<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-Q/A
                                (Amendment No. 1)

(Mark One)

[X]   Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
      Exchange Act Of 1934 For the Quarterly Period Ended October 2, 2004 or

[ ]   Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
      Exchange Act Of 1934 For the Transition Period From __________ to
      _________.

      Commission file number: 0-19557

                                  Salton, Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                                       36-3777824
-----------------------------------------                -----------------------
     (State of other jurisdiction of                         (I.R.S. Employer
      Incorporation or organization)                      Identification Number)

            1955 Field Court                                     60045
            Lake Forest, IL                                    (Zip Code)
(Address of principal executive offices)

                                 (847) 803-4600
              (Registrant's telephone number, including area code)

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  [ ]

Indicate by the check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

       Yes  [X]           No  [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 8, 2004,
11,371,197 shares of its $0.01 par value Common Stock.

<PAGE>

                                EXPLANATORY NOTE

Salton, Inc. (the "Company") is filing this Amendment No. 1 to its Form 10-Q for
the quarterly period ended October 2, 2004, originally filed November 12, 2004
(the "Form 10-Q"), principally to reflect the restatement to reclassify the
Company's convertible preferred stock. As described in Note 11, subsequent to
the issuance of the Company's condensed consolidated financial statements for
the quarter ended October 2, 2004, the Company has determined that it is
necessary to restate its condensed consolidated balance sheets for all periods
presented. The restatement changes the classification of the convertible
preferred stock to a separate line item apart from permanent equity, as
redemption thereof in shares of common stock is outside of the Company's control
in accordance with the guidance of Emerging Issues Task Force Topic No. D-98
"Classification and Measurement of Redeemable Securities". The changes in
classification had no effect on the Company's previously reported net income,
earnings per share or net cash flows. Current and historic debt covenants were
also unaffected.

This Amendment No. 1 contains changes to the following disclosures:

      -     Part I - Item 1. Financial Statements

      -     Part I - Item 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations

      -     Part I - Item 4. Controls and Procedures

      -     Part II - Item 6. Exhibits

On June 23, 2005, the Company entered into an agreement in
principle with Angelo, Gordon & Co., L.P., as discretionary investment manager
for and on behalf of certain investment funds and accounts which beneficially
own approximately $41.3 million or 33% of Salton's outstanding 10-3/4% Senior
Subordinated Notes due December 15, 2005, to participate in a private debt
exchange offer for the outstanding 2005 Notes and the outstanding 12-1/4% Senior
subordinated notes due April 15, 2008. Refer to the Current Report on Form 8-K
filed on June 28, 2005.

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                                                        PAGE NO.
                                                                                        --------
<S>                                                                                     <C>
PART I            FINANCIAL INFORMATION

         Item 1:  Financial Statements

                  Condensed Consolidated Balance Sheets - October 2, 2004 and July      4
                  3, 2004 (as restated, see Note 11)

                  Condensed Consolidated Statements of Income - Thirteen weeks ended    5
                  October 2, 2004 and September 27, 2003

                  Condensed Consolidated Statements of Cash Flows - Thirteen weeks      6
                  ended October 2, 2004 and September 27, 2003(as restated, see Note
                  11)

                  Notes to Condensed Consolidated Financial Statements                  7

         Item 2:  Management's Discussion and Analysis of Financial Condition and       19
                  Results of Operations

         Item 3:  Quantitative and Qualitative Disclosures About Market Risk            27

         Item 4:  Controls and Procedures                                               27

PART II           OTHER INFORMATION

         Item 1:  Legal Proceedings                                                     28

         Item 6:  Exhibits                                                              32

                  Signature                                                             31
</TABLE>

                                       3
<PAGE>

PART I

ITEM 1. FINANCIAL STATEMENTS.

                                  SALTON, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                             OCTOBER 2, 2004   JULY 3, 2004
                                                                               (AS RESTATED, SEE NOTE 11)
                                                                             -------------------------------
<S>                                                                          <C>              <C>
ASSETS
CURRENT ASSETS:
     Cash                                                                    $      26,536    $      46,847
     Compensating balances on deposit                                               34,451           34,000
     Accounts receivable, less allowances                                          248,975          180,391
     Inventories                                                                   298,838          253,627
     Prepaid expenses and other current assets                                      21,516           21,267
     Deferred income taxes                                                          23,333           25,742
                                                                             -------------    -------------
               Total Current Assets                                                653,649          561,874
Property, Plant and Equipment, net                                                  79,759           81,152
Tradenames                                                                         183,738          184,421
Non-Current Deferred Tax Asset                                                      13,192           11,589
Other Assets                                                                        14,453           15,516
                                                                             -------------    -------------
TOTAL ASSETS                                                                 $     944,791    $     854,552
                                                                             =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Revolving line of credit and other current debt                         $     105,049    $      48,667
     Accounts payable                                                              158,750          137,671
     Accrued expenses                                                               75,187           60,627
     Income taxes payable                                                            9,467            8,805
                                                                             -------------    -------------
               Total Current Liabilities                                           348,453          255,770
Senior Subordinated Notes Due 2005                                                 125,000          125,000
Senior Subordinated Notes due 2008, including an adjustment of
   $8,957 and $9,581 to the carrying value related
        to interest rate swap agreements, respectively                             158,078          158,642
Term Loan and Other Notes Payable                                                  101,843          100,761
Other Long Term Liabilities                                                         16,855           17,288
                                                                             -------------    -------------
                                                                                   750,229          657,461
Minority Interest                                                                   23,221           23,515
Convertible Preferred Stock, $0.01 par value; authorized,
          2,000,000 shares; 40,000 shares issued                                    40,000           40,000
STOCKHOLDERS' EQUITY:
     Common Stock, $0.01 par value; authorized, 40,000,000 shares; issued and
          outstanding: 2005-11,371,197 shares;
     2004-11,370,282 shares                                                            148              148
     Treasury Stock - at cost                                                      (65,793)         (65,793)
     Additional Paid-In Capital                                                     56,040           56,147
     Accumulated Other Comprehensive Income                                         13,727           12,668
     Retained Earnings                                                             127,219          130,406
                                                                             -------------    -------------
             Total Stockholders' Equity                                            131,341          133,576
                                                                             -------------    -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $     944,791    $     854,552
                                                                             =============    =============
</TABLE>

           See Notes to Condensed Consolidated Financial Statements.

                                       4
<PAGE>

                                  SALTON, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                      13 WEEKS ENDED
                                                          -----------------------------------------
                                                           October 2, 2004       September 27, 2003
                                                          -----------------      ------------------
<S>                                                       <C>                    <C>
NET SALES                                                   $    274,135            $    238,539
Cost of Goods Sold                                               194,850                 157,956
Distribution Expenses                                             15,768                  16,400
                                                            ------------            ------------
GROSS PROFIT                                                      63,517                  64,183
Selling, General and Administrative Expenses                      53,087                  51,792
Restructuring Costs                                                  672                       -
                                                            ------------            ------------
OPERATING INCOME                                                   9,758                  12,391
Interest Expense, net                                             13,038                   9,678
                                                            ------------            ------------
(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST           (3,280)                  2,713
Income Tax (Benefit) Expense                                      (1,149)                    882
Minority Interest, net of tax                                      1,056                   1,090
                                                            ------------            ------------
NET (LOSS) INCOME                                           $     (3,187)           $        741
                                                            ============            ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                    11,370,946              11,187,155

WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING                              11,370,946              15,099,949

Net (Loss) Income per Common Share: Basic                   $      (0.28)           $       0.07

Net (Loss) Income per Common Share: Diluted                 $      (0.28)           $       0.05
</TABLE>

           See Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>

                                  SALTON, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                                          13 WEEKS ENDED
                                                                                   ------------------------------
                                                                                    OCTOBER 2,      SEPTEMBER 27,
                                                                                      2004              2003
                                                                                   -----------      -------------
                                                                                     (AS RESTATED, SEE NOTE 11)
<S>                                                                                <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (Loss) Income                                                               $ (3,187)          $    741
   Adjustments to Reconcile Net (Loss) Income to Net Cash from Operating
   Activities:
     Imputed interest on notes payable and other non-cash items                        (458)              (447)
     Deferred income tax provision                                                   (1,784)               276
     Depreciation and amortization                                                    5,968              5,172
     Bad debt (recovery) provision                                                   (1,634)                 4
     Loss on disposal of equipment                                                       52                 58
     Inventory valuation adjustment                                                  (2,252)               962
     Foreign currency gains and losses                                                 (478)               551
     Minority interest                                                                1,056              1,090
     Changes in assets and liabilities:
        Accounts receivable                                                         (69,453)           (44,047)
        Inventories                                                                 (46,657)           (35,660)
        Prepaid expenses and other current assets                                      (489)            (2,367)
        Decrease in other non-current assets                                           (238)              (328)
        Accounts payable                                                             24,799             35,016
        Taxes payable                                                                 1,293              6,092
        Accrued expenses                                                             21,161              9,515
                                                                                   --------           --------
          NET CASH FROM OPERATING ACTIVITIES                                        (72,301)           (23,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                              (4,102)            (5,129)
   Proceeds from sale of property and equipment                                           9                  -
   Increase in compensating balances on deposit                                        (451)            (5,600)
                                                                                   --------           --------
          NET CASH FROM INVESTING ACTIVITIES                                         (4,544)           (10,729)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from revolving line of credit and other short term debt              57,883             51,000
   Repayment of long term debt                                                         (220)              (121)
   Costs associated with refinancing                                                      -               (347)
   Additional payment for tradenames                                                   (126)           (21,500)
   Common stock issued                                                                   18                  4
                                                                                   --------           --------
          NET CASH FROM FINANCING ACTIVITIES                                         57,555             29,036
                                                                                   --------           --------
Effect of Exchange Rate Changes on Cash                                              (1,021)                56
                                                                                   --------           --------
Net Change in Cash                                                                  (20,311)            (5,009)
Cash, Beginning of Period                                                            46,847             35,702
                                                                                   --------           --------
Cash, End of Period                                                                $ 26,536           $ 30,693
                                                                                   ========           ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Period for:
   Interest                                                                        $  3,004           $    929
   Income taxes, net of (refunds)                                                  $   (387)          $ (5,417)
</TABLE>

           See Notes to Condensed Consolidated Financial Statements.

                                       6
<PAGE>

                                  SALTON, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      In the opinion of management, the accompanying condensed consolidated
      balance sheets and related interim condensed consolidated statements of
      income and cash flows include all adjustments, consisting only of normal
      recurring items, necessary for their fair presentation in conformity with
      principles, generally accepted in the United States of America. Preparing
      financial statements requires management to make estimates and assumptions
      that affect the reported amounts of assets, liabilities, revenue and
      expenses. Actual results may differ from these estimates. Our business is
      highly seasonal, with operating results varying from quarter to quarter.
      Interim results are not necessarily indicative of results for a full year.
      The information included in this Form 10-Q/A should be read in conjunction
      with Management's Discussion and Analysis and consolidated financial
      statements and notes thereto included in the Salton, Inc. 2004 Annual
      Report on Form 10-K and as amended, Form 10-K/A. Certain reclassifications
      have been made for consistent presentation.

2.    CREDIT FACILITY

      On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the
      Company's wholly owned subsidiary, amended its facility (the "Facility
      Letter") agreement with Hong Kong Shanghai Bank. The amended Facility
      Letter includes an overdraft facility of up to (pound)8 million ($14.4
      million) and a money market borrowing facility of up to (pound)7 million
      ($12.6 million). In addition, Salton Europe has an invoice finance
      facility of between Pound Sterling15 and (pound)40 million ($27.0 million
      and $72.0 million) depending on seasonality and level of accounts
      receivable. As of October 2, 2004, there was $32.3 million outstanding
      under the facility included in other current debt.

3.    STOCK-BASED COMPENSATION

      At October 2, 2004, the Company had various stock-based employee
      compensation plans which are described more fully in Note 10 of the Notes
      to Consolidated Financial Statements in the Company's 2004 Annual Report
      on Form 10-K and as amended, Form 10-K/A. The Company accounts for those
      plans in accordance with Accounting Principles Board Opinion No. 25,
      "Accounting for Stock Issued to Employees" and related Interpretations. No
      stock-based employee compensation cost is reflected in net income, as no
      options granted under those plans had an exercise price less than the
      market value of the underlying common stock on the date of grant. The
      following table illustrates the effect on net income and earnings per
      share if the Company had applied the fair value recognition provisions of
      Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
      for Stock-Based Compensation."

<TABLE>
<CAPTION>
                                                                                  13 WEEKS ENDED
                                                                         --------------------------------
                                                                           October 2         September 27
(In thousands except share data)                                             2004               2003
                                                                         ------------        ------------
<S>                                                                      <C>                 <C>
Net(loss) income - as reported                                            $  (3,187)          $     741
Less: Total stock-based employee compensation expense determined
   under fair value based method for all awards, net of related
   taxes                                                                        285                 427
                                                                          ---------           ---------
Net (loss) income - pro forma                                             $  (3,472)          $     314
                                                                          =========           =========

(Loss) Earnings per share - basic
     As reported                                                          $   (0.28)          $    0.07
     Pro forma                                                                (0.31)               0.03

(Loss) Earnings per share - diluted
     As reported                                                          $   (0.28)          $    0.05
     Pro forma                                                                (0.31)               0.02
</TABLE>

                                       7
<PAGE>

4.    NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

      Basic net income per common share is computed based upon the weighted
      average number of common shares outstanding. Diluted net income per common
      share is computed based upon the weighted average number of common shares
      outstanding, adjusted for dilutive common stock equivalents applying the
      treasury stock method for options and warrants and the if-converted method
      for convertible securities.

      For the thirteen-weeks ended October 2, 2004 the dilutive effect of the
      Company's outstanding common stock equivalents, options and warrants were
      excluded from the computation of diluted earnings per share because they
      had an anti-dilutive effect due to the Company's losses in this period.
      The computation of diluted shares outstanding for the thirteen weeks ended
      October 2, 2004 excludes incremental shares of 3,796,184 related to the
      Company's common stock equivalents, options and warrants. These shares are
      excluded due to their anti-dilutive effect.

      Options and warrants to purchase 1,329,600 shares of common stock at a
      price range of $10.44 to $37.00 per share were also not included in the
      computation of diluted shares for the thirteen weeks ended September 27,
      2003 because the exercise prices were greater than the average market
      price of the common shares during the period. Options to purchase 270,000
      common shares at a price of $29.25 per share were not included in the
      computation of diluted shares for the thirteen weeks ended September 27,
      2003 because the options were contingent upon the Company's share price
      reaching specified targets for a specified period of time.

5.    DERIVATIVE FINANCIAL INSTRUMENTS

      The Company uses derivative financial instruments to manage foreign
      currency risk. The Company does not enter into derivative financial
      instruments for trading purposes. The Company uses forward exchange
      contracts to hedge foreign currency payables for periods consistent with
      the expected cash flow of the underlying transactions. The contracts
      generally mature within one year and are designed to limit exposure to
      exchange rate fluctuations, primarily related to the Great Britain Pound
      and the South Africa Rand to the U.S. Dollar.

      All foreign exchange contracts have been recorded in the consolidated
      balance sheets within accrued expenses at a fair value of $1.5 million and
      $8.7 million at October 2, 2004 and July 3, 2004, respectively. The change
      in the fair value of contracts in the first quarter of 2005 was $7.2
      million. There was $(0.4) million and $(6.0) million at October 2, 2004
      and July 3, 2004, respectively, recorded in accumulated other
      comprehensive income, net of tax, related to these contracts. The Company
      anticipates that all gains and losses deferred in accumulated other
      comprehensive income related to foreign exchange contracts will be
      reclassified into earnings within the next twelve months as the related
      inventories are sold. At October 2, 2004, the Company had foreign exchange
      forward contracts for the purchase of 117.0 million U.S. dollars.
      Contracts for the purchase of 61.7 million U.S. dollars were entered into
      during the first quarter of fiscal 2005.

6.    COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

      For the thirteen weeks ended October 2, 2004 and September 27, 2003,
      components of other comprehensive income include foreign currency
      translation adjustments of $(4.6) million and $2.6 million, respectively
      and unrealized gains (losses) on derivatives of $5.7 million and $0.0
      million, respectively.

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                      13 Weeks Ended
                                                                                ---------------------------
(In thousands)                                                                   10/2/2004       9/27/2003
                                                                                -----------     -----------
<S>                                                                             <C>             <C>
Net (Loss) Income                                                               $   (3,187)     $       741
Other Comprehensive Income, net of tax of $1,700 and $0, respectively                1,059            2,628
                                                                                ----------      -----------
Comprehensive Income                                                            $   (2,128)     $     3,369
                                                                                ==========      ===========
</TABLE>

      Accumulated other comprehensive income is comprised of the following:

<TABLE>
<CAPTION>
                                                                                           As Of
                                                                                ---------------------------
(In thousands)                                                                   10/2/2004       7/3/2004
                                                                                -----------     -----------
<S>                                                                             <C>             <C>
Minimum Pension Liability, net of tax of $4,830 and $4,888, respectively        $  (10,037)     $  (10,172)
Unrealized Loss on Derivative, net of tax of $253 and $2,663, respectively            (380)         (6,030)
Foreign Currency Translation                                                        24,144          28,870
                                                                                ----------      ----------
                                                                                $   13,727      $   12,668
                                                                                ==========      ==========
</TABLE>

7.    PENSION BENEFIT PLANS

      The components of net periodic pension cost are as follows:

<TABLE>
<CAPTION>
                                                     Domestic           Salton Europe              Total
(In thousands)                                 10/2/2004  9/27/2003  10/2/2004  9/27/2003  10/2/2004  9/27/2003
                                               ---------  ---------  ---------  ---------  ---------  ---------
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>
13 Weeks Ended:
Service cost-benefits earned during the year     $  42      $  42      $  77      $  73      $ 119      $ 115
Interest cost on projected benefit
obligation                                         176        179        541        466        717        645
Actuarial return on plan assets                   (156)      (166)      (419)      (346)      (575)      (512)
Net amortization and deferral                       65         99        182        177        247        276
                                                 -----      -----      -----      -----      -----      -----
  Net pension cost                               $ 127      $ 154      $ 381      $ 370      $ 508      $ 524
                                                 =====      =====      =====      =====      =====      =====
</TABLE>

      The Company previously disclosed in its financial statements for the year
      ended July 3, 2004, that it expected to contribute $0.7 million to its
      domestic pension plans and $0.3 million to the Salton Europe pension plan
      in fiscal 2005. As of October 2, 2004, $0.5 million and $0.1 million of
      contributions have been made to the domestic and Europe plans,
      respectively.

                                       9
<PAGE>

8.    OPERATING SEGMENTS AND MAJOR CUSTOMERS

      Salton consists of a single operating segment which designs, sources,
      markets and distributes a diversified product mix for use in the home. The
      product mix consists of small kitchen and home appliances, electronics for
      the home, tabletop products, time products, lighting products, picture
      frames and personal care and wellness products. The Company believes this
      segmentation is appropriate based upon Management's operating decisions
      and performance assessment. Nearly all of the Company's products are
      consumer goods within the housewares market, procured through independent
      manufacturers, primarily in the Far East. Salton's products are
      distributed through similar distribution channels and customer base using
      the marketing efforts of its Global Marketing Team.

      Major Customers - For the thirteen weeks ended October 2, 2004, two
      customers accounted 12.3% and 10.5% of net sales, respectively. For the
      thirteen weeks ended September 27, 2003, no one customer accounted for
      more than 10% of net sales.

9.    LEGAL PROCEEDINGS

      In May 2004, two stockholder lawsuits, named Mariss Partners, LLP v.
      Salton, Inc., Leonhard Dreimann and David M. Mulder and Warren Beeler v.
      Salton, Inc., Leonhard Dreimann and David Mulder, were filed in the United
      States District Court for the Northern District of Illinois against the
      Company and certain Salton executives. The complaints allege that the
      defendants violated the federal securities laws, specifically Sections
      10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of
      the Securities and Exchange Commission, by making certain alleged false
      and misleading statements. The plaintiffs seek unspecified damages on
      behalf of a purported class of purchasers of our securities during the
      period from November 11, 2002 through May 11, 2004. The Company believes
      that these lawsuits are without merit and that it has compelling defenses
      to the allegations contained in the complaints. Salton intends to
      vigorously defend the Company. The outcome of the class action lawsuits
      cannot be predicted with certainty, however, Salton does not believe that
      this matter will have a material adverse affect on its business, financial
      condition or results of operations. Therefore, no amounts have been
      accrued for such claims. The plaintiffs have voluntarily dismissed the
      Mariss Partners lawsuit.

      In June 2003, the Company received a letter from Philips Domestic
      Appliances and Personal Care B.V. (Philips) accusing Salton of interfering
      in a contractual relationship between Philips and a manufacturing source
      for Salton, Electrical and Electronics (E&E), misappropriating trade
      secrets and infringing other unspecified intellectual property rights in
      connection with its development and marketing of the One:One single serve
      coffee maker. On August 14, 2003, Salton filed a complaint in the United
      States District Court for the Northern District of Illinois seeking a
      declaratory judgment that the Company had not infringed the alleged trade
      secret rights of Philips and had not tortuously interfered with the
      contractual relationship between Philips and E&E.

      Philips response has been to file a series of lawsuits against Salton. On
      October 23, 2003, Philips filed a counterclaim against Salton in the
      Northern District of Illinois, Declaratory Judgment case, reiterating the
      allegations of Philips' June letter and adding a claim for copyright
      infringement. The counterclaim sought to enjoin the distribution of the
      One:One in the United States and money damages. On January 5, 2004, the
      Court dismissed the action for failure to join E&E and suggested that the
      matter should be litigated in the courts of Hong Kong. Philips has
      appealed the Court's decision to the United States Court of Appeals for
      the Seventh Circuit. A decision on this appeal is not expected for a
      number of months. In view of the District Court's ruling, the Company
      sought and obtained the consent of E&E to join in the action previously
      filed by Philips in Hong Kong in May 2003, against E&E, alone. That

                                       10
<PAGE>

      Hong Kong suit alleges that E&E misappropriated trade secrets, infringed
      intellectual property and breached its contract with Philips in the
      process of developing and manufacturing the One:One coffee maker for
      Salton.

      On January 6, 2004, Philips filed a new action in the United States
      District Court for the Northern District of Illinois, against Salton
      alleging violations of U.S. Copyright Law seeking to enjoin the Company
      from selling the One:One coffee maker and any monetary damages that the
      Court deems proper. Contemporaneously, Philips sought a preliminary
      injunction. On January 30, 2004, the Court dismissed Philips' new action
      on the grounds that it was barred by the Court's dismissal decision in the
      prior action. Philips appealed this dismissal and the appeal was
      consolidated with the appeal of the earlier case in the United States
      Court of Appeals for the Seventh Circuit.

      On November 24, 2003, Philips and Sara Lee NV also filed a patent
      infringement suit against Salton asserting that the One:One infringed a
      U.S. patent. Like the other actions, this case seeks damages and
      injunctive relief. The case is pending as in the United States District
      Court for the Northern District of Illinois.

      Philips has also filed an action for copyright infringement in the United
      Kingdom. This suit alleges that the software on the electronic controller
      of the One:One infringes Philips copyright and seeks unspecified money
      damages and injunctive relief. At issue were the 55,624 units initially
      introduced into the United Kingdom; Salton has discontinued the sales of
      these units. This case is currently pending in the United Kingdom. E&E has
      intervened in this action, and E&E's motion to dismiss or in the
      alternative stay this action in favor of the Hong Kong action described
      above was denied. On October 14, 2004, Salton offered to submit to
      judgment in this action, and in the event the parties cannot agree on a
      royalty for the use of this software in the 55,624 units, a judicial
      determination will have to be made of any monetary award.

      The outcome of the foregoing legal matters cannot be predicted with
      certainty, however Salton does not believe that these actions will have a
      material adverse affect on its business, financial condition or results of
      operations. Therefore, no amounts have been accrued for such claims.

      Homeplace of America, a company in liquidation under the United States
      Bankruptcy Code, brought a lawsuit for recovery of preferential payments
      made to Salton and its subsidiary, Toastmaster, during the 90 day
      "preference" period prior to filing for bankruptcy. Homeplace's total
      claimed preferences are approximately $3.5 million. The trial started the
      first week of November 2004 in the U.S. Bankruptcy Court for the District
      of Delaware. Settlement discussions to date have not, in Salton's view,
      been meaningful. Salton does not believe that this matter will have a
      material adverse affect on its business, financial condition or results of
      operations. Therefore, no material amounts have been accrued for such
      claims.

      The Company has accrued approximately $0.2 million for the anticipated
      costs of environmental remediation at four of our sites. Although such
      costs could exceed that amount, Salton believes any such excess will not
      have a material adverse effect on the financial condition or annual
      results of operations of the Company.

      The Company is a party to various other actions and proceedings incident
      to our normal business operations. The Company believes that the outcome
      of any litigation will not have a material adverse effect on our business,
      financial condition or results of operations. The Company also has product
      liability and general liability insurance policies in amounts believed to
      be reasonable given its current level of business. Although historically
      the Company has not had to pay any material product liability claims, it
      is conceivable that we could incur claims for which we are not insured.

                                       11
<PAGE>

10.   SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

      The payment obligations of the Company under the senior secured revolving
      credit facility and the senior subordinated notes are guaranteed by
      certain of the Company's wholly-owned domestic subsidiaries (Subsidiary
      Guarantors). Such guarantees are full, unconditional and joint and
      several. Separate financial statements of the Subsidiary Guarantors are
      not presented because the Company's management has determined that they
      would not be material to investors. The following supplemental financial
      information sets forth, on a combined basis, balance sheets, statements of
      income and statements of cash flows for Salton, Inc. (Parent), the
      Guarantor Subsidiaries, and the Company's Non-Guarantor subsidiaries
      (Other Subsidiaries).

                                       12
<PAGE>

CONSOLIDATING BALANCE SHEET AS OF OCTOBER 2, 2004 (AS RESTATED, SEE NOTE 11)
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           GUARANTOR                              OTHER    CONSOLIDATED CONSOLIDATED
                                                PARENT   SUBSIDIARIES ELIMINATIONS   TOTAL    SUBSIDIARIES ELIMINATIONS    TOTALS
                                              ---------- ------------ ------------ ---------- ------------ ------------ ------------
<S>                                           <C>        <C>          <C>          <C>        <C>          <C>          <C>
                  ASSETS
Current Assets:
   Cash                                       $     187    $     538   $       -   $     725   $  25,811   $       -    $  26,536
   Compensating balances on deposits                  -            -           -           -      34,451           -       34,451
   Accounts receivable, net of allowances           314      122,729           -     123,043     125,932           -      248,975
   Inventories                                   16,338      166,189     (26,557)    155,970     142,868           -      298,838
   Prepaid expenses and other current assets      3,265        2,678           -       5,943      15,573           -       21,516
   Intercompany                                 116,274      (87,806)        216      28,684     (28,684)          -            -
   Deferred income taxes                          1,314       16,577           -      17,891       5,442           -       23,333
                                              ---------    ---------   ---------   ---------   ---------   ---------    ---------
        Total Current Assets                    137,692      220,905     (26,341)    332,256     321,393           -      653,649
Property, Plant and Equipment, net                9,756       14,280           -      24,036      55,723           -       79,759
Investments in Subsidiaries                     398,657       53,654    (452,311)          -           -           -            -
Tradenames                                      134,849       10,313                 145,162      38,576           -      183,738
Non-current deferred tax asset                        -            -           -           -           -      13,192       13,192
Other Assets                                     11,300          451           -      11,751       2,702           -       14,453
                                              ---------    ---------   ---------   ---------   ---------   ---------    ---------
Total Assets                                  $ 692,254    $ 299,603   $(478,652)  $ 513,205   $ 418,394   $  13,192    $ 944,791
                                              =========    =========   =========   =========   =========   =========    =========

   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Revolving line of credit and other
     current debt                             $       -    $  68,179   $       -   $  68,179   $  36,870   $       -    $ 105,049
   Accounts payable                               1,989        4,534         388       6,911     151,839           -      158,750
   Accrued expenses                              17,845       16,397           -      34,242      40,945           -       75,187
     Income taxes payable                        (2,282)      (1,496)          -      (3,778)     13,245                    9,467
                                              ---------    ---------   ---------   ---------   ---------   ---------    ---------
        Total current liabilities                17,552       87,614         388     105,554     242,899           -      348,453
Non-current Deferred Income Taxes               (10,407)      (9,167)          -     (19,574)      6,382      13,192            -
Senior subordinated notes due 2005              125,000            -           -     125,000           -           -      125,000
Senior subordinated notes due 2008,
   including an adjustment of $8,957
   to the carrying value related to
   interest rate swap agreements                158,078            -           -     158,078           -           -      158,078
Term loan and other notes payable                     -      100,128                 100,128       1,715           -      101,843
Other Long Term Liability                           544        3,602                   4,146      12,709           -       16,855
                                              ---------    ---------   ---------   ---------   ---------   ---------    ---------
        Total liabilities                       290,767      182,177         388     473,332     263,705      13,192      750,229
Minority interest                                     -            -           -           -      23,221           -       23,221
Convertible Preferred Stock                      40,000            -           -      40,000           -           -       40,000
Stockholders' Equity                            361,487      117,426    (479,040)       (127)    131,468           -      131,341
                                              ---------    ---------   ---------   ---------   ---------   ---------    ---------
Total Liabilities and Stockholders'Equity     $ 692,254    $ 299,603   $(478,652)  $ 513,205   $ 418,394   $  13,192    $ 944,791
                                              =========    =========   =========   =========   =========   =========    =========
</TABLE>

                                       13
<PAGE>

CONSOLIDATING BALANCE SHEET AS OF JULY 3, 2004 (AS RESTATED, SEE NOTE 11)
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                 GUARANTOR                                                CONSOLIDATED  CONSOLIDATED
                                       PARENT   SUBSIDIARIES ELIMINATIONS    TOTAL    OTHER SUBSIDIARIES  ELIMINATIONS     TOTALS
                                     ---------  ------------ ------------  ---------  ------------------  ------------- ------------
<S>                                  <C>        <C>          <C>           <C>        <C>                 <C>           <C>
               ASSETS

Current Assets:
  Cash                               $       1  $       903  $          -  $     904  $           45,943  $           - $     46,847
   Compensating balances on deposit          -            -             -          -              34,000                      34,000
  Accounts receivable, net of
    allowances                             311       96,905             -     97,216              83,175              -      180,391
  Inventories                            5,133      165,189       (28,341)   141,981             111,646              -      253,627
  Prepaid expenses and other current
    assets                               5,054        2,597             -      7,651              13,616              -       21,267
  Intercompany                         131,818     (104,380)         (756)    26,682             (26,682)             -            -
  Deferred income taxes                    913       16,577             -     17,490               8,252              -       25,742
                                     ---------  -----------  ------------  ---------  ------------------  ------------- ------------
     Total current assets              143,230      177,791       (29,097)   291,924             269,950              -      561,874
Property, Plant and Equipment,
   Net of Accumulated Depreciation      11,016       14,910             -     25,926              55,226              -       81,152
Investments in Subsidiaries            390,773       53,646      (444,419)         -                   -              -            -
Tradenames                             134,723       10,313             -    145,036              39,385              -      184,421
Non-current deferred tax asset               -            -             -          -                   -         11,589       11,589
 Other Assets                           12,442          274             -     12,716               2,800              -       15,516
                                     ---------  -----------  ------------  ---------  ------------------  ------------- ------------
Total Assets                         $ 692,184  $   256,934  $   (473,516) $ 475,602  $          367,361         11,589 $    854,552
                                     =========  ===========  ============  =========  ==================  ============= ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Revolving line of credit and other
    current debt                     $       -  $    33,189  $          -  $  33,189  $           15,478              - $     48,667
  Accounts payable                       2,922        2,039          (584)     4,377             133,294              -      137,671
  Accrued expenses                       9,491       13,478             -     22,969              37,658              -       60,627
   Income taxes payable                 (2,336)      (1,496)            -     (3,832)             12,637              -        8,805
                                     ---------  -----------  ------------  ---------  ------------------  ------------- ------------
     Total current liabilities          10,077       47,210          (584)    56,703             199,067              -      255,770
Non-current Deferred Income Taxes       (8,840)      (9,167)            -    (18,007)              6,418         11,589            -
Senior subordinated notes due 2005     125,000            -             -    125,000                   -              -      125,000
Senior subordinated notes due 2008,
      including an adjustment of
      $9,581 to the carrying value
      related to interest rate swap
      agreements                       158,642            -             -    158,642                   -              -      158,642
Long-term debt-revolving credit
      agreement                              -      100,000             -    100,000                   -              -      100,000
Other notes payable                          -          175             -        175                 586              -          761
Other long term liabilities                418        3,932             -      4,350              12,938              -       17,288
                                     ---------  -----------  ------------  ---------  ------------------  ------------- ------------
     Total liabilities                 285,297      142,150          (584)   426,863             219,009         11,589      657,461
Minority Interest                            -            -             -          -              23,515              -       23,515
Convertible Preferred Stock             40,000            -             -     40,000                   -              -       40,000
Stockholders' Equity                   366,887      114,784      (472,932)     8,739             124,837              -      133,576
                                     ---------  -----------  ------------  ---------  ------------------  ------------- ------------
Total Liabilities and Stockholders'
  Equity                             $ 692,184  $   256,934  $   (473,516) $ 475,602  $          367,361  $      11,589 $    854,552
                                     =========  ===========  ============  =========  ==================  ============= ============
</TABLE>

                                       14
<PAGE>

CONSOLIDATING STATEMENT OF INCOME FOR THE THIRTEEN WEEKS ENDED OCTOBER 2, 2004
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                GUARANTOR                                OTHER     CONSOLIDATED   CONSOLIDATED
                                      PARENT   SUBSIDIARIES ELIMINATIONS    TOTAL    SUBSIDIARIES  ELIMINATIONS      TOTALS
                                    ---------  ------------ ------------  ---------  ------------  -------------  ------------
<S>                                 <C>        <C>          <C>           <C>        <C>           <C>            <C>

Net Sales                           $  48,080  $   149,559  $    (82,150) $ 115,489  $    236,812  $     (78,166) $    274,135
Cost of Goods Sold                     39,341      124,289       (83,934)    79,696       189,036        (73,882)      194,850
Distribution Expenses                                8,654             -      8,654         7,114                       15,768
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
    Gross Profit                        8,739       16,616         1,784     27,139        40,662         (4,284)       63,517
Selling, General and Administrative
  expenses                             14,342       10,286             -     24,628        32,743         (4,284)       53,087
Restructuring Costs                       455          217             -        672             -                          672
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
    Operating Income                   (6,058)       6,113         1,784      1,839         7,919              -         9,758
Interest Expense, Net                   7,307        3,479             -     10,786         2,252              -        13,038
(Income) Loss from Subsidiary          (5,043)          (8)        5,051          -             -              -             -
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
  (Loss) Income Before Income Taxes
    and Minority Interest              (8,322)       2,642        (3,267)    (8,947)        5,667              -        (3,280)
Income Tax (Benefit) Expense           (1,969)           -             -     (1,969)          820              -        (1,149)
Minority interest                           -            -             -          -         1,056              -         1,056
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
    Net (Loss) Income               $  (6,353) $     2,642  $     (3,267) $  (6,978) $      3,791  $           -  $     (3,187)
                                    =========  ===========  ============  =========  ============  =============  ============
</TABLE>

CONSOLIDATING STATEMENT OF INCOME FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27,
2003 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                GUARANTOR                                OTHER     CONSOLIDATED   CONSOLIDATED
                                      PARENT   SUBSIDIARIES ELIMINATIONS    TOTAL    SUBSIDIARIES  ELIMINATIONS      TOTALS
                                    ---------  ------------ ------------  ---------  ------------  -------------  ------------
<S>                                 <C>        <C>          <C>           <C>        <C>           <C>            <C>
Net Sales                           $  72,640  $   175,878  $   (120,774) $ 127,744  $    206,827  $     (96,032) $    238,539
Cost of Goods Sold                     55,898      151,057      (116,576)    90,379       162,109        (94,532)      157,956
Distribution Expenses                       -       10,981             -     10,981         5,419              -        16,400
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
    Gross Profit                       16,742       13,840        (4,198)    26,384        39,299         (1,500)       64,183
Selling, General and Administrative
  expenses                             11,247       23,318             -     34,565        18,727         (1,500)       51,792
Impairment Loss on Intangible Asset         -            -             -          -             -                            -
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
    Operating Income (Loss)             5,495       (9,478)       (4,198)    (8,181)       20,572              -        12,391
Interest Expense, Net                   7,232          916             -      8,148         1,530              -         9,678
Fair Market Value Adjustment on
  Derivatives                               -            -             -          -             -              -             -
(Income) loss from subsidiary          (5,914)         392         5,522          -             -              -             -
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
  Income (Loss) Before Income Taxes
     and Minority Interest              4,177      (10,786)       (9,720)   (16,329)       19,042              -         2,713
Income Tax (Benefit) Expense             (370)      (2,839)            -     (3,209)        4,091              -           882
Minority interest                           -            -                                  1,090                        1,090
                                    ---------  -----------  ------------  ---------  ------------  -------------  ------------
    Net Income (Loss)                 $ 4,547  $    (7,947) $     (9,720) $ (13,120) $     13,861  $           -  $        741
                                    =========  ===========  ============  =========  ============  =============  ============
</TABLE>

                                       15
<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED OCTOBER 2,
2004 (AS RESTATED, SEE NOTE 11) (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                         GUARANTOR                             OTHER     CONSOLIDATED CONSOLIDATED
                                               PARENT   SUBSIDIARIES ELIMINATIONS  TOTAL    SUBSIDIARIES ELIMINATIONS    TOTALS
                                              --------  ------------ ------------ --------  ------------ ------------ ------------
<S>                                           <C>       <C>          <C>          <C>       <C>          <C>          <C>
Cash flows from operating activities:
 Net (loss) income                            $ (6,353)   $   2,642   $  (3,267)  $ (6,978)   $   3,791      $  -      $    (3,187)
 Adjustments to reconcile net income (loss)
 to net cash used in operating activities:
  Imputed interest on notes payable               (564)           -           -       (564)         106         -             (458)
  Deferred income tax provision                 (1,968)           -           -     (1,968)         184         -           (1,784)
  Depreciation and amortization                  2,461          834           -      3,295        2,673         -            5,968
  Bad debt (recovery) provision                      -       (1,694)          -     (1,694)          60         -           (1,634)
  Loss on disposal of equipment                      -           54           -         54           (2)        -               52
  Equity in net income of unconsolidated
   affilate/consolidated subsidiaries           (5,043)          (8)      5,051          -            -         -                -
  Inventory valuation adjustment                     -       (2,252)          -     (2,252)           -         -           (2,252)
  Foreign currency gains and losses                  -         (478)          -       (478)           -         -             (478)
  Minority interest                                  -            -           -          -        1,056         -            1,056
  Changes in assets and liabilities:
   Accounts receivable                              (3)     (23,654)          -    (23,657)     (45,796)        -          (69,453)
   Inventories                                 (11,205)       1,252      (1,784)   (11,737)     (34,920)        -          (46,657)
   Prepaid expenses and other current assets     1,790          (81)          -      1,709       (2,198)        -             (489)
   Decrease in other non-current assets              -         (177)          -       (177)         (61)        -             (238)
   Accounts payable                               (934)       3,468           -      2,534       22,265         -           24,799
   Taxes payable                                    54            1           -         55        1,238         -            1,293
   Accrued expenses                             22,123      (14,959)          -      7,164       13,997         -           21,161
                                              --------    ---------   ---------   --------    ---------      ----      -----------
     NET CASH FROM OPERATING ACTIVITIES            358      (35,052)          -    (34,694)     (37,607)        -          (72,301)
                                              --------    ---------   ---------   --------    ---------      ----      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures                         (64)        (255)          -       (319)      (3,783)        -           (4,102)
      Proceeds from sale of equipment                -            -           -          -            9         -                9
      Increase in compensating balance on
       deposit                                       -            -           -          -         (451)        -             (451)
                                              --------    ---------   ---------   --------    ---------      ----      -----------
       NET CASH FROM INVESTING ACTIVITIES          (64)        (255)          -       (319)      (4,225)        -           (4,544)
                                              --------    ---------   ---------   --------    ---------      ----      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Net proceeds from revolving line of
        credit and other short term debt             -       35,119           -     35,119       22,764         -           57,883
       Repayment of long-term debt                   -         (178)          -       (178)         (42)        -             (220)
       Additional payment for tradenames          (126)           -           -       (126)           -         -             (126)
       Common stock issued                          18            -           -         18            -         -               18
                                              --------    ---------   ---------   --------    ---------      ----      -----------
       NET CASH FROM FINANCING ACTIVITIES         (108)      34,941           -     34,833       22,722         -           57,555
                                              --------    ---------   ---------   --------    ---------      ----      -----------
Effect of Exchange Rate Changes on Cash              -            -           -          -       (1,021)        -           (1,021)

Net Change in Cash                                 186         (366)          -       (180)     (20,131)        -          (20,311)

Cash, Beginning of Period                            1          903           -        904       45,943         -           46,847
                                              --------    ---------   ---------   --------    ---------      ----      -----------

Cash, End of Period                           $    187    $     538   $       -   $    725    $  25,811      $  -      $    26,536
                                              ========    =========   =========   ========    =========      ====      ===========
</TABLE>

                                       16
<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27,
2003 (AS RESTATED, SEE NOTE 11) (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                         GUARANTOR                             OTHER     CONSOLIDATED CONSOLIDATED
                                               PARENT   SUBSIDIARIES ELIMINATIONS  TOTAL    SUBSIDIARIES ELIMINATIONS    TOTALS
                                              --------  ------------ ------------ --------  ------------ ------------ ------------
<S>                                           <C>       <C>          <C>          <C>       <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                            $  4,547   $   (7,947)  $   (9,720) $(13,120)  $   13,861      $  -       $     741
 Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
  Imputed interest on notes payable and
   other non-cash items                           (565)           -            -      (565)         118         -            (447)
  Deferred income tax provision                      1            -            -         1          275         -             276
  Foreign currency gains and lossess                 -          551            -       551            -         -             551
  Depreciation and amortization                  2,340          842            -     3,182        1,990         -           5,172
  Loss on disposal of equipment                      -            -            -         -           58         -              58
  Equity in net income of unconsolidated
   affilate/ consolidated subsidiaries          (5,914)         392        5,522         -            -         -               -
  Minority interest                                  -            -            -         -        1,090         -           1,090
  Changes in assets and liabilities:                                                                                            -
   Accounts receivable                               -      (25,120)           -   (25,120)     (18,923)        -         (44,043)
   Inventories                                  (8,426)     (21,193)       4,198   (25,421)      (9,277)                  (34,698)
   Prepaid expenses and other current assets       140       (1,800)           -    (1,660)        (707)        -          (2,367)
   Increase in other non-current assets            (71)        (257)           -      (328)           -         -            (328)
   Accounts payable                              1,223          684            -     1,907       33,109         -          35,016
   Taxes payable                                 5,765       (3,558)           -     2,207        3,885         -           6,092
   Accrued expenses                             23,762        2,859            -    26,621      (17,106)        -           9,515
                                              --------   ----------   ----------  --------   ----------      ----       ---------
      NET CASH FROM OPERATING ACTIVITIES        22,802      (54,547)           -   (31,745)       8,373         -         (23,372)
                                              --------   ----------   ----------  --------   ----------      ----       ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                           (957)        (841)           -    (1,798)      (3,331)        -          (5,129)
   Increase in compensating balances on
    deposit                                          -            -            -         -       (5,600)        -          (5,600)
                                              --------   ----------   ----------  --------   ----------      ----       ---------
      NET CASH FROM INVESTING ACTIVITIES          (957)        (841)           -    (1,798)      (8,931)        -         (10,729)
                                              --------   ----------   ----------  --------   ----------      ----       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from revolving line of
     credit and other short term debt                -       51,000            -    51,000            -         -          51,000
   Repayment of long-term debt                       -         (121)           -      (121)           -         -            (121)
   Costs associated with refinancing              (347)           -            -      (347)           -         -            (347)
   Additional payment for trademarks           (21,500)           -            -   (21,500)           -         -         (21,500)
   Common stock issued                               4            -            -         4            -         -               4
                                              --------   ----------   ----------  --------   ----------      ----       ---------
      NET CASH FROM FINANCING ACTIVITIES       (21,843)      50,879            -    29,036            -         -          29,036
                                              --------   ----------   ----------  --------   ----------      ----       ---------

Effect of Exchange Rate Changes on Cash              -            -            -         -           56         -              56
                                              --------   ----------   ----------  --------   ----------      ----       ---------
Net Change in Cash                                   2       (4,509)           -    (4,507)        (502)        -          (5,009)

Cash, Beginning of Period                            -        8,972            -     8,972       26,730         -          35,702
                                              --------   ----------   ----------  --------   ----------      ----       ---------

Cash, End of Period                           $      2   $    4,463   $        -  $  4,465   $   26,228      $  -       $  30,693
                                              ========   ==========   -=========  ========   ==========      ====       =========
</TABLE>

                                       17
<PAGE>

11. RESTATEMENT AND RECLASSIFICATION

Subsequent to the issuance of the Company's condensed consolidated financial
statements as of and for the thirteen weeks ended October 2, 2004, the Company
determined that it is necessary to restate its condensed consolidated balance
sheets for all periods presented. The restatement changes the classification of
the convertible preferred stock to a separate line item apart from permanent
equity as redemption thereof in shares of common stock is outside of the
Company's control in accordance with the guidance of Emerging Issues Task Force
Topic No. D-98 "Classification and Measurement of Redeemable Securities." The
changes in classification had no effect on the Company's previously reported net
income, earnings per share or net cash flows. The table below summarizes the
effects of the change in classification.

<TABLE>
<CAPTION>
                                                      As Reported     As Restated
                                                      -----------     -----------
<S>                                                   <C>             <C>
As of October 2, 2004
   Convertible preferred stock                          $      -       $  40,000
   Additional paid-in capital                             96,040          56,040
   Stockholders' equity (deficit)                        171,341         131,341
As of July 3, 2004
   Convertible preferred stock                          $      -       $  40,000
   Additional paid-in capital                             96,147          56,147
   Stockholders' equity (deficit)                        173,576         133,576
</TABLE>

Additionally, the change in compensating balances on deposit of $0.5 million at
October 2, 2004 and $5.6 million at September 27, 2003, which were previously
classified as part of financing activities on the Condensed Consolidated
Statements of Cash Flows have been reclassified as investing activities. Also,
the additional payments for tradenames, of $0.1 million at October 2, 2004 and
$21.5 million at September 27, 2003, which were previously classified as part of
investing activities on the Condensed Consolidated Statements of Cash Flows have
been reclassified as financing activities.

                                       18
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's discussion and analysis of financial condition and results of
operations has been updated to give effect to the restatement and
reclassification of the Company's condensed consolidated financial statements as
described in Note 11.

As used in this quarterly report on Form 10-Q/A, "we," "us," "our," "Salton" and
"the Company" refer to Salton, Inc. and our subsidiaries, unless the context
otherwise requires.

INTRODUCTION

Salton designs, sources, markets and distributes small appliances and
electronics for the home, home decor and personal care products under recognized
brand names in the International Housewares Industry. Our product mix consists
of kitchen and home appliances, electronics, tabletop products, time products,
lighting products, picture frames and personal care and wellness products. In
recent years, we have expanded our international presence and strengthened our
product offerings through strategic acquisitions, alliances and internal
international growth.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which require us
to make estimates and judgments that significantly affect the reported amounts
of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. We regularly evaluate these estimates,
including those related to our allowance for doubtful accounts, reserve for
inventory valuation, reserve for returns and allowances, valuation of intangible
assets having indefinite lives, cooperative advertising accruals, valuation
reserves against deferred tax assets, pension benefits and depreciation and
amortization. We base these estimates on historical experience and on
assumptions that are believed by management to be reasonable under the
circumstances. Actual results may differ from these estimates, which may impact
the carrying value of assets and liabilities.

The following critical accounting policies required the most significant
estimates used in the preparation of our condensed consolidated financial
statements

ALLOWANCE FOR DOUBTFUL ACCOUNTS - We calculate allowances for estimated losses
resulting from the inability of our customers to make required payments. We
utilize a number of tools to evaluate and mitigate our customer credit risk.
Management evaluates each new customer account using a combination of some or
all of the following sources of information: credit bureau reports, industry
credit group reports, customer financial statement analysis, customer supplied
credit references and bank references. Appropriate credit limits are set in
accordance with our credit risk policy and monitored on an on-going basis.
Existing customers are monitored and credit limits are adjusted according to
changes in their financial condition. We calculate additional accounts
receivable allowances for anticipated future customer returns and claims. This
additional accrual covers defective product (warranty), sales returns and other
customer allowances. The amounts and trends are analyzed to develop appropriate
percentages that are applied against future sales. Based on the procedures
outlined herein, and the fact that only one customer accounted for 10.2% of the
gross accounts receivable at October 2, 2004 and no customer accounted for 10.0%
or more of the gross accounts receivable at July 3, 2004, we believe there is no
concentration of credit risk.

                                       19
<PAGE>

DERIVATIVE INSTRUMENTS - Our exposure to credit loss on our foreign currency
forward contracts in the event of non-performance by the counterparties is
believed to be remote due to the requirements that the counterparties consist
only of major financial institutions that have a long-term credit rating of
single-A or better from both Moody's and Standard & Poor's. Additionally, our
foreign currency forward contracts generally have terms of one year or less.

INVENTORY VALUATION - The Company's domestic inventories are generally
determined using the last-in, first-out (LIFO) method. These inventories account
for approximately 46.6% and 53.7% of the Company's inventories as of first
quarter of fiscal 2005 and first quarter of fiscal 2004, respectively. All
remaining inventory cost is determined on the first-in, first-out basis. The
Company records inventory at the lower of its cost or net realizable value.
Management regularly evaluates the composition of inventory to identify
slow-moving and obsolete inventories and for items that we are unable to sell at
prices above their original cost. When such items are identified, a charge to
operations results to reduce the book value to the net amount expected to be
realized upon the sale of such items. There is inherent subjectivity and
uncertainty in this estimation process.

COMMITMENTS AND CONTINGENCIES - We are subject to lawsuits and other claims
related to product and other matters that are being defended and handled in the
ordinary course of business. We maintain reserves and or accruals for such costs
that may be incurred, which are determined on a case-by-case basis, taking into
consideration the likelihood of adverse judgments or outcomes, as well as the
potential range of probable loss. The reserves and accruals are monitored on an
ongoing basis and are updated for new developments or new information as
appropriate.

INTANGIBLE ASSETS - We record intangible assets through transactions and
acquisitions. The cost of acquisitions are allocated to the assets and
liabilities acquired, including identifiable intangible assets, with the
remaining amount being classified as goodwill. Goodwill and other intangible
assets that have an indefinite life are assessed annually for impairment during
the fourth quarter. The allocation of the acquisition cost to intangible assets
and goodwill therefore has a significant impact on our future operating results.
The allocation process requires the extensive use of estimates and assumptions,
including estimates of future cash flows expected to be generated by the
acquired assets. Further, when impairment indicators are identified with respect
to previously recorded intangible assets, the values of the assets are
determined using a variety of techniques including discounted future cash flows,
which are based on estimated future operating results. Significant management
judgment is required in the forecasting of future operating results, which are
used in the preparation of projected discounted cash flows.

INCOME TAXES - Significant management estimates and judgments are required in
determining income tax expense for financial statement purposes. These estimates
and judgments occur in the calculation of certain deferred tax assets and
liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. We must assess the
likelihood that we will be able to recover our deferred tax assets. If recovery
is not likely, we must increase our provision for taxes by recording a valuation
allowance against the deferred tax assets that we estimate will not ultimately
be recoverable. As changes occur in our assessments regarding our ability to
recover our deferred tax assets, the valuation allowance and the tax provision
are adjusted accordingly.

                                       20
<PAGE>

QUARTER IN REVIEW

For the first quarter of fiscal 2005 (thirteen weeks ended October 2, 2004),
Salton continued its focus on increasing international opportunities and
reducing domestic operating costs in an effort to align U.S. costs with current
sales levels and return the domestic business to profitability.

We continued to implement the U.S. restructuring plan by additional headcount
reductions and facility closures in the domestic operations. When fully
implemented later this fiscal year, our U.S. restructuring plan is expected to
generate at least $40.0 million in annual cost savings through a reduction in
operating expenses and a consolidation of U.S. operations.

In connection with the U.S. restructuring, we recorded pretax charges of $0.7
million in the first quarter of fiscal 2005 for consulting and legal fees and
termination and severance costs associated with the headcount reduction in the
U.S. These costs affected comparability of reported operating income, net income
and earnings per share for the first quarter of fiscal 2005.

RESULTS OF OPERATIONS

The following table sets forth our results of operations as a percentage of net
sales for the quarters ended:

<TABLE>
<CAPTION>
                                                              13 WEEKS ENDED
                                                        --------------------------
                                                        OCTOBER 2,   SEPTEMBER 27,
                                                           2004          2003
                                                        ----------   -------------
<S>                                                     <C>          <C>
Net sales                                                 100.0%        100.0%
Cost of goods sold                                         71.1          66.2
Distribution expenses                                       5.8           6.9
                                                          -----         -----
      Gross profit                                         23.1          26.9
Selling, general and administrative expense                19.4          21.7
                                                          -----         -----
Operating income                                            3.7%          5.2%
                                                          =====         =====
</TABLE>

                                       21
<PAGE>

FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004

NET SALES AND GROSS PROFIT

Sales for first quarter of 2005 were $274.1 million compared to $238.5 million
in first quarter of 2004. The $35.6 million increase was primarily a result of
foreign sales increases including $10.4 million of foreign currency
fluctuations. Domestic sales were relatively flat quarter over quarter.

Foreign sales increases were primarily driven by the Sansui, Russell Hobbs,
Carmengirls.com and George Foreman product lines. Management believes Foreman
will continue its success overseas as we expand our foreign operations and
introduce the Foreman Grill in new markets. In addition, in the first quarter of
2005, we launched the new George Foreman Grills with removable plates (The Next
Grilleration) which is expected to help accelerate the replacement cycle among
existing customers in North America and further stabilize domestic sales
volumes.

As a percent of net sales, gross profit declined to 23.1% in 2005 compared to
26.9% in 2004, a decrease of 3.8%. This decrease is attributable primarily to
rising product costs as a result of increased raw material and petroleum costs
and the movement of excess and discontinued product as a result of inventory
reduction plans. The Company is pursuing price increases to cover the rise in
product costs.

As a percent of sales, worldwide distribution expenses declined 1.1%.
Distribution expense as a percent of net sales was down as a result of U.S.
restructuring efforts and increased direct imports.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses as a percent of net sales decreased
to 19.4% of net sales or $53.1 million in 2005 compared to 21.7% of net sales or
$51.8 million for 2003. Cost reductions achieved under the U.S. restructuring
plan were partially offset by increases driven by international expansion and
foreign currency fluctuations.

For first quarter of 2005, as a percent of sales, expenditures for television,
royalty expense, certain other media and cooperative advertising and promotional
activities decreased to 7.8% from 8.2% of sales for first quarter of 2004.
Larger decreases in promotional categories such as cooperative advertising and
infomercial expense were partially offset by increases in direct advertising
expenditures for planned new product launches.

RESTRUCTURING COSTS

As a result of our U.S. restructuring plan, we incurred $0.7 million in
restructuring costs associated with consulting and legal fees and termination
and severance costs incurred as a result of headcount reduction and
consolidation of U.S. operations.

NET INTEREST EXPENSE

Net interest expense was $13.0 million for first quarter of fiscal 2005 compared
to $9.7 million for first quarter of fiscal 2004. Our rate of interest on
amounts outstanding under the revolver, term loan and senior subordinated debt
was a weighted average annual rate of 10.3% in first quarter of fiscal 2005
compared to 9.5% in first quarter of fiscal 2004. The average amount of all debt
outstanding was $428.3 million for first quarter of fiscal 2005 compared to
$390.9 million for first quarter of fiscal 2004. This was a result of higher
average borrowings under the revolver.

                                       22
<PAGE>

INCOME TAXES

The effective tax rate for federal, state, and foreign income taxes was
approximately 35.0% for the first quarter of fiscal 2005 versus approximately
32.5% for the first quarter of fiscal 2004. The Company's provision for income
taxes is based upon estimated annual tax rates for the year applied to federal,
state, and foreign income. The Company expects its effective tax rate for fiscal
2005 to be approximately 35.0%, which is 16.3% higher than the fiscal 2004
annual effective rate due to a shift in income mix from foreign jurisdictions to
the U.S in 2005 as well as non-deductible goodwill impairment charges and the
establishment of deferred tax asset valuation allowances recorded in 2004.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW FROM OPERATIONS

Our primary sources of liquidity are our cash flow from operations and
borrowings under our senior secured revolving credit facility. In first quarter
of fiscal 2005, Salton's operations used $72.3 million in cash flow, compared
with $23.4 million in first quarter of fiscal 2004. This increase is largely a
result of higher inventories and accounts receivable associated with larger
worldwide sales. Given the seasonal nature of our business, borrowings and
availability tend to be highest in mid-Fall and early Winter.

Our cash flow from operations for the periods discussed have not been materially
affected by inflation or foreign currency fluctuation. We generally negotiate
our purchase orders with our foreign manufacturers in United States dollars.
Thus, our cost under any purchase order is not subject to change after the time
the order is placed due to exchange rate fluctuations. However, the weakening of
the United States dollar against local currencies could result in certain
manufacturers increasing the United States dollar prices for future product
purchases. In addition, the Company has recently experienced an upward trend in
raw material prices. As a result, the Company may use working capital to build
inventories to take advantage of current lower prices.

The Company also currently uses foreign exchange contracts to hedge anticipated
foreign currency transactions, primarily U.S. dollar inventory purchases. The
contracts generally mature within one year and are designed to limit exposure to
exchange rate fluctuations, primarily the Great Britain Pound and South Africa
Rand against United States Dollars.

INVESTING ACTIVITIES

We incurred approximately $4.1 million for capital expenditures during first
quarter of fiscal 2005 including approximately $2.6 million in
construction-in-progress for a warehouse renovation in Europe.

FINANCING ACTIVITIES

We had net proceeds from worldwide credit facilities of $57.9 million. The
increase in facility usage represents a seasonal increase in working capital
that was financed through our credit facilities in the U.S. and the U.K.

Also, in fiscal 2004, we made the final installment payment associated with the
acquisition of the George Foreman tradename. This was the primary reason for the
increase of cash flow of $28.5 million in first quarter of 2005 compared to
first quarter of 2004

                                       23
<PAGE>

REVOLVING CREDIT FACILITY

On June 15, 2004, we entered into an amended and restated $275.0 million senior
secured revolving credit facility, which initially provides us with the ability
to borrow up to $207.0 million (including $10.0 million for letters of credit).
Advances under the senior secured revolving credit facility are primarily based
upon percentages of eligible accounts receivable and inventories. The facility
has a maturity date of June 15, 2007 and is subject to a prepayment premium of
3.0% of $275.0 million if the facility is repaid by June 15, 2005, 2.0% if the
facility is repaid between June 16, 2005 and June 15, 2006 and 1.0% if the
facility is repaid between June 16, 2006 and June 15, 2007.

As of October 2, 2004, we had borrowed $167.8 million under the senior secured
revolving credit facility, 100.0 million of which is included in long-term
liabilities. We had approximately $19.0 million available under this facility
for future borrowings.

Our senior indebtedness contains a number of significant covenants that, among
other things, restrict our ability to dispose of assets, incur additional
indebtedness, prepay other indebtedness, pay dividends, repurchase or redeem
capital stock, enter into certain investments, enter into sale and lease-back
transactions, make certain acquisitions, engage in mergers and consolidations,
create liens, or engage in certain transactions with affiliates and otherwise
restrict our corporate and business activities. In addition, under our senior
secured revolving credit facility, we are required to comply with a minimum
EBITDA, consolidated fixed charge coverage ratio and foreign leverage ratio. We
are also required to deposit all proceeds from collection of accounts receivable
and sale of collateral with an account under the exclusive dominion and control
of the senior lenders.

Borrowings under our senior secured credit facility accrue interest, at our
option, at either: LIBOR, plus 5.0%, equaling 7.0% at October 2, 2004; or the
Base Rate (prime rate), plus 3.0%, equaling 7.75% at October 2, 2004. The
Company has the option to convert any base rate loan to LIBOR rate loan, which
includes an applicable margin of 5.0%. LIBOR rate loans are to be no lower than
a rate of 7.0%.

Events of default under our senior secured revolving credit facility include,
but are not limited to: (a) our failure to pay principal or interest when due;
(b) our material breach of any representation or warranty; (c) covenant
defaults; (d) our default with respect to any other debt with an outstanding
principal amount in excess of $1.0 million if the effect thereof is to
accelerate or permit the acceleration of such debt; and (e) events of
bankruptcy.

The senior secured revolving credit facility is secured by all of our tangible
and intangible assets and all of the tangible and intangible assets of our
domestic subsidiaries and a pledge of the capital stock of our domestic
subsidiaries and 65.0% of the capital stock of certain of our foreign
subsidiaries. The senior secured revolving credit facility is unconditionally
guaranteed by each of our direct and indirect domestic subsidiaries.

SENIOR SUBORDINATED NOTES

In addition to borrowings under our senior secured revolving credit facility, we
have $125.0 million of 10 3/4% senior subordinated notes due December 15, 2005
outstanding and $150.0 million of 12 1/4% senior subordinated notes due April
15, 2008 outstanding (excluding $9.0 million related to the fair value of
interest rate swap agreements that have been monetized).

                                       24
<PAGE>

The indenture governing our 12 1/4% senior subordinated notes due 2008 and 10
3/4% senior subordinated notes due 2005 contains, covenants that, among other
things, limit our ability and the ability of our restricted subsidiaries to
incur additional indebtedness and issue preferred stock, pay dividends or make
certain other restricted payments, create certain liens, enter into certain
transactions with affiliates, enter into sale and lease-back transactions, sell
assets or enter into certain mergers and consolidations.

Interest is payable on the 10 3/4 % senior subordinated notes on June 15th and
December 15th of each year in an amount equal to approximately $6.7 million on
each payment date. Interest is payable on the 12 1/4 % senior subordinated notes
on April 15th and October 15th of each year in an amount equal to approximately
$9.2 million on each payment date.

Our senior subordinated notes are general unsecured obligations and are
subordinated to all our current and future senior debt, including all borrowings
under our senior secured revolving credit facility. The subordinated notes rank
equally with all our other existing and future senior subordinated indebtedness.

Events of default under our senior subordinated notes include, but are not
limited to: (a) our default for 30 days in the payment when due of interest; (b)
our default in payment when due of principal or premium; (c) covenant defaults;
(d) default under any indebtedness that (1) is caused by a failure to pay
principal or interest or (2) results in the acceleration of such indebtedness
and, in each of clause (1) and (2), the principal amount of such indebtedness
exceeds $2.5 million; and (e) events of bankruptcy.

Our current and future domestic restricted subsidiaries jointly and severally
guarantee our payment obligations under the senior subordinated notes on a
senior subordinated basis. The guarantees rank junior to all senior debt of the
guarantors (including guarantees under our senior secured revolving credit
facility) and equally with all other senior subordinated indebtedness of the
guarantors.

OTHER CREDIT FACILITIES

We maintain credit facilities outside of the United States that locally support
our foreign subsidiaries operations and working capital requirements. These
facilities are at current market rates in those localities and at certain peak
periods of the year, are secured by various assets.

On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the Company's
wholly owned subsidiary, amended their facility agreement with Hong Kong
Shanghai Bank. As of October 2, 2004, there was $32.3 million utilized under the
facility included in other current debt.

CONVERTIBLE PREFERRED STOCK

On July 28, 1998, the Company issued $40.0 million of convertible preferred
stock in connection with a Stock Purchase Agreement dated July 15, 1998. The
convertible preferred stock is non-dividend bearing except if the Company
breaches, in any material respect, any of the material obligations in the
preferred stock agreement or the certificate of incorporation relating to the
convertible preferred stock, the holders of the convertible preferred stock are
entitled to receive quarterly cash dividends on each share from the date of the
breach until it is cured at a rate per annum equal to 12 1/2% of the Liquidation
Preference (defined below). The preferred shares are convertible into 3,529,411
shares of Salton common stock (reflecting a $11.33 per share conversion price).
The holders of the convertible preferred stock are entitled to one vote for each
share of Salton common stock that the holder would receive upon conversion of
the convertible

                                       25
<PAGE>

preferred stock. In connection with the convertible preferred stock issuance,
two individuals representing the purchasers of the preferred stock were
appointed to serve on the Company's Board of Directors.

In the event of a change in control of the Company, each preferred shareholder
has the right to require the Company to redeem the shares at a redemption price
equal to the Liquidation Preference (defined below) plus interest accrued
thereon at a rate of 7% per annum compounded annually each anniversary date from
July 28, 1998 through the earlier of the date of such redemption or July 28,
2003.

In the event of a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of the Convertible Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution
to its stockholders an amount in cash equal to $1,000 per share, plus the amount
of any accrued and unpaid dividends thereon (the Liquidation Preference), before
any distribution is made to the holders of any Salton common stock or any other
of its capital stock ranking junior as to liquidation rights to the convertible
preferred stock.

The Company may optionally convert in whole or in part, the convertible
preferred stock at any time on and after July 15, 2003 at a cash price per share
of 100% of the then effective Liquidation Preference per share, if the daily
closing price per share of the Company common stock for a specified 20
consecutive trading day period is greater than or equal to 200% of the then
current Conversion Price. On September 15, 2008, the Company will be required to
exchange all outstanding shares of convertible preferred stock at a price equal
to the Liquidation Preference per share, payable at the Company's option in cash
or shares of Salton common stock.

FORWARD LOOKING

We anticipate capital expenditures on an ongoing basis to be at historical
levels in relation to net sales.

One or more of our overseas manufacturers, including some of our major
suppliers, have recently been experiencing financial difficulties due to
challenging business and economic conditions. If we are required to, or decide
to, transition some of our production to different suppliers, the cost and
availability of certain of our products during such a transition could be
adversely affected.

We believe that future cash flow from operations based on our current level of
operations and anticipated growth, available borrowings under our senior secured
revolving credit facility and other sources of debt funding and sale or
monetization of certain assets, will be adequate to meet our anticipated
requirements for current capital expenditures, potential acquisitions and
alliances, working capital requirements, interest and income tax payments and
scheduled debt payments for the next twelve months. Our anticipated earnings and
growth are subject to general economic, financial, competitive and other factors
that are beyond our control. If we are unable to satisfy such liquidity needs,
we could be required to adopt one or more alternatives, such as reducing or
delaying capital expenditures, borrowing additional funds, restructuring
indebtedness, selling other assets or operations and/or reducing expenditures
for new product development, cutting other costs, and some or such actions would
require the consent of our senior lenders and/or the holders of our senior
subordinated notes. We cannot assure you that any of such actions could be
effected, or if so, on terms favorable to us, that such actions would enable us
to continue to satisfy our liquidity needs and/or that such actions would be
permitted under the terms of our senior secured revolving credit facility or the
indentures governing our senior subordinated notes.

                                       26
<PAGE>

We have $125.0 million of 10 3/4% senior subordinated notes outstanding with a
maturity date of December 15, 2005. We may incur additional debt, or may issue
debt or equity securities, to repay and/or refinance the 10 3/4% senior
subordinated notes on or before maturity. The availability and attractiveness of
any outside sources of funds will depend on a number of factors, some of which
relate to our financial condition and performance, and some of which are beyond
our control, such as prevailing interest rates and general economic conditions.
We cannot assure you that such additional funds will be available, or if
available, that such funds will be on terms we find acceptable.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We use derivative financial instruments to manage interest rate and foreign
currency risk. Our objectives in managing our exposure to interest rate changes
are to limit the impact of interest rate changes on earnings and cash flows and
to lower our overall borrowing costs through the use of interest rate swaps. Our
objectives in managing our exposure to foreign currency fluctuations is to
reduce the impact of changes in foreign exchange rates on consolidated results
of operations and future foreign currency denominated cash flows. We do not
enter into derivative financial instruments for trading purposes. Our policy is
to manage interest rate risk through the use of a combination of fixed and
variable rate debt and hedge foreign currency commitments of future payments and
receipts by purchasing foreign currency forward contracts.

All foreign exchange contracts have been recorded in the condensed consolidated
balance sheets within accrued expenses at a fair value of $1.5 million and $8.7
million at October 2, 2004 and July 3, 2004, respectively. The change in the
fair value of contracts in the first quarter was $7.2 million. There was $(0.4)
million and $(6.0) million at October 2, 2004 and July 3, 2004, respectively,
recorded in accumulated other comprehensive income, net of tax, related to these
contracts. The Company anticipates that all gains and losses deferred in
accumulated other comprehensive income related to foreign exchange contracts
will be reclassified into earnings within the next twelve months as the related
inventories are sold. At October 2, 2004, the Company had foreign exchange
forward contracts for the purchase of 117.0 million U.S. dollars. Contracts for
the purchase of 61.7 million U.S. dollars were entered into during the first
quarter of fiscal 2005.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Based on their evaluation
the Company's principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
Exchange Act)) were effective as of April 2, 2005, to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act was recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms.

As described in Note 11, "Restatement and Reclassification" to the accompanying
condensed consolidated financial statements, subsequent to the issuance of the
Company's condensed consolidated financial statements for the fiscal quarter
ended April 2, 2005, the Company determined that its Series A convertible
preferred stock should be classified outside of permanent equity in accordance
with the guidance of Emerging Issues Task Force Topic No. D-98 "Classification
and Measurement of Redeemable Securities", because the redemption of the Series
A convertible preferred stock in shares of common stock is outside of the
Company's control. The restatement to reclassify the Series A convertible
preferred shares had no effect on the Company's previously reported net income,
earnings per share or net cash flows. Current and historic debt covenants were
also unaffected. The Company has concluded that the circumstances that led to
the filing of this amendment on Form 10-

                                       27
<PAGE>

Q/A resulted primarily from certain accounting practices that had been in place
for several years, and prior to the Company's improvements to the financial
accounting and reporting management resources, research tools and control
processes.

In connection with the restatement referred to above, the Company re-evaluated,
under the supervision and with the participation of the principal executive
officer and principal financial officer, the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
Exchange Act)). Based on that re-evaluation, and solely as a result of the
restatement discussed above, the principal executive officer and principal
financial officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were not effective.
However, based upon the improvements to the financial accounting and reporting
management resources, research tools and control processes implemented during
fiscal year 2005, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures were effective as of the date of June 30, 2005 (the date this report
was filed with the SEC). In concluding that the Company's disclosure controls
and procedures were effective as of June 30, 2005, the principal executive
officer and principal financial officer also considered, among other things, the
circumstances that resulted in the restatement of the Company's previously
issued financial statements, the materiality of the restatement adjustments on
the Company's condensed consolidated financial statements and that restatement
had no effect on the Company's historical reported net income, earnings per
share or net cash flows.

(b) Changes in internal controls. There were no significant changes in the
Company's internal control, during the quarter ended April 2, 2005, or other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                     PART II

                           PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

      In May 2004, two stockholder lawsuits, named Mariss Partners, LLP v.
      Salton, Inc., Leonhard Dreimann and David M. Mulder and Warren Beeler v.
      Salton, Inc., Leonhard Dreimann and David Mulder, were filed in the United
      States District Court for the Northern District of Illinois against the
      Company and certain Salton executives. The complaints allege that the
      defendants violated the federal securities laws, specifically Sections
      10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of
      the Securities and Exchange Commission, by making certain alleged false
      and misleading statements. The plaintiffs seek unspecified damages on
      behalf of a purported class of purchasers of our securities during the
      period from November 11, 2002 through May 11, 2004. The Company believes
      that these lawsuits are without merit and that it has compelling defenses
      to the allegations contained in the complaints. Salton intends to
      vigorously defend the Company. The outcome of the class action lawsuits
      cannot be predicted with certainty, however, Salton does not believe that
      this matter will have a material adverse affect on its business, financial
      condition or results of operations. Therefore, no amounts have been
      accrued for such claims. The plaintiffs have voluntarily dismissed the
      Mariss Partners lawsuit.

                                       28
<PAGE>

      In June 2003, the Company received a letter from Philips Domestic
      Appliances and Personal Care B.V. (Philips) accusing Salton of interfering
      in a contractual relationship between Philips and a manufacturing source
      for Salton, Electrical and Electronics (E&E), misappropriating trade
      secrets and infringing other unspecified intellectual property rights in
      connection with its development and marketing of the One:One single serve
      coffee maker. On August 14, 2003, Salton filed a complaint in the United
      States District Court for the Northern District of Illinois seeking a
      declaratory judgment that the Company had not infringed the alleged trade
      secret rights of Philips and had not tortuously interfered with the
      contractual relationship between Philips and E&E.

      Philips response has been to file a series of lawsuits against Salton. On
      October 23, 2003, Philips filed a counterclaim against Salton in the
      Northern District of Illinois, Declaratory Judgment case, reiterating the
      allegations of Philips' June letter and adding a claim for copyright
      infringement. The counterclaim sought to enjoin the distribution of the
      One:One in the United States and money damages. On January 5, 2004, the
      Court dismissed the action for failure to join E&E and suggested that the
      matter should be litigated in the courts of Hong Kong. Philips has
      appealed the Court's decision to the United States Court of Appeals for
      the Seventh Circuit. A decision on this appeal is not expected for a
      number of months. In view of the District Court's ruling, the Company
      sought and obtained the consent of E&E to join in the action previously
      filed by Philips in Hong Kong in May 2003, against E&E, alone. That Hong
      Kong suit alleges that E&E misappropriated trade secrets, infringed
      intellectual property and breached its contract with Philips in the
      process of developing and manufacturing the One:One coffee maker for
      Salton.

      On January 6, 2004, Philips filed a new action in the United States
      District Court for the Northern District of Illinois, against Salton
      alleging violations of U.S. Copyright Law seeking to enjoin the Company
      from selling the One:One coffee maker and any monetary damages that the
      Court deems proper. Contemporaneously, Philips sought a preliminary
      injunction. On January 30, 2004, the Court dismissed Philips' new action
      on the grounds that it was barred by the Court's dismissal decision in the
      prior action. Philips appealed this dismissal and the appeal was
      consolidated with the appeal of the earlier case in the United States
      Court of Appeals for the Seventh Circuit.

      On November 24, 2003, Philips and Sara Lee NV also filed a patent
      infringement suit against Salton asserting that the One:One infringed a
      U.S. patent. Like the other actions, this case seeks damages and
      injunctive relief. The case is pending as in the United States District
      Court for the Northern District of Illinois.

      Philips has also filed an action for copyright infringement in the United
      Kingdom. This suit alleges that the software on the electronic controller
      of the One:One infringes Philips copyright and seeks unspecified money
      damages and injunctive relief. At issue were the 55,624 units initially
      introduced into the United Kingdom; Salton has discontinued the sales of
      these units. This case is currently pending in the United Kingdom. E&E has
      intervened in this action, and E&E's motion to dismiss or in the
      alternative stay this action in favor of the Hong Kong action described
      above was denied. On October 14, 2004, Salton offered to submit to
      judgment in this action, and in the event the parties cannot agree on a
      royalty for the use of this software in the 55,624 units, a judicial
      determination will have to be made of any monetary award.

      The outcome of the foregoing legal matters cannot be predicted with
      certainty, however Salton does not believe that these actions will have a
      material adverse affect on its business, financial condition or results of
      operations. Therefore, no amounts have been accrued for such claims.

                                       29
<PAGE>

      Homeplace of America, a company in liquidation under the United States
      Bankruptcy Code, brought a lawsuit for recovery of preferential payments
      made to Salton and its subsidiary, Toastmaster, during the 90 day
      "preference" period prior to filing for bankruptcy. Homeplace's total
      claimed preferences are approximately $3.5 million. The trial started the
      first week of November 2004 in the U.S. Bankruptcy Court for the District
      of Delaware. Settlement discussions to date have not, in Salton's view,
      been meaningful. Salton does not believe that this matter will have a
      material adverse affect on its business, financial condition or results of
      operations. Therefore, no material amounts have been accrued for such
      claims.

      The Company has accrued approximately $0.2 million for the anticipated
      costs of environmental remediation at four of our sites. Although such
      costs could exceed that amount, Salton believes any such excess will not
      have a material adverse effect on the financial condition or annual
      results of operations of the Company.

      The Company is a party to various other actions and proceedings incident
      to our normal business operations. The Company believes that the outcome
      of any litigation will not have a material adverse effect on our business,
      financial condition or results of operations. The Company also has product
      liability and general liability insurance policies in amounts believed to
      be reasonable given its current level of business. Although historically
      the Company has not had to pay any material product liability claims, it
      is conceivable that we could incur claims for which we are not insured.

ITEM 6. EXHIBITS.

      The exhibits listed on the accompanying Index to Exhibits are filed as
      part of this Form 10-Q/A.

                                       30
<PAGE>

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: June 30, 2005               SALTON, INC.

                                     /s/ DAVID M. MULDER
                                     David M. Mulder
                                     Executive Vice President, Chief
                                     Administrative Officer and
                                     Senior Financial Officer
                                     (Duly Authorized Officer of the Registrant)

                                       31
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER                          DESCRIPTION OF DOCUMENT
--------------   -----------------------------------------------------------------------
<S>              <C>
12(A)            Computation of Ratio of Earnings to Fixed Charges

31.1             Certification By The Chief Executive Officer Pursuant To Section 302 Of
                 The Sarbanes-Oxley Act Of 2002

31.2             Certification By The Senior Financial Officer Pursuant To Section 302
                 Of The Sarbanes-Oxley Act Of 2002

32.1             Certification of The Chief Executive Officer Pursuant to 18 U.S.C.
                 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                 2002

32.2             Certification of The Senior Financial Officer Pursuant to 18 U.S.C.
                 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                 2002
</TABLE>

                                       32