
                  $
                  (5,520,577
                  )(b)
                  $
                  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)  Reduction
            in allowance.
 (b)  Accounts
            written-off.
  (c)
                  Exhibits.
  See
          Exhibit Index.
  -75-
 **Table
                of Contents**
 **Index
                to Financial Statements**
  **SIGNATURES**
  Pursuant
          to the requirements of Section 13 or 15(d) of the Securities Exchange Act
          of
          1934, the registrant has duly caused this amended report to be signed on
          its
          behalf by the undersigned, thereunto duly authorized.
  Date: January
                  20, 2006
                **RONCO
                  CORPORATION**By:
                /s/
                  Richard F. Allen, Sr.Richard
                    F. Allen, Sr.
                  President
                    and 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.
              
              Chief
                  Executive Officer, President
                  and Director
              
              January
                  20, 2006Richard
                  F. Allen, Sr.
              
              (Principal
                  Executive Officer)/s/
                    Evan J. Warshawsky
              
              Chief
                  Financial Officer and Secretary
              
              January
                  20, 2006Evan
                  J. Warshawsky
              
              (Principal
                  Accounting Officer and Principal
                  Financial Officer)/s/
                    Harold D. Kahn
              
              Director
              
              January
                  20, 2006Harold
                  D. Kahn/s/
                    A. Emerson Martin, II
              
              Director
              
              January
                  20, 2006A.
                  Emerson Martin, II/s/
                    Gregg A. Mockenhaupt
              
              Director
              
              January
                  20, 2006Gregg
                  A. Mockenhaupt/s/
                Thomas J. Lykos, Jr.
              
              Director
              
              January
                  12, 2006Thomas
                J. Lykos, Jr.






-76-
 **Table
            of Contents**
 **Index
            to Financial Statements**




**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)4.2
            
            Warrant between Ronco Corporation and
              Sanders
              Morris Harris Inc. (3)4.3
            
            Form of Registration Rights Agreement
              between
              Ronco Corporation, the parties set forth on the
              signature
                page and Exhibit A thereto and other stockholders of the Company.
                (1)10.1
            
            Promissory
              Note dated June 30, 2005 between Ronco Marketing Corporation and Ronco
              Inventions, LLC. (5)10.2
            
            Lock-Up Agreement for Copper Beech Equity
              Partners dated June 29, 2005. (4)10.3
            
            Lock-Up Agreement for Content Holding
              LLC
              dated June 28, 2005.(4)10.4
            
            Assignment
              and Assumption Agreement dated June 30, 2005, between Ronco
              Marketing
              Corporation
                and Ronald M. Popeil. (4)10.5
            
            Promissory
              Note dated June 30, 2005 between Ronco Marketing Corporation and Popeil
              Inventions, Inc. (5)10.6
            
            Consulting and Advisory Services Agreement
              dated June 30, 2005 between Ronco Marketing Corporation and Ronald
              M.
                Popeil. (4)10.7
            
            Trademark
                Co-Existence Agreement dated June 30, 2005 between Ronco Marketing
                Corporation and Ronald M. Popeil. (4)10.8
            
            New
              Product Development Agreement dated June 30, 2005 by and among Ronald
              M. Popeil and Ronco
              Marketing
                Corporation. (5)10.9
            
            Placement Agent Agreement dated May
              26, 2005,
              between Ronco Marketing Corporation and
              Sanders
                Morris Harris. (4)10.10
            
            Advisory Agreement dated May 20, 2005,
              between Ronco Marketing Corporation and Copper
              Beech
                LLC, Copperfield Equity Partners LLC, Coll International LLC, and
                Content
                Holding LLC. (4)10.11
            
            Revolving
              Line of Credit Note dated September 20, 2005 between Ronco Corporation
              and
              Wells Fargo Bank, National Association. (5)10.12
            
            Securities
              Agreement Securities Account dated September 20, 2005 between Ronco
              Corporation and Wells Fargo Bank National Association. (5)10.13
            
            Employment Agreement between Ronco
              Corporation and Richard F. Allen, Sr. (4)10.14
            
            Employment Agreement between Ronco
              Corporation and Evan J. Warshawsky. (4)10.15
            
            Restricted Stock Purchase Agreement
              between
              Ronco Corporation and Richard F. Allen, Sr. dated June 28,
              2005. (4)*10.16
            
            Restricted Stock Purchase Agreement
              between
              Ronco Corporation and Evan Warshawsky dated June 29, 2005.
              (4)*10.17
            
            Purchase and Sale Agreement by and between
              Prestige Capital Corporation and Ronco Corporation dated as of
              October 25, 2005 (2)10.18
            
            Restricted Stock Purchase Agreement
              between
              Ronco Corporation and Gilbert Azafrani dated June 28,
              2005. (4)*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 (5)31.2
            
            Certification of Chief Financial Officer
              pursuant to Section 302 of the Sarbanes-Oxley Act (5)32.1
            
            Certification of Chief Executive Officer
              pursuant to Section 906 of the Sarbanes-Oxley Act (5)32.2
            
            Certification of Chief Executive Officer
              pursuant to Section 906 of the Sarbanes-Oxley Act (5)(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)
            
            Filed
              Herewith.*
            
            Management Compensation Plan or
              Arrangements








**RONCO
      CORPORATION AND SUBSIDIARY**




**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-4Report
                  of Independent Registered Public Accouting Firm,
                  Weinberg & Company
              F-5Consolidated
                  and Combined Balance Sheets at June 30, 2005
                  (Successor) and September 30, 2004 (Predecessor)
              F-6Consolidated
                  and Combined Statements of Operations for June
                  30, 2005 (Date of Acquisition) (Successor), for the nine months
                  ended June
                  29, 2005 and September 30, 2004, and for the years ended December
                  31, 2003
                  and 2002 (Predecessor)
              F-7Consolidated
                  and Combined Statements of Stockholders' and
                  Members' Equity (Deficiency) for the period from 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 years ended December
                  31, 2003
                  and 2002 (Predecessor)
              F-8Consolidated
                  and Combined Statements of Cash Flows for June 30,
                  2005 (Date of Acquisition) (Successor), for the nine months ended
                  June 29,
                  2005 and September 30, 2004, and for the years ended December 31,
                  2003 and
                  2002 (Predecessor)
              F-9-F-10Notes
                  to Consolidated and Combined Financial
                  Statements
              F-11
                  - F-28




The
      following consolidated and combined financial statement schedule is included
      in
      Item 15(b):






F-1
 **Table
            of Contents**
 **Index
            to Financial Statements**




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**





To
      the
      Board of Directors


Ronco
      Corporation and Subsidiary




We
      have
      audited the accompanying consolidated balance sheet of Ronco Corporation and
      subsidiary (the “Successor” or “Company”) as of June 30, 2005 and the related
      consolidated statements of operations and cash flows for the one day June 30,
      2005 (Date of Acquisition) and stockholders' equity for the period October
      15,
      2004 (Date of Inception) to June 30, 2005. 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 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 audit provides 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, 2005, and the results of their operations and their
      cash flows for June 30, 2005 (Date of Acquisition) in conformity with accounting
      principles generally accepted in the United States of America.




/s/
      Mahoney Cohen & Company, CPA, P.C.




New
      York,
      New York


October
      20, 2005, except for Note 20 paragraphs 1 and 2 which is as of October 25,
      2005






F-2


**Table
          of Contents**
 **Index
          to Financial Statements**




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Members and Stockholders


Ronco
      Inventions, LLC and Affiliated Companies


We
      have
      audited the accompanying combined balance sheet of Ronco Inventions, LLC and
      Affiliated Companies (the “Predecessor” or the “Company”) as of September 30,
      2004, and the combined statements of operations, stockholders’ and members’
deficiency and cash flows for the nine months ended June 29, 2005 and September
      30, 2004. Our audit also includes the financial statement schedule listed in
      the
      index as Item 15(b) for the nine months ended June 29, 2005 and September 30,
      2004. 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 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 financial statements referred to above present fairly,
      in
      all material respects, the financial position of Ronco Inventions, LLC and
      Affiliated Companies as of September 30, 2004, and 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
 **Table
            of Contents**
 **Index
            to Financial Statements**




**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 schedule listed in the index as Item 15(b) 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 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. 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


VELAH
      Group LLP


Los
      Angeles, California


August
      19, 2004





F-4
 **Table
            of Contents**
 **Index
            to Financial Statements**




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**





To
      the
      Stockholders and Board of Directors


Ronco
      Inventions, LLC and Affiliated Entities




We
      have
      audited the accompanying combined statements of operations, stockholders’ and
      members’ deficiency, and cash flows of Ronco Inventions, LLC and Affiliated
      Entities for the year ended December 31, 2002. Our audit also includes the
      financial statement schedule listed in the index as Item 15 for the year ended
      December 31, 2002. These combined financial statements are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on these
      combined financial statements based on our audit.




We
      conducted our audit 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 combined
      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 combined financial statement presentation. We believe
      that our audit provides a reasonable basis for our opinion.




In
      our
      opinion, the combined financial statements referred to above present fairly,
      in
      all material respects, the results of operations and cash flows of Ronco
      Inventions, LLC and Affiliated Entities for the year ended December 31, 2002
      in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also, in our opinion, such financial statement schedule considered
      in
      relation to the basic combined financial statements taken as a whole, presents
      fairly in all material respects the information set forth therein.




As
      discussed in Note 15 to the combined financial statements, certain errors
      resulting in an understatement of previously reported property and equipment
      at
      December 31, 2002 were discovered by management of the Company during the period
      ended June 30, 2005. Accordingly, the combined financial statements for the
      year
      ended December 31, 2002 have been restated.





WEINBERG
      & COMPANY, P.A.




/s/
      Weinberg & Company, P.A.


Boca
      Raton, Florida


June
      12,
      2003, except for note 15, as to which the date is October 12, 2005





F-5
 **Table
            of Contents**
 **Index
            to Financial Statements** **RONCO
              CORPORATION AND SUBSIDIARY**
 
 **CONSOLIDATED
              AND COMBINED BALANCE SHEETS**
 **JUNE
              30, 2005 AND SEPTEMBER 30, 2004**
 ASSETSSuccessor
                          
                          
                          
                          PredecessorJune
                              30, 2005
                          
                          
                          
                          September
                              30, 2004CURRENT
                              ASSETS:Cash
                              and cash equivalents
                          
                          $
                          834,358
                          
                          
                          
                          $
                          2,421,984Accounts
                              receivable, net of allowance for doubtful accounts
                              and returns of
                              $1,480,000 at September 30, 2004
                          
                          
                          2,264,315
                          
                          
                          
                          
                          3,481,628Inventories
                          
                          
                          8,968,199
                          
                          
                          
                          
                          11,465,549Prepaid
                              expenses and other current assets
                          
                          
                          2,537,506
                          
                          
                          
                          
                          3,005,629Due
                              from predecessor entities
                          
                          
                          135,676
                          
                          
                          
                          
                          --Total
                              current assets
                          
                          
                          14,740,054
                          
                          
                          
                          
                          20,374,790INVESTMENTS
                          
                          
                          1,627,823
                          
                          
                          
                          
                          2,061,107PROPERTY
                              AND EQUIPMENT, Net
                          
                          
                          925,000
                          
                          
                          
                          
                          1,253,803OTHER
                              ASSETS:Production
                              costs, net of accumulated amortization $588,986 at
                              September 30,
                              2004
                          
                          
                          100,000
                          
                          
                          
                          
                          313,039Due
                              from affiliate
                          
                          
                          --
                          
                          
                          
                          
                          190,034Deposits
                          
                          
                          182,500
                          
                          
                          
                          
                          211,505DEFERRED
                              INCOME TAXES
                          
                          
                          310,000
                          
                          
                          
                          
                          --INTANGIBLE
                              ASSETS
                          
                          
                          42,923,600
                          
                          
                          
                          
                          --GOODWILL
                          
                          
                          2,953,481
                          
                          
                          
                          
                          --$
                          63,762,458
                          
                          
                          
                          $
                          24,404,278LIABILITIES
                              AND STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIENCY)CURRENT
                              LIABILITIES:Current
                              maturities of notes payable
                          
                          $
                          2,876,000
                          
                          
                          
                          $
                          --Accounts
                              payable
                          
                          
                          3,156,080
                          
                          
                          
                          
                          7,883,089Accrued
                              expenses
                          
                          
                          430,251
                          
                          
                          
                          
                          825,388Due
                              to affiliates
                          
                          
                          --
                          
                          
                          
                          
                          120,462Product
                              development and license fees payable
                          
                          
                          --
                          
                          
                          
                          
                          7,070,465Deferred
                              income
                          
                          
                          75,000
                          
                          
                          
                          
                          4,502,924Total
                              current liabilities
                          
                          
                          6,537,331
                          
                          
                          
                          
                          20,402,328LONG-TERM
                              LIABILITIES:Loan
                              payable to stockholder and affiliate
                          
                          
                          --
                          
                          
                          
                          
                          39,150,000Deferred
                              income
                          
                          
                          --
                          
                          
                          
                          
                          1,241,662Notes
                              payable, less current maturities
                          
                          
                          10,282,180
                          
                          
                          
                          
                          --COMMITMENTS
                              AND CONTINGENCIESSTOCKHOLDERS'
                              AND MEMBERS' EQUITY (DEFICIENCY)Series
                              A Convertible Preferred stock, $.00001 par value; 20,000,000
                              shares
                              authorized; 13,262,600 shares issued and outstanding
                              at June 30,
                              2005
                          
                          
                          133
                          
                          
                          
                          
                          --Common
                              stock, $.00001 par value; 500,000,000 shares authorized
                              2,091,605 shares
                              issued and outstanding at June 30, 2005
                          
                          
                          21
                          
                          
                          
                          
                          --Common
                              stock - Popeil Inventions, Inc., $1 par value; 1,000
                              shares authorized,
                              issued and outstanding at September 30, 2004
                          
                          
                          --
                          
                          
                          
                          
                          1,000Common
                              stock - R.P. Productions, Inc., $.0025 par value; 10,000,000
                              shares
                              authorized; 100 shares issued and outstanding at September
                              30,
                              2004
                          
                          
                          --
                          
                          
                          
                          
                          1Common
                              stock to be issued
                          
                          
                          1,206,870
                          
                          
                          
                          
                          --Additional
                              paid-in capital
                          
                          
                          49,513,066
                          
                          
                          
                          
                          1,194,375Deferred
                              compensation
                          
                          
                          (3,310,096
                          )
                          
                          
                          
                          --Accumulated
                              deficit
                          
                          
                          (467,047
                          )
                          
                          
                          
                          (23,799,790
                          )Members'
                              deficit
                          
                          
                          --
                          
                          
                          
                          
                          (13,785,298
                          )Total
                              stockholders' and members' equity (deficiency)
                          
                          
                          46,942,947
                          
                          
                          
                          
                          (36,389,712
                          )$
                          63,762,458
                          
                          
                          
                          $
                          24,404,278
 
 
 
 See
              accompanying notes.
 
 
 F-6
 
 
 **RONCO
              CORPORATION AND SUBSIDIARY**
 
 **CONSOLIDATED
              AND COMBINED STATEMENTS OF OPERATIONS**
   **FOR
              ONE DAY (DATE OF ACQUISITION) JUNE 30, 2005, NINE MONTHS**
 **ENDED
              JUNE 29, 2005 AND SEPTEMBER 30, 2004 AND YEARS ENDED DECEMBER 31, 2003
              AND
              2002**
  Successor
                      
                      
                      
                      Predecessor(Date
                          of Acquisition) June 30, 2005
                      
                      
                      
                      Nine
                          Months Ended June 29, 2005
                      
                      Nine
                          Months Ended September 30, 2004Net
                          sales
                      
                      $
                      --
                      
                      
                      
                      $
                      68,985,101
                      
                      $
                      63,245,257Cost
                          of sales
                      
                      
                      --
                      
                      
                      
                      
                      (16,844,057
                      )
                      
                      (16,842,282
                      )Gross
                          profit
                      
                      
                      --
                      
                      
                      
                      
                      52,141,044
                      
                      
                      46,402,975Selling,
                          general and administrative expenses
                      
                      
                      765,967
                      
                      
                      
                      
                      50,446,473
                      
                      
                      53,216,762Impairment
                          loss on equipment
                      
                      
                      --
                      
                      
                      
                      
                      --
                      
                      
                      771,048765,967
                      
                      
                      
                      
                      50,446,473
                      
                      
                      53,987,810(Loss)
                          income from operations
                      
                      
                      (765,967
                      )
                      
                      
                      
                      1,694,571
                      
                      
                      (7,584,835
                      )Other
                          income, net
                      
                      
                      --
                      
                      
                      
                      
                      (7,840
                      )
                      
                      --Interest
                          expense, net of interest income of   $104,251 and $133,830 -
                          June 29, 2005   and September 30, 2004,
                          respectively
                      
                      
                      --
                      
                      
                      
                      
                      (2,824,260
                      )
                      
                      (120,482
                      )Loss
                          before benefit for income taxes
                      
                      
                      (765,967
                      )
                      
                      
                      
                      (1,137,529
                      )
                      
                      (7,705,317
                      )Benefit
                          for income taxes
                      
                      
                      (310,000
                      )
                      
                      
                      
                      --
                      
                      
                      --Net
                          loss
                      
                      $
                      (455,967
                      )
                      
                      
                      
                      (1,137,529
                      )
                      
                      (7,705,317
                      )Pro
                          forma tax benefit (unaudited)
                      
                      
                      
                      
                      
                      
                      
                      (455,012
                      )
                      
                      (3,082,127
                      )Pro
                          forma net loss (unaudited)
                      
                      
                      
                      
                      
                      
                      $
                      (682,517
                      )
                      $
                      (4,623,190
                      )NET
                          LOSS PER SHARE:Net
                          loss per share - basic and diluted
                      
                      $
                      (0.22
                      )
                      
                      
                      
                      N/A
                      
                      
                      N/APro
                          forma net loss per share - basic and diluted (unaudited)
                      
                      
                      N/A
                      
                      
                      
                      $
                      (0.33
                      )
                      $
                      (2.21
                      )Weighted
                          average shares outstanding - basic and diluted
                      
                      
                      2,091,605
                      
                      
                      
                      
                      N/A
                      
                      
                      N/APro
                          forma weighted average shares outstanding - basic and diluted
                          (unaudited)
                      
                      
                      N/A
                      
                      
                      
                      
                      2,091,605
                      
                      
                      2,091,605
 
 PredecessorYear
                              Ended
                            December
                              31, 2003
                          
                          Year
                              Ended December 31, 2002RestatedNet
                              sales
                          
                          $
                          93,500,173
                          
                          $
                          98,362,744Cost
                              of sales
                          
                          
                          (29,274,097
                          )
                          
                          (36,153,419
                          )Gross
                              profit
                          
                          
                          64,226,076
                          
                          
                          62,209,325Selling,
                              general and administrative expenses
                          
                          
                          67,652,570
                          
                          
                          71,937,421Impairment
                              loss on equipment
                          
                          
                          --
                          
                          
                          --67,652,570
                          
                          
                          71,937,421(Loss)
                              income from operations
                          
                          
                          (3,426,494
                          )
                          
                          (9,728,096
                          )Other
                              income, net
                          
                          
                          385,992
                          
                          
                          253,980Interest
                              expense, net of interest income of $104,251 and $133,830
                              - June 29, 2005
                              and September 30, 2004, respectively
                          
                          
                          --
                          
                          
                          --Loss
                              before benefit for income taxes
                          
                          
                          (3,040,502
                          )
                          
                          (9,474,116
                          )Benefit
                              from Income taxes
                          
                          
                          --
                          
                          
                          --Net
                              loss
                          
                          $
                          (3,040,502
                          )
                          $
                          (9,474,116
                          )NET
                              LOSS PER SHARE:Net
                              loss per share - basic and diluted
                          
                          
                          N/A
                          
                          
                          N/AWeighted
                              average shares outstanding - basic and diluted
                          
                          
                          N/A
                          
                          
                          N/A
 See
              accompanying notes.
 
 
 F-7
 
 **RONCO
              CORPORATION AND SUBSIDIARY**
 
 **CONSOLIDATED
              AND COMBINED STATEMENTS OF STOCKHOLDERS’**
 **AND
              MEMBERS’ EQUITY (DEFICIENCY)**
 **PERIOD
              FROM OCTOBER 15, 2004 (DATE OF INCEPTION) TO JUNE 30,
              2005,**
 **NINE
              MONTHS ENDED JUNE 29, 2005 AND SEPTEMBER 30, 2004**
 **AND
              YEARS ENDED DECEMBER 31, 2003 AND 2002**
   **Successor:**
 Ronco
                              Corporation
                            Common
                              Stock
                          
                          Ronco
                              Corporation
                            Series
                              A Convertible Preferred StockShares
                          
                          Amount
                          
                          Shares
                          
                          Amount
                          
                          Common
                              Stock to be Issued
                          
                          Additional
                              Paid-in Capital
                          
                          Deferred
                              Compensation
                          
                          Accumulated
                              Deficit
                          
                          TotalBALANCE,
                              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
                          )
                          $
                          46,942,947
  **Predecessor:**
 Popeil
                          Inventions, Inc.
                        Common
                          Stock
                      
                      R.P.
                          Productions, Inc.
                        Common
                          StockShares
                      
                      Amount
                      
                      Shares
                      
                      Amount
                      
                      Additional
                        Paid-in
                          Capital
                      
                      Accumulated
                          Deficit
                      
                      Ronco
                          Inventions, LLC Members’ Deficit
                      
                      TotalBALANCE,
                          January 1, 2002
                      
                      
                      1,000
                      
                      $
                      1,000
                      
                      
                      100
                      
                      $
                      1
                      
                      $
                      1,194,375
                      
                      $
                      (16,030,483
                      )
                      $
                      (481,308
                      )
                      $
                      (15,316,415
                      )Reclassification
                      
                      
                      --
                      
                      
                      --
                      
                      
                      --
                      
                      
                      --
                      
                      
                      --
                      
                      
                      3,943,362
                      
                      
                      (3,943,362
                      )
                      
                      --Prior
                          period adjustment
                      
                      
                      --
                      
                      
                      --
                      
                      
                      --
                      
                      
                      --
                      
                      
                      --
                      
                      
                      (135,489
                      )
                      
                      (235,567
                      )
                      
                      (371,056
                      )January
                          1, 2002, As restated
                      
                      
                      1,000
                      
                      
                      1,000
                      
                      
                      100
                      
                      
                      1
                      
                      
                      1,194,375
                      
                      
                      (12,222,610
                      )
                      
                      (4,660,237
                      )
                      
                      15,687,471Net
                          loss (Restated)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (5,712,123
                      )
                      
                      (3,761,993
                      )
                      
                      (9,474,116
                      )Dividends
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (482,306
                      )
                      
                      --
                      
                      
                      (482,306
                      )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
                      
                      
                      37,527,241BALANCE,
                          June 29, 2005
                      
                      
                      --
                      
                      $
                      --
                      
                      
                      --
                      
                      $
                      --
                      
                      $
                      --
                      
                      $
                      --
                      
                      $
                      --
                      
                      $
                      --
   See
              accompanying notes.
 
 F-8
 
 **RONCO
              CORPORATION AND SUBSIDIARY**
   **CONSOLIDATED
              AND COMBINED STATEMENTS OF CASH FLOWS**
 **FOR
              ONE DAY (DATE OF ACQUISITION) JUNE 30, 2005,**
 **NINE
              MONTHS ENDED JUNE 29, 2005 AND SEPTEMBER 30, 2004**
 **AND
              YEARS ENDED DECEMBER 31, 2003 AND 2002**
 Successor
                        
                        
                        
                        PredecessorPeriod
                            for One day (Date of acquisition) June 30, 2005
                        
                        
                        
                        Nine
                            Months June 29, 2005
                        
                        Nine
                            Months September 30, 2004CASH
                            FLOWS FROM OPERATING ACTIVITIES:Net
                            loss
                        
                        $
                        (455,967
                        )
                        
                        
                        $
                        (1,137,529
                        )
                        $
                        (7,705,317
                        )Adjustments
                            to reconcile net loss to net cash (used in) provided
                            by operating
                            activities:Depreciation
                            and amortization
                        
                        
                        --
                        
                        
                        
                        
                        601,671
                        
                        
                        953,928Gain
                            on sale of property and equipment
                        
                        
                        --
                        
                        
                        
                        
                        --
                        
                        
                        --Impairment
                            loss on Tooling
                        
                        
                        --
                        
                        
                        
                        
                        --
                        
                        
                        771,048Bad
                            debt expense
                        
                        
                        --
                        
                        
                        
                        
                        --
                        
                        
                        1,474,147Deferred
                            income taxes
                        
                        
                        (310,000
                        )
                        
                        
                        
                        --
                        
                        
                        --Compensation
                            expense from the issuance of common stock
                        
                        
                        300,919
                        
                        
                        
                        
                        --
                        
                        
                        --Changes
                            in operating assets and liabilities, net of effect of
                            acquisition of
                            businesses:Accounts
                            receivable
                        
                        
                        --
                        
                        
                        
                        
                        1,214,221
                        
                        
                        4,612,403Inventories
                        
                        
                        --
                        
                        
                        
                        
                        2,497,350
                        
                        
                        (5,652,929
                        )Prepaid
                            expenses and other current assets
                        
                        
                        (210,490
                        )
                        
                        
                        
                        668,872
                        
                        
                        2,222,083Other
                            assets
                        
                        
                        --
                        
                        
                        
                        
                        (6,705
                        )
                        
                        (454,214
                        )Accounts
                            payable
                        
                        
                        --
                        
                        
                        
                        
                        (4,994,730
                        )
                        
                        206,150Accrued
                            expenses
                        
                        
                        --
                        
                        
                        
                        
                        2,798,142
                        
                        
                        177,827Royalty
                            and license fees payable
                        
                        
                        --
                        
                        
                        
                        
                        (580,027
                        )
                        
                        (40,380,573
                        )Deferred
                            income
                        
                        
                        --
                        
                        
                        
                        
                        (3,444,870
                        )
                        
                        2,548,315Net
                            cash (used in) provided by operating activities
                        
                        
                        (675,538
                        )
                        
                        
                        
                        (2,383,605
                        )
                        
                        (41,227,132
                        )CASH
                            FLOWS FROM INVESTING ACTIVITIES:Property
                            and equipment purchased
                        
                        
                        --
                        
                        
                        
                        
                        (453,519
                        )
                        
                        (243,084
                        )Proceeds
                            from sale of property and equipment
                        
                        
                        --
                        
                        
                        
                        
                        --
                        
                        
                        --Deposit
                            received on acquisition of Successor
                        
                        
                        --
                        
                        
                        
                        
                        100,000
                        
                        
                        --Proceeds
                            from investment in securities
                        
                        
                        --
                        
                        
                        
                        
                        500,000
                        
                        
                        500,003Acquisition
                            of businesses, net of cash acquired of $12,293
                        
                        
                        (44,934,093
                        )
                        
                        
                        
                        --
                        
                        
                        --Net
                            cash (used in) provided by investing activities
                        
                        
                        (44,934,093
                        )
                        
                        
                        
                        146,481
                        
                        
                        256,919CASH
                            FLOWS FROM FINANCING ACTIVITIES:Proceeds
                            from loans from stockholder and affiliate
                        
                        
                        --
                        
                        
                        
                        
                        --
                        
                        
                        39,150,000Proceeds
                            from note payable
                        
                        
                        391,810
                        
                        
                        
                        
                        --
                        
                        
                        --Payments
                            on note payable
                        
                        
                        (391,810
                        )
                        
                        
                        
                        --
                        
                        
                        --Net
                            advances to affiliates
                        
                        
                        --
                        
                        
                        
                        
                        12,339
                        
                        
                        (81,436
                        )Dividends
                            paid
                        
                        
                        --
                        
                        
                        
                        
                        --
                        
                        
                        --Proceeds
                            from issuance of preferred stock, net of issuance costs
                            of
                            $3,570,460
                        
                        
                        46,429,540
                        
                        
                        
                        
                        --
                        
                        
                        --Issuance
                            of common stock
                        
                        
                        14,449
                        
                        
                        
                        
                        --
                        
                        
                        --Net
                            cash provided by (used in) financing activities
                        
                        
                        46,443,989
                        
                        
                        
                        
                        12,339
                        
                        
                        39,068,564NET
                            INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        834,358
                        
                        
                        
                        
                        (2,224,785
                        )
                        
                        (1,901,649
                        )CASH
                            AND CASH EQUIVALENTS, Beginning of Period
                        
                        
                        --
                        
                        
                        
                        
                        2,421,984
                        
                        
                        4,323,633CASH
                            AND CASH EQUIVALENTS, End of Period
                        
                        $
                        834,358
                        
                        
                        
                        $
                        197,199
                        
                        $
                        2,421,984SUPPLEMENTAL
                            DISCLOSURE OF CASH FLOW INFORMATION:Cash
                            paid during the period for:Income
                            taxes
                        
                        $
                        --
                        
                        
                        
                        $
                        1,600
                        
                        $
                        1,600SUPPLEMENTAL
                            SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: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.
  F-9
  **CONSOLIDATED
                  AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)**
 **FOR
                  ONE DAY (DATE OF ACQUISITION) JUNE 30, 2005,**
 **NINE
                  MONTHS ENDED JUNE 29, 2005 AND SEPTEMBER 30, 2004**
 **AND
                  YEARS ENDED DECEMBER 31, 2003 AND 2002**
 PredecessorYear
                          Ended
                        December
                          31, 2003
                      
                      Year
                          Ended December 31, 2002 (Restated)CASH
                          FLOWS FROM OPERATING ACTIVITIES:Net
                          loss
                      
                      $
                      (3,040,502
                      )
                      $
                      (9,474,116
                      )Adjustments
                          to reconcile net loss to net cash (used in) provided by
                          operating
                          activities:Depreciation
                          and amortization
                      
                      
                      1,391,671
                      
                      
                      1,151,112Gain
                          on sale of property and equipment
                      
                      
                      (624
                      )
                      
                      --Impairment
                          loss on equipment
                      
                      
                      --
                      
                      
                      --Bad
                          debt expense
                      
                      
                      3,691,009
                      
                      
                      760,036Deferred
                          income taxes
                      
                      
                      --
                      
                      
                      --Compensation
                          expense from the issuance of common stock
                      
                      
                      --
                      
                      
                      --Changes
                          in operating assets and liabilities, net of effect of acquisition
                          of
                          businesses:Accounts
                          receivable
                      
                      
                      (4,361,600
                      )
                      
                      2,819,279Inventories
                      
                      
                      1,338,015
                      
                      
                      (2,205,155
                      )Prepaid
                          expenses and other current assets
                      
                      
                      (57,213
                      )
                      
                      (2,056,737
                      )Other
                          assets
                      
                      
                      (361,481
                      )
                      
                      137,235Accounts
                          payable
                      
                      
                      1,030,675
                      
                      
                      (249,511
                      )Accrued
                          expenses
                      
                      
                      237,059
                      
                      
                      (2,390,712
                      )Royalty
                          and license fees payable
                      
                      
                      1,497,327
                      
                      
                      9,303,930Deferred
                          income
                      
                      
                      (704,893
                      )
                      
                      (771,884
                      )Net
                          cash (used in) provided by operating activities
                      
                      
                      659,443
                      
                      
                      (2,976,523
                      )CASH
                          FLOWS FROM INVESTING ACTIVITIES:Property
                          and equipment purchased
                      
                      
                      (555,842
                      )
                      
                      (1,330,786
                      )Proceeds
                          from sale of property and equipment
                      
                      
                      1,000
                      
                      
                      --Deposit
                          received on acquisition of Successor
                      
                      
                      --
                      
                      
                      --Proceeds
                          from investment in securities
                      
                      
                      --
                      
                      
                      111,691Acquisition
                          of businesses, net of cash acquired of $12,293
                      
                      
                      --
                      
                      
                      --Net
                          cash (used in) provided by investing activities
                      
                      
                      (554,842
                      )
                      
                      (1,219,095
                      )CASH
                          FLOWS FROM FINANCING ACTIVITIES:Proceeds
                          from loans from stockholder and affiliate
                      
                      
                      --
                      
                      
                      --Proceeds
                          from note payable
                      
                      
                      --
                      
                      
                      750,000Payments
                          on note payable
                      
                      
                      (375,000
                      )
                      
                      (375,000
                      )Net
                          advances to affiliates
                      
                      
                      11,600
                      
                      
                      (56,315
                      )Dividends
                          paid
                      
                      
                      --
                      
                      
                      (482,306
                      )Proceeds
                            from issuance of preferred stock, net of issuance costs
                            of
                            $3,570,460
                      
                      
                      --
                      
                      
                      --Issuance
                          of common stock
                      
                      
                      --
                      
                      
                      --Net
                          cash provided by (used in) financing activities
                      
                      
                      (363,400
                      )
                      
                      (163,621
                      )NET
                          INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                      
                      
                      (258,799
                      )
                      
                      (4,359,239
                      )CASH
                          AND CASH EQUIVALENTS, Beginning of Period
                      
                      
                      4,582,432
                      
                      
                      8,941,671CASH
                          AND CASH EQUIVALENTS, End of Period
                      
                      $
                      4,323,633
                      
                      $
                      4,582,432SUPPLEMENTAL
                          DISCLOSURE OF CASH FLOW INFORMATION:Cash
                          paid during the period for:Income
                          taxes
                      
                      $
                      1,600
                      
                      $
                      1,600
   See
              accompanying notes.
 
 F-10


**Table
            of Contents**
 **Index
            to Financial Statements**


**RONCO
      CORPORATION AND SUBSIDIARY**




**NOTES
      TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS**




**NOTE
      1 - 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.





F-11
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED**




**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
      and
      2002. For comparative purposes we have shown below the unaudited financial
      statement for the nine months ended June 30, 2004 and September 30,
      2003.




9
                Months Ended 6/29/05
            
            9
                Months Ended 6/30/04
            
            9
                Months Ended 9/30/2004
            
            9
                Months Ended 9/30/2003(Unaudited)
            
            
            
            (Unaudited)Net
                sales
            
            $
            68,985,101
            
            $
            92,823,959
            
            $
            63,245,257
            
            $
            42,195,654Cost
                of goods sold
            
            
            (16,844,057
            )
            
            (27,312,386
            )
            
            (16,842,282
            )
            
            (14,271,989
            )Gross
                Profit
            
            
            52,141,044
            
            
            65,511,573
            
            
            46,402,975
            
            
            27,923,665Selling
                and general administrative expenses
            
            
            50,446,473
            
            
            71,762,668
            
            
            53,216,762
            
            
            31,194,972Impairment
                loss on equipment
            
            
            
            
            
            
            
            
            771,048Operating
                income (loss)
            
            
            1,694,571
            
            
            (6,251,095
            )
            
            (7,584,835
            )
            
            (3,271,307
            )Interest
                income (expense), net
            
            
            (2,824,260
            )
            
            49,946
            
            
            (120,482
            )
            
            158,836Other
                Income (expense)
            
            
            (7,840
            )
            
            (131,977
            )
            
            --
            
            
            --Net
                Loss
            
            
            (1,137,529
            )
            
            (6,333,126
            )
            
            (7,705,317
            )
            
            (3,112,471
            )Pro
                forma income tax benefit (unaudited)
            
            
            455,012
            
            
            2,533,250
            
            
            3,082,127
            
            
            1,244,988Pro
                forma net loss (unaudited)
            
            $
            (682,517
            )
            $
            (3,799,876
            )
            $
            (4,623,190
            )
            $
            (1,867,483
            )Pro
                forma net loss per share (unaudited)
            
            $
            (0.33
            )
            $
            (1.82
            )
            $
            (2.21
            )
            $
            (0.89
            )Pro
                forma weighted shares outstanding (unaudited)
            
            
            2,091,605
            
            
            2,091,605
            
            
            2,091,605
            
            
            2,091,605







F-12
 **Table
            of Contents**
 **Index
            to Financial Statements**


**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents include all short-term, highly liquid investments purchased
      with original maturities of three months or less.


**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.




For
      the
      nine months ended June 29, 2005 and September 30, 2004 and for the years ended
      December 31, 2003 and 2002, the Seller Entities generated approximately 99%,
      98%, 92% and 96% of sales, respectively, from two kitchen products. The Seller
      Entities total sales are comprised of direct response and wholesale business
      of
      approximately 81% and 19%, 80% and 20%, 74% and 26%, and 74% and 26% for the
      nine months ended June 29, 2005 and September 30, 2004 and the years ended
      December 31, 2003 and 2002, 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 combined
      balance sheet for September 30, 2004. At June 30, 2005, deferred revenue has
      been recorded at fair value in accordance with purchase accounting, see Note
      2.




The
      Company and Seller Entities do not accrue warranty costs, since such were
      insignificant for the nine months ended June 29, 2005 and September 30, 2004
      and
      for the years ended December 31, 2003 and 2002.








F-13
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED**


**Shipping
      and Handling Costs**




Shipping
      and handling costs are included in selling, general and administrative expenses.
      For the nine months ended June 29, 2005 and September 30, 2004, and for the
      years ended December 31, 2003 and 2002 shipping and handling costs approximated
      $7,124,000, $7,491,000, $8,468,000, $7,323,000, respectively.




**Investments**


Successor
      - 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 2. The Company determines
      specific identification for computing realized gains or losses for securities
      sold.




Predecessor
      - The Seller Entities have classified their 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. The Seller Entities determine
      specific identification for computing realized gains or losses for securities
      sold.




***Stock-Based
        Compensation***
  The
        Company uses the intrinsic value method to account for stock-based compensation
        in accordance with Accounting Principals Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees”. Compensation costs for the Company’s
        stock grants have been determined based on the fair value at the grant dates
        of
        the awards less the price paid for the stock. In addition, as of June 30,
        2005
        the Company did not issue any stock options.
  **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.


**Property
      and Equipment**


Successor
      - At June 30, 2005, the Company has accounted for property and equipment at
      fair
      value in accordance with purchase accounting, see Note 2. 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.




Predecessor
      - The Seller Entities policy is to record property and equipment at cost. The
      Seller Entities provide 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 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.








F-14
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED**


**Goodwill
      and Acquired Intangibles**




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:




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




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




o
            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.




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 has not been recorded since the Acquisition occurred on
      June 30, 2005, see Note 2.




Trademarks
      have an indefinite life.


**Production
      Costs**


Successor
      - At June 30, 2005, the Company has accounted for production costs at fair
      value
      in accordance with purchase accounting, see Note 2. The production costs of
      infomercials are amortized on a straight-line basis using an estimated useful
      life of three years.




Predecessor
      - The Seller Entities amortize the production costs of infomercials on a
      straight-line basis based 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.





F-15
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED**


**Income
      Taxes - Continued**


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. For comparative purposes, for the nine months ended June 29, 2005 and
      September 30, 2004 the Company used an effective tax rate of 40% to calculate
      the pro forma tax benefit.




**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 $29,907,000, $31,096,000, $29,419,000, and
      $35,200,000 for the nine months ended June 29, 2005 and September 30, 2004
      and
      years ended December 31, 2003 and 2002, respectively.


**Fair
      Value of Financial Instruments**




Successor
      - The carrying amounts of significant financial instruments, which includes
      accounts receivable, accounts payable and accrued expenses are at fair value
      as
      of June 30, 2005 in accordance with purchase accounting, see Note
      2.




Predecessor
      - The carrying amounts of significant financial instruments, which includes
      accounts receivable, accounts payable and accrued expenses, approximated fair
      value as of September 30, 2004 due to their short-term maturities. Fair value
      of
      related party loans cannot be determined due to lack of similar instruments
      available to the Seller Entities.


**Loss
      Per Share**




Successor
      - Basic and diluted net loss per share information for 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 and warrants convertible into an aggregate
      of
      approximately 13,529,000 of common shares as of June 30, 2005, 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,
      2005
      and years ended December 31, 2003 and 2002 is not applicable to the Seller
      Entities as they were a combination of privately held companies that were
      different legal entities, and accordingly, the weighted-average number of common
      shares outstanding is not determinable. For comparative purposes the Company
      calculated earnings per share on a Pro forma basis using the outstanding common
      shares of 2,091,605 as of June 30, 2005 for the nine months ended June 29,
      2005
      and September 30, 2004 as the weighted-average common shares
      outstanding.





F-16
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED**


**Accounting
      Pronouncements**




In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
      APB No. 43, Chapter 4.” SFAS No. 151 retains the general principle of APB 43,
      Chapter 4, “Inventory Pricing (AC Section I78),” that inventories are presumed
      to be stated at cost; however, it amends APB 43 to clarify that abnormal amounts
      of idle facility expense, freight, handling costs, and wasted materials
      (spoilage) should be recognized as current-period charges and requires the
      allocation of fixed production overheads to inventories based on the normal
      capacity of the production facilities. The guidance is effective for inventory
      costs incurred during fiscal years beginning after June 15, 2005. Earlier
      application is permitted for inventory costs incurred during fiscal years
      beginning after November 23, 2004. The Company has evaluated SFAS No. 151 and
      it
      does not anticipate that the adoption of SFAS No. 151 will have a significant
      impact on the Company’s overall results of operations or financial
      position.




In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which
      establishes standards for transactions in which an entity exchanges its equity
      instruments for goods or services. This standard requires a public entity to
      measure the cost of employee services received in exchange for an award of
      equity instruments based on the grant date fair value of the award. This
      eliminates the exception to account for such awards using the intrinsic method
      previously allowable under APB Opinion No. 25. SFAS No. 123 (R) will be
      effective for the interim period beginning July 1, 2005. The Company anticipates
      that the adoption will have an effect on the Company’s results of
      operations.




In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 20, Accounting for Nonmonetary Transactions.”
The amendments made by SFAS No. 153 are based on the principle that exchanges
      of
      nonmonetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. A nonmonetary exchange has commercial substance if the future cash
      flows of the entity are expected to change significantly as a result of the
      exchange. This statement shall be applied prospectively and is effective for
      nonmonetary asset exchanges occurring in fiscal periods beginning after June
      15,
      2005. Earlier application is permitted for nonmonetary asset exchanges occurring
      in fiscal periods beginning after the date of issuance. The Company does not
      anticipate that the adoption of SFAS No. 153 will have a significant impact
      on
      the Company’s overall results of operations or financial position.


In
      May
      2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” that
      applies to all voluntary changes in accounting principle. This Statement
      requires retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless it is impracticable to determine either
      the period-specific effects or the cumulative effect of the change. When it
      is
      impracticable to determine the period-specific effects of an accounting change
      on one or more individual prior periods presented, this Statement requires
      that
      the new accounting principle be applied to the balances of assets and
      liabilities as of the beginning of the earliest period for which retrospective
      application is practicable and that a corresponding adjustment be made to the
      opening balance of retained earnings (or other appropriate components of equity
      or net assets in the statement of financial position) for that period rather
      than being reported in an income statement. When it is impracticable to
      determine the cumulative effect of applying a change in accounting principle
      to
      all prior periods, this Statement requires that the new accounting principle
      be
      applied as if it were adopted prospectively from the earliest date practicable.
      SFAS 154 will be effective for the Company for fiscal year ended June 30, 2007.
      The Company does not anticipate that the adoption of SFAS No. 154 will have
      an
      impact on the Company’s overall results of operations or financial
      position.







F-17
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      2 - 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 of net value of the acquired assets, resulted in approximately
      $3,142,000 reduction to the promissory notes.




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 is 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.




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.





F-18
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      3 - ACQUIRED INTANGIBLE ASSETS**




In
      connection with the Acquisition of the Seller Entities and Popeil, the Company
      recorded intangible assets as follows:


Amortizable
                Intangibles:Patents
            
            $
            9,890,000Customer
                relationships
            
            
            5,680,000Popeil
                consulting agreement
            
            
            5,663,600Total
                amortizable intangibles
            
            $
            21,233,600Unamortizable
                intangible assets:Trademarks
            
            $
            21,690,000Goodwill
            
            
            2,953,481Total
                unamortizable intangibles
            
            $
            24,643,481Estimated
                amortization expense:For
                year ending June 30, 2006
            
            $
            5,946,000For
                year ending June 30, 2007
            
            $
            4,199,000For
                year ending June 30, 2008
            
            $
            2,452,000For
                year ending June 30, 2009
            
            $
            565,000For
                year ending June 30, 2010
            
            $
            565,000





**NOTE
      4 - 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
      Seller Entities purchased approximately 99% and 94% of merchandise from 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 years ended December 31, 2003 and 2002,
      respectively. These vendors have suppliers and manufacturing locations in Korea
      and China.





F-19
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      5 - INVESTMENTS**




Successor
      - At June 30, 2005, investments classified as held to maturity consisted of
      obligations of states and political subdivisions, including municipal bonds,
      which are valued at amortized cost which is equivalent to fair value of
      $1,627,823.




Scheduled
      maturities of securities classified as held to maturity at June 30, 2005 were
      as
      follows:


Due
                in:2007
            
            $
            30,0012008
            
            
            1,026,0402015
            
            
            120,5522018
            
            
            425,1242019
            
            
            26,106$
            1,627,823




In
      October 2005, the municipal bond valued at $1,026,040 was
      called.


Predecessor
      - Investments classified as held to maturity are as follows at September 30,
      2004:


Amortized
                  Cost
              
              Gross
                  Unrealized Gains
              
              Gross
                   Unrealized Losses
              
              Fair
                  ValueObligations
                  of states and political subdivisions, including municipal
                  bonds
              
              $
              2,061,107
              
              $
              140,443
              
              $
              --
              
              $
              2,201,550




All
      investments are pledged to a bank as collateral (see Note 11).




**NOTE
      6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS**




Prepaid
      expenses and other current assets consisted of the following at June 30, 2005
      and September 30, 2004:


Successor
                    June
                      30, 2005
                  
                  Predecessor
                    September
                      30, 2004Prepaid
                      advertising
                  
                  $
                  1,474,447
                  
                  $
                  1,691,127Deposits
                  
                  
                  716,232
                  
                  
                  683,219Prepaid
                      insurance
                  
                  
                  210,490
                  
                  
                  377,956Other
                  
                  
                  136,337
                  
                  
                  253,327$
                  2,537,506
                  
                  $
                  3,005,629





F-20
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      7 - ACCRUED EXPENSES**




Accrued
      expenses consisted of the following at June 30, 2005 and September 30,
      2004:


Successor
                June
                  30, 2005
              
              Predecessor
                September
                  30, 2004Accrued
                  payroll, related expenses and fringe benefits
              
              $
              --
              
              $
              287,541Accrued
                  sales tax payable
              
              
              --
              
              
              61,746Accrued
                  interest
              
              
              11,080
              
              
              246,699Finder
                  and promoter fees
              
              
              150,000
              
              
              --Other
              
              
              269,171
              
              
              229,402$
              430,251
              
              $
              825,388
  **NOTE
        8 - PROPERTY AND EQUIPMENT**




Property
      and equipment consisted of the following at June 30, 2005 and September 30,
      2004:




Successor
                June
                  30, 2005
              
              Predecessor
                September
                  30, 2004Transportation
                  equipment
              
              $
              62,000
              
              $
              1,162,442Office
                  furniture and equipment
              
              
              388,000
              
              
              2,298,689Tooling
              
              
              475,000
              
              
              274,529Leasehold
                  improvements
              
              
              --
              
              
              570,574925,000
              
              
              4,306,234Less:
                  Accumulated depreciation and amortization
              
              
              --
              
              
              3,052,431$
              925,000
              
              $
              1,253,803




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, $1,199,000 and
      $1,151,000, for the nine months ended June 29, 2005 and September 30, 2004
      and
      years ended December 31, 2003 and 2002, respectively.




**NOTE
      9 - DEFERRED INCOME**




Successor
      - At June 30, 2005, the Company accounted for deferred income at fair value
      in
      accordance with purchase accounting, see Note 2, which was valued at
      $75,000.


Predecessor
      - As of September 30, 2004, deferred income consists of unamortized extended
      service contracts amounting to $2,482,799 and cash received on unshipped orders
      of $3,261,787. For the nine months ended June 29, 2005 and September 30, 2004
      and for the years ended December 31, 2003 and 2002, revenues generated from
      extended services contracts were approximately $1,008,000, $1,183,000,
      $2,263,000, and $2,850,000, respectively.





F-21
 **Table
            of Contents**
 **Index
            to Financial Statements**


**NOTE
      10 - STOCKHOLDERS’ EQUITY**


**Successor:**




**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
      86% ownership 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 preferential
      dividends at the rate of $0.1885 per share per annum, payable annually on each
      anniversary date of issuance, as defined.




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.


**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 within 90 days after
      the
      closing (the date being October 28, 2005). In the event that the Company is
      unable to meet this filing deadline, the Company will be 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, or $500,000, until
      the Company has cured the deadline default, as defined.




**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 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.





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. These
      shares are subject to repurchase by the Company, at the Company’s option, at
      $.01 per share, exercisable upon the termination of the CEO’s employment,
      voluntarily or for “cause,” or if certain performance targets are not satisfied,
      as defined.





F-22
 **Table
            of Contents**
 **Index
            to Financial Statements**




On
      June
      30, 2005, in connection with an employment agreement, the Company sold 160,063
      shares 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 June 30, 2005 (Date of Acquisition), and the
      remainder of $300,919 has been recorded as deferred compensation and is being
      amortized over three years based on CFO’s contract.




The
      Company has the option to repurchase 50% of these shares (82,032) 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.


**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.




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. 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.


**Predecessor:**




Net
      losses of the LLC are allocated to the members first in amounts equal to
      cumulative net losses previously allocated and in proportion to their membership
      interest, which are 99% for one member and 1% for the other. Net losses of
      the
      LLC are allocated to members first in amounts equal to each member’s pro rata
      share of net profits previously allocated, second, in proportion to each
      member’s positive capital accounts until such capital accounts are reduced to
      zero, and third, in proportion to their membership interest until the capital
      accounts are reduced to zero and then to the member with the largest percentage
      interest.




**NOTE
      11 - LETTER OF CREDIT**




Predecessor
      - The Seller Entities entered into an $8,000,000 letter of credit agreement
      with
      a bank for the opening of letters of credit plus any liability created by the
      payments of drafts drawn by the letter of credit. The agreement matures on
      March
      31, 2006, as amended. The liability created by the payments of drafts drawn
      by
      the letters of credit bears interest at the rate of 4% per annum.




The
      Seller Entities have pledged as collateral to the bank its investments,
      certificates of deposit and money market accounts. The minimum collateral base
      amount is $1,000,000, as amended. The agreement requires that the amount of
      collateral be equal to, or exceed, the amount of outstanding letters of credit
      plus any liability created by the payment of drafts drawn by the letters of
      credit. There was no liability created by the payment of drafts drawn by the
      letters of credit at June 29, 2005. The letter of credit agreement was
      terminated on June 29, 2005.




**NOTE
      12 - LONG-TERM DEBT**


Long-term
      debt consists of the following:




Promissory
                notes to Seller Entities
            
            $
            13,158,180Less
                estimated current maturities
            
            
            2,876,000$
            10,282,180





F-23
 **Table
            of Contents**
 **Index
            to Financial Statements**




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 2. 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 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.




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.




The
      estimated annual maturity of these promissory notes for the year ending June
      30,
      2006 is $2,876,000, which is based on management’s estimate of the products to
      be shipped in the next year and applying the per-unit dollar amount per the
      promissory notes. As these promissory notes are an estimate based on volumes
      of
      products shipped, as described above, the Company has not estimated the annual
      maturities after the current year ending June 30, 2006.




**NOTE
      13 - INCOME TAXES**




The
      benefit for income taxes for June 30, 2005 (date of acquisition) consisted
      of the following:




Current
            
            $
            --Deferred:Federal
            
            
            (241,000
            )State
            
            
            (69,000
            )Total
                deferred
            
            
            (310,000
            )Benefit
                for income taxes
            
            $
            (310,000
            )




The
      income tax effects of significant items, comprising the Company’s net deferred
      income tax assets and liabilities, are as follows:




SuccessorJune
                30, 2005Deferred
                income tax assets:Net
                operating loss carry forwards
            
            $
            433,000Deferred
                income tax liability:Difference
                between book and taxbasis
                of depreciation and amortization
            
            
            123,000Net
                deferred income tax asset
            
            $
            310,000





F-24
 **Table
            of Contents**
 **Index
            to Financial Statements**




Reconciliation
      of the U.S. statutory rate with the Company’s effective tax benefit is
      summarized as follows:




June
                30, 2005
              (Date
                of Aquisition)Federal
                statutory tax benefit
            
            
            (34
            )%State
                income tax benefit, net of federal tax benefit
            
            
            (6
            )Effective
                tax benefit
            
            
            (40
            )%




As
      of
      June 30, 2005, the Company had net operating loss carryforwards 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 carryforwards
      amounted to approximately $1,088,000 and expire during the years 2025 and 2015,
      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
      14 - PRODUCT DEVELOPMENT AND LICENSE AGREEMENTS**




Predecessor
      - The Seller Entities entered into a product development agreement with a third
      party who co-invented the Showtime 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
      years
      ended December 31, 2003 and 2002, the Seller Entities recorded income (expense)
      from the reimbursement of losses (payment of product development fees) of
      approximately $468,000, $1,407,000, ($1,777,000) and $1,097,000, 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 years ended
      December 31, 2003 and 2002 amounted to approximately $3,251,000, $10,004,000,
      and $11,346,000, respectively. In December 2004, the license agreements were
      amended and terminating them effective August 31, 2004.




At
      September 30, 2004, the Seller Entities had product development and license
      fees
      payable to these two unrelated third parties in the amount of approximately
      $7,310,000.




**NOTE
      15 - RESTATEMENT - 2002 and 2001**




**Reclassification**




The
      accumulated deficit of the Seller Entities has been reclassified in the amount
      of $3,943,362 to reflect the portion of the losses for RI were included in
      accumulated deficit in the prior year’s combined financial
      statements.




**Prior
      Period Adjustment**




The
      Seller Entities restated its depreciation and amortization expense for 2001
      and
      2002 for errors. The amortization periods used for leasehold improvements and
      the calculation of accelerated depreciation of equipment were corrected. The
      effects of correction are as follows:




Total
                  stockholders' and members' deficiency, December 31, 2001, as previously
                  reported
              
              $
              (15,316,415
              )Correction
                  of amortization of leasehold improvements
              
              
              (371,056
              )Accumulated
                  and members deficit, December 31, 2001, as restated
              
              
              (15,687,471
              )Net
                  income, as restated
              
              
              (9,474,116
              )Dividends
              
              
              (482,306
              )Total
                  stockholders and members deficiency, December 31, 2002, as
                  restated
              
              $
              (25,643,893
              )Net
                  loss, December 31, 2002, as previously reported
              
              $
              (10,094,336
              )Correction
                  of amortization of leasehold improvements and accelerated
                  depreciation
              
              
              (620,220
              )Net
                  loss, December 31, 2002, as restated
              
              $
              (9,474,116
              )







F-25
 **Table
            of Contents**
 **Index
            to Financial Statements**




**NOTE
      16 - COMMITMENTS AND CONTINGENCIES**




**Leases**




The
      Company and Seller Entities lease its facilities on a month-to-month basis
      with
      a six month early termination notice. Other premises and equipment are leased
      on
      a month-to-month basis.




Predecessor
      - Rent expense under operating leases, including related party rent, for the
      nine months ended June 29, 2005 and September 30, 2004 and for the years ended
      December 31, 2003 and 2002 were approximately $324,000, $303,000, $403,000
      and
      $413,000, respectively.




The
      Seller Entities lease office space from related party, Popeil. Rent expense
      paid
      to this related party under the month-to-month lease was $45,000, $45,000,
      $60,000 and $60,000 for the nine months ended June 29, 2005 and September 30,
      2004 and for the years ended December 31, 2003 and 2002,
      respectively.


**Employment
      Agreements**




The
      Company has employment agreements with certain executives and a key employee
      which, among other things, require the Company to make severance payments and
      provide other benefits to the executives and a key employee in the event of
      their termination or effective disposition, as defined.




**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.





F-26
 **Table
            of Contents**
 **Index
            to Financial Statements**




**Litigation**




The
      Company is, from time to time, the subject of litigation, claims and assessments
      arising out of matters occurring in its normal business operations. In the
      opinion of management, resolution of these matters will not have a material
      adverse effect on the Company’s consolidated financial position, operations and
      cash flows.




**NOTE
      17 - RELATED PARTY TRANSACTIONS**




Successor
      - As part of the Acquisition, the Company has a due from the Seller Entities
      of
      approximately $136,000 for assets that were not transferred at June 30, 2005.
      These current assets are non-interest bearing and are due on
      demand.




**Relationships
      Regarding the Acquisition**




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 of the Company 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, see
      Note
      10.




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.




**Predecessor
      Transactions:**




**Loans
      Payable**




In
      September 2004, RMP Family Trust, the stockholder of RPP and PII, Popeil, the
      primary beneficiary of the trust, and affiliated entities loaned the Seller
      Entities $8,500,000 $28,750,000 and $1,900,000 respectively. These loans are
      evidenced by promissory notes, which bear interest at 10% per annum and are
      due
      on September 7, 2007. The proceeds from these loans were used to pay off the
      balance owed by the Seller Entities for license fees outstanding as of December
      31, 2003. Interest expense related to these loans was approximately $2,929,000
      and $247,000 for the nine months ended June 29, 2005 and September 30, 2004,
      respectively. This amount is included in accrued expenses at September 30,
      2004.
      These loans were not assumed by the Company.




**Due
      from Affiliate**




At
      September 30, 2004, a non-interest bearing advance in the amount of
      approximately $190,000 was due from Popeil. This advance was not assumed by
      the
      Company.




**Due
      to Affiliates**




At
      September 30, 2004, the amount due to companies affiliated through common
      ownership for advances was approximately $120,000. Such advances are
      non-interest bearing and are due on demand. These advances were not assumed
      by
      the Company. During the nine months ended June 29, 2005 and September 30, 2004
      and years ended December 31, 2003 and 2002, the Company paid approximately
      $113,000, $108,000, $123,000 and $81,000, respectively, of consulting fees
      to an
      entity owned by an officer of the Seller Entities.





F-27
 **Table
            of Contents**
 **Index
            to Financial Statements**




**NOTE
      18 - STOCK OPTION PLAN**




The
      Company expects to adopt a stock option plan, under which it may grant employees
      nonqualified options to purchase shares of the Company’s common stock. As
      of June 30, 2005, the Company had not issued any options to any employees or
      directors.




**NOTE
      19 - EMPLOYEE BENEFIT PLAN**




The
      Seller Entities 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 Seller Entities do not provide for matching contributions.




**NOTE
      20 - SUBSEQUENT EVENT**




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 the Company agreed to sell and
      assign, certain accounts receivable owing to the Company, together with all
      rights of action accrued or to accrue thereon. Under the terms of the Agreement,
      upon the receipt and acceptance of each assignment of Accounts, Prestige shall
      pay the Company 75% of the face amount of the Accounts so assigned. The advance
      rate under the Agreement shall increase to 80% of the face amount of the
      Accounts assigned if the event of dilution of the Accounts is less than five
      percent for the first 60 days of the term of the Agreement. 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.
      The initial term of the Agreement expires on May 1, 2006, but the Agreement
      will
      thereafter be automatically extended for additional one-year terms unless a
      party provides written notice of cancellation at least sixty days prior to
      the
      expiration of the initial or renewal term.




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.




On
      September 30, 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 the
      Company’s corporate bonds. The borrowings bear interest at 1% above
      LIBOR.





F-28