<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 April 2, 2005 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 May 7, 2005, 11,376,297
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 April 2, 2005,  originally  filed May 12, 2005 (the
"Form 10-Q"), principally to reflect the restatement to reclassify the Company's
convertible preferred stock. As described in Note 14, subsequent to the issuance
of the Company's  condensed  consolidated  financial  statements for the quarter
ended April 2, 2005, 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 - April 2, 2005 and            4
                   July 3, 2004 (as restated, see Note 14)

                   Condensed Consolidated Statements of Operations - Thirteen weeks     5
                   ended April 2, 2005 and March 27, 2004 and Thirty-nine weeks
                   ended April 2, 2005 and March 27, 2004

                   Condensed Consolidated Statements of Cash Flows  - Thirty-nine       6
                   weeks ended April 2, 2005 and March 27, 2004 (as restated, see
                   Note 14)

                   Notes to Condensed Consolidated Financial Statements                 7

           Item 2: Management's Discussion and Analysis of Financial Condition and      20
                   Results of Operations

           Item 3: Quantitative and Qualitative Disclosures About Market Risk           31


           Item 4: Controls and Procedures                                              31

PART II            OTHER INFORMATION

           Item 1: Legal Proceedings                                                    32

           Item 5: Other Information                                                    35

           Item 6: Exhibits                                                             35

                   Signature                                                            36
</TABLE>


                                       3
<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                                  SALTON, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                APRIL 2, 2005  JULY 3, 2004
                                                                 (as restated, see Note 14)
<S>                                                              <C>            <C>
ASSETS
CURRENT ASSETS:
  Cash                                                           $  18,214      $  43,217
  Compensating balances on deposit                                  34,194         34,000
  Accounts receivable, less allowances                             179,378        180,391
  Inventories                                                      271,743        253,627
  Prepaid expenses and other current assets                         20,719         21,267
  Deferred income taxes                                             20,139         25,742
                                                                 ---------      ---------
       Total Current Assets                                        544,387        558,244
Property, Plant and Equipment, net                                  60,317         81,152
Tradenames                                                         185,691        184,421
Non-Current Deferred Tax Asset                                      34,991         18,007
Other Assets                                                        12,882         15,516
                                                                 ---------      ---------
TOTAL ASSETS                                                     $ 838,268      $ 857,340
                                                                 =========      =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Revolving line of credit and other current debt                $  73,200      $  48,667
  Senior subordinated notes due 2005 - current                     125,000              -
  Accounts payable                                                  90,845        137,671
  Accrued expenses                                                  74,523         56,997
  Income taxes payable                                              11,283          8,805
                                                                 ---------      ---------
       Total Current Liabilities                                   374,851        252,140
Non-Current Deferred Income Taxes                                    5,802          6,418
Senior Subordinated Notes Due 2005                                       -        125,000
Senior Subordinated Notes due 2008, including an adjustment of
   $7,702 and $9,581 to the carrying value related
     to interest rate swap agreements, respectively                156,951        158,642
Term Loan and Other Notes Payable                                  101,957        100,761
Other Long Term Liabilities                                         18,540         17,288
                                                                 ---------      ---------
                                                                   658,101        660,249
Minority Interest                                                   24,662         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: 2005-11,376,297 shares;
  2004-11,370,282 shares                                               148            148
  Treasury Stock - at cost                                         (65,793)       (65,793)
  Additional Paid-In Capital                                        55,757         56,147
  Accumulated Other Comprehensive Income                            17,947         12,668
  Retained Earnings                                                107,446        130,406
                                                                 ---------      ---------
        Total Stockholders' Equity                                 115,505        133,576
                                                                 ---------      ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $ 838,268      $ 857,340
                                                                 =========      =========
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                              13 WEEKS ENDED                  39 WEEKS ENDED
                                                      -------------------------------- ------------------------------
                                                      April 2, 2005   March 27, 2004   April 2, 2005   March 27, 2004
                                                      -------------   --------------   -------------   --------------
<S>                                                   <C>             <C>              <C>             <C>
NET SALES                                             $    203,365     $    191,376     $    854,476     $    827,018
Cost of Goods Sold                                         146,959          135,971          597,899          546,601
Distribution Expenses                                       15,833           16,813           52,931           54,264
                                                      ------------     ------------     ------------     ------------
GROSS PROFIT                                                40,573           38,592          203,646          226,153
Selling, General and Administrative Expenses                57,333           68,300          187,882          210,607
Impairment Loss on Goodwill and Intangible Assets              243           34,324              243           34,324
Restructuring Costs                                            287                -            1,077                -
                                                      ------------     ------------     ------------     ------------
OPERATING (LOSS) INCOME                                    (17,290)         (64,032)          14,444          (18,778)
Interest Expense, net                                       13,400            9,783           40,245           29,794
                                                      ------------     ------------     ------------     ------------
(LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST           (30,690)         (73,815)         (25,801)         (48,572)
Income Tax Benefit                                          (8,908)         (16,588)          (7,222)          (8,296)
Minority Interest                                              748              790            4,381            4,654
                                                      ------------     ------------     ------------     ------------
NET (LOSS)                                            $    (22,530)    $    (58,017)    $    (22,960)    $    (44,930)
                                                      ============     ============     ============     ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING              11,376,297       11,276,572       11,373,127       11,217,907
WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING                        11,376,297       11,276,572       11,373,127       11,217,907
Net (Loss) per Common Share: Basic                    $      (1.98)    $      (5.14)    $      (2.02)    $      (4.01)
Net (Loss) per Common Share: Diluted                  $      (1.98)    $      (5.14)    $      (2.02)    $      (4.01)
</TABLE>

            See Notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                        39 WEEKS ENDED
                                                                                ------------------------------
                                                                                APRIL 2, 2005  MARCH 27, 2004
                                                                                -------------  ---------------
                                                                                (AS RESTATED, SEE NOTE 14)
                                                                                ------------------------------
<S>                                                                             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (Loss)                                                                     $  (22,960)      $ (44,930)
  Adjustments to Reconcile Net (Loss) to Net Cash from Operating Activities:
    Imputed interest on notes payable and other non-cash items                       (1,362)         (1,354)
    Deferred income tax provision                                                   (14,488)          1,346
    Depreciation and amortization                                                    17,864          17,013
    Bad debt (recovery) provision                                                    (1,321)          1,740
    Loss on disposal of equipment                                                        41             335
    Inventory valuation adjustment                                                   (1,577)          1,278
    Impairment loss on goodwill and intangible assets                                   243          34,324
    Foreign currency gains and losses                                                    23             665
    Gain on sale of investment                                                         (109)              -
    Minority interest, net of tax                                                     4,381           4,654
    Changes in assets and liabilities:
       Accounts receivable                                                            3,301          13,032
       Inventories                                                                  (14,671)        (52,097)
       Prepaid expenses and other current assets                                        379          (6,864)
       Other non-current assets                                                         155            (198)
       Accounts payable                                                             (46,830)         58,644
       Income taxes payable                                                           2,573          (2,477)
       Accrued expenses                                                              21,440          19,860
                                                                                 ----------       ---------
          NET CASH FROM OPERATING ACTIVITIES                                        (52,918)         44,971
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                               (8,137)        (13,991)
  Proceeds from sale of property and investments                                     15,486             951
  Increase in compensating balances on deposit                                         (194)         (5,600)
                                                                                 ----------       ---------
          NET CASH FROM INVESTING ACTIVITIES                                          7,155         (18,640)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from revolving line of credit and other short term debt               25,369          12,689
  Repayment of long term debt                                                          (738)           (601)
  Distributions to minority shareholders                                             (2,296)              -
  Costs associated with refinancing                                                    (967)         (1,130)
  Additional payment for tradenames                                                    (619)        (21,750)
  Common stock issued                                                                    27             223
                                                                                 ----------       ---------
          NET CASH FROM FINANCING ACTIVITIES                                         20,776         (10,569)
                                                                                 ----------       ---------
Effect of Exchange Rate Changes on Cash                                                 (16)          1,613
                                                                                 ----------       ---------
Net Change in Cash                                                                  (25,003)         17,375
Cash, Beginning of Period                                                            43,217          32,602
                                                                                 ----------       ---------
Cash, End of Period                                                              $   18,214       $  49,977
                                                                                 ==========       =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Period for:
  Interest                                                                       $   27,334       $  20,807
  Income taxes, net of (refunds)                                                 $    5,424       $  (6,759)
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

In the  quarter  ended  April 2, 2005,  the  Company  incurred  a capital  lease
obligation of $81.

In the quarter ended March 27, 2004, the Company issued 146,902 shares of common
stock  out of  treasury  in lieu of cash  for the  final  payment  to one of the
venture participants under the Foreman obligation.

In the quarter  ended  December 27, 2003,  the Company  incurred a capital lease
obligation of $705.

            See Notes to Condensed Consolidated Financial Statements.

                                       4
<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.    NEW ACCOUNTING PRONOUNCEMENTS

      In March 2005, the Financial Accounting Standards Board (FASB) issued FASB
      Interpretation No. 47, "Accounting for Conditional Asset Retirement
      Obligations" to clarify certain provisions of FASB Statement No. 143,
      "Accounting for Asset Retirement Obligations." Interpretation No. 47
      specifies that the term "conditional asset retirement obligation" includes
      an entity's legal obligation to perform an asset retirement activity for
      which the timing and (or) method of settlement are conditional on a future
      event that may or may not be in the control of the entity. This
      interpretation provides that an entity is required to recognize a
      liability for a conditional asset retirement obligation if the fair value
      of the obligation can be reasonably estimated. Interpretation No. 47 is
      effective no later than the end of fiscal years ending after December 15,
      2005. The company is currently evaluating the impact of this
      interpretation on its financial statements.

      In December 2004, the FASB issued Statement No. 123(R), "Share Based
      Payment", which replaces Statement No. 123, "Accounting for Stock-Based
      Compensation," and Accounting Principles Board (APB) Opinion No. 25,
      "Accounting for Stock Issued to Employees." This statement requires
      compensation expense to be measured based on fair value of the stock
      options, and to be recognized as an expense on the financial statements.
      This statement is effective for fiscal periods beginning after June 15,
      2005. The Company will be adopting this statement for the first quarter of
      fiscal 2006, beginning July 3, 2005, and is currently evaluating the
      impact on its financial statements.

      On October 22, 2004, the American Jobs Creation Act (the "AJCA") was
      signed into law. The AJCA provides for a deduction of 85% of certain
      foreign earnings that are repatriated, as defined in the AJCA. The Company
      has completed its evaluation of the repatriation provision of the AJCA and
      does not intend to apply this provision to qualifying foreign earnings
      repatriations. The Company currently has options to employ lower tax
      alternatives for potential future foreign earnings repatriations,
      including accumulated foreign earnings that were previously taxed in the
      U.S., as well as the use of the Company's U.S. net operating loss
      carryforward.

3.    FINANCING ARRANGEMENTS

      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 ($15.0
      million) and a money market borrowing facility of up to (pound)7 million
      ($13.2 million). In addition, Salton Europe has an

                                       6
<PAGE>

      invoice finance facility of between (pound)15 and (pound)40 million
      ($28.2 million and $75.2 million) depending on seasonality and accounts
      receivable levels. As of April 2, 2005, there was $16.5 million
      outstanding under the facility, which is included in other current debt.

      The Company has $125.0 million of 10 3/4% senior subordinated notes
      outstanding with a maturity date of December 15, 2005. As of January 1,
      2005, the notes have been reclassified to current debt.

4.    STOCK-BASED COMPENSATION

      At April 2, 2005, the Company had various stock-based employee
      compensation plans, which are described more fully in Note 10 of 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 APB 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 No. 123, "Accounting for
      Stock-Based Compensation."

<TABLE>
<CAPTION>
                                                                              13 WEEKS ENDED              39 WEEKS ENDED
                                                                         -----------------------     -------------------------
                                                                          April 2,     March 27,      April 2,      March 27,
(In thousands except earnings per share)                                   2005          2004           2005          2004
                                                                         ---------     ---------     ----------     ---------
<S>                                                                      <C>           <C>           <C>            <C>
Net (loss) - as reported                                                 $ (22,530)    $ (58,017)    $  (22,960)    $ (44,930)
Less:  Total stock-based employee compensation expense determined
  under fair value based method for all awards, net of related taxes           376           427            948         1,281
                                                                         ---------     ---------     ----------     ---------
Net (loss)- pro forma                                                    $ (22,906)    $ (58,444)    $  (23,908)    $ (46,211)
                                                                         =========     =========     ==========     =========
(Loss) per share - basic
   As reported                                                           $   (1.98)    $   (5.14)    $    (2.02)    $   (4.01)
   Pro forma                                                                 (2.01)        (5.18)         (2.10)        (4.12)
(Loss) per share - diluted
   As reported                                                           $   (1.98)    $   (5.14)    $    (2.02)    $   (4.01)
   Pro forma                                                                 (2.01)        (5.18)         (2.10)        (4.12)
</TABLE>

5.    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 April 2, 2005 and March 27, 2004, and for the
      thirty-nine weeks ended April 2, 2005 and March 27, 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
      these periods.

      The computation of diluted shares outstanding for the thirteen weeks ended
      April 2, 2005 and March 27, 2004, and for the thirty-nine weeks ended
      April 2, 2005 and March 27, 2004, excludes incremental shares of 3,841,796
      million, 4,104,441 million, 3,797,866 million and 4,044,574 million,
      respectively, related to the Company's common stock equivalents, options
      and warrants. These shares are excluded due to their anti-dilutive effect.

6.    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

                                       7
<PAGE>

      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 $0.2 million and
      $8.7 million at April 2, 2005 and July 3, 2004, respectively. The change
      in the fair value of contracts in the third quarter of 2005 was $(5.5)
      million. There was $(0.6) million and $(6.0) million at April 2, 2005 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 April 2, 2005, the Company had foreign exchange forward contracts
      for the purchase of 37.6 million U.S. dollars. Contracts for the purchase
      of 25.1 million U.S. dollars were entered into during the third quarter of
      fiscal 2005.

7.    COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

      For the thirteen weeks ended April 2, 2005 and March 27, 2004, components
      of other comprehensive income include foreign currency translation
      adjustments of $(4.9) million and $1.6 million, respectively and
      derivative liability adjustments of $1.6 million and $1.8 million,
      respectively. For the thirty-nine weeks ended April 2, 2005 and March 27,
      2004, components of other comprehensive income include foreign currency
      translation adjustments of $(0.1) million and $12.6 million, respectively
      and derivative liability adjustments of $5.4 million and $(3.4) million,
      respectively.

<TABLE>
<CAPTION>
                                                           13 Weeks Ended                    39 Weeks Ended
                                                     ------------------------------  ------------------------------
(In thousands)                                       April 2, 2005   March 27, 2004  April 2, 2005   March 27, 2004
                                                     -------------   --------------  -------------   --------------
<S>                                                  <C>             <C>             <C>             <C>
Net (Loss)                                             $(22,530)        $(58,017)      $(22,960)        $(44,930)
Other Comprehensive Income, net of tax of
  $517 and $(537), $1,674 and $1,032, respectively       (3,272)           3,424          5,279            9,156
                                                       --------         --------       --------         --------
Comprehensive Income                                   $(25,802)        $(54,593)      $(17,681)        $(35,774)
                                                       ========         ========       ========         ========
</TABLE>

Accumulated other comprehensive income is comprised of the following:

<TABLE>
<CAPTION>
                                                                                        As Of
                                                                             ---------------------------
(In thousands)                                                               April 2, 2005  July 3, 2004
                                                                             -------------  ------------
<S>                                                                          <C>            <C>
Minimum Pension Liability, net of tax of $4,975 and $4,888, respectively       $(10,375)      $(10,172)
Unrealized Loss on Derivative, net of tax of $264 and $2,663, respectively         (630)        (6,030)
Foreign Currency Translation                                                     28,952         28,870
                                                                               --------       --------
                                                                               $ 17,947       $ 12,668
                                                                               ========       ========
</TABLE>

                                       8
<PAGE>

8.    PENSION BENEFIT PLANS

      The components of net periodic pension cost are as follows:

<TABLE>
<CAPTION>
                                                        Domestic                 Salton Europe                    Total
                                                 4/2/2005      3/27/2004      4/2/2005     3/27/2004      4/2/2005     3/27/2004
(In thousands)                                   --------      ---------      --------     ---------      --------     ---------
<S>                                              <C>           <C>            <C>          <C>            <C>          <C>
13 Weeks Ended:
   Service cost-benefits earned during the year    $  42          $  42        $  80         $  73          $ 122        $ 115
   Interest cost on projected benefit obligation     176            179          566           466            742          645
   Actuarial return on plan assets                  (156)          (166)        (439)         (346)          (595)        (512)
   Net amortization and deferral                      65             99          191           177            256          276
                                                   -----          -----        -----         -----          -----        -----
             Net pension cost                      $ 127          $ 154        $ 398         $ 370          $ 525        $ 524
                                                   =====          =====        =====         =====          =====        =====
</TABLE>

<TABLE>
<CAPTION>
                                                           Domestic              Salton Europe               Total
                                                    4/2/2005     3/27/2004   4/2/2005    3/27/2004   4/2/2005    3/27/2004
(In thousands)                                      --------     ---------   --------    ---------   --------    ---------
<S>                                                 <C>          <C>         <C>         <C>         <C>         <C>
39 Weeks Ended:
   Service cost-benefits earned during the year      $   126      $   126     $   236     $   220     $   362     $   346
   Interest cost on projected benefit obligation         529          536       1,666       1,398       2,195       1,934
   Actuarial return on plan assets                      (467)        (497)     (1,291)     (1,039)     (1,758)     (1,536)
   Net amortization and deferral                         194          296         561         530         755         826
                                                     -------      -------     -------     -------     -------     -------
             Net pension cost                        $   382      $   461     $ 1,172     $ 1,109     $ 1,554     $ 1,570
                                                     =======      =======     =======     =======     =======     =======
</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. Due to a shortfall in the Europe plan, the Company is
      legally obligated to bring the plan up to 90% minimum funding level within
      3 years and 100% in 10 years. Therefore, the contributions under the
      Europe plan have been increased to an expected $1.0 million in fiscal
      2005. As of April 2, 2005, $0.6 million and $0.6 million of contributions
      have been made to the domestic and Europe plans, respectively.

9.    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 April 2, 2005 and March 27,
      2004, no one customer accounted for more than 10.0% of total net sales.
      For the thirty-nine weeks ended April 2, 2005, one customer accounted for
      12.2% of total net sales. During the same period of fiscal 2004, no one
      customer accounted for more than 10.0% of net sales.

10.   LEASE COMMITMENTS

      The Company leases certain facilities and equipment under long-term
      operating leases. During the third quarter of fiscal 2005, the Company
      entered into a sale agreement, whereby it sold a distribution warehouse in
      Europe for $15.2 million, which approximated book value at the date of
      sale. The Company subsequently entered into an operating lease agreement
      for this distribution warehouse with an initial lease termination date of
      2030. Terms of the lease include scheduled rent increases every five

                                       9
<PAGE>

      years. Rental expense under this lease was approximately $0.3 million for
      the thirteen weeks ended April 2, 2005. The future minimum lease payments
      for this lease as of April 2, 2005 were as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended               (In thousands)
-----------------               --------------
<S>                             <C>
      2005                        $    276
      2006                           1,105
      2007                           1,105
      2008                           1,105
      2009                           1,105
Thereafter                          31,005
                                  --------
Total minimum lease payments      $ 35,701
                                  ========
</TABLE>

11.   LEGAL PROCEEDINGS

      SECURITIES CLASS ACTION LAWSUITS

      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.

      PHILIPS

      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

                                       10
<PAGE>

      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.

      PRODUCT LIABILITY

      On or about October 27, 2004, a lawsuit entitled DiNatale vs. Salton was
      filed in the New York State Supreme Court against the Company. The
      plaintiffs, who seek unspecified damages, allege that they were injured by
      water contaminated with lead taken from a tea kettle sold by the Company
      under its Russell Hobbs brand. The plaintiffs' attorney is seeking to
      convert the lawsuit into a class action suit. The manufacturer of the
      product and its insurer are defending this lawsuit. The Company's
      attorneys and its insurers are cooperating in the defense of the lawsuit.

      Shortly after receiving notice of the lawsuit, the Company voluntarily
      suspended selling the product. The Company believes that at substantially
      the same time, the two retailers who had purchased the kettle from the
      Company also suspended selling the product. Based on information received
      from the two retailers, the Company believes that only a limited number of
      the kettles were sold to consumers. The Company voluntarily contacted the
      U.S. Food and Drug Administration and has shared its information and test
      results concerning the product with the agency.

      The Company is reviewing the status of any other similar products, which
      the same manufacturer has sold to the Company in recent years.

      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.

                                       11
<PAGE>

      HOMEPLACE OF AMERICA

      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.

      ENVIRONMENTAL

      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.

      OTHER

      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.

12.   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 APRIL 2, 2005 (AS RESTATED, SEE NOTE 14)
(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                                     $     185    $     865 $        -  $   1,050     $  17,164      $     -     $  18,214
  Compensating balances on deposits                -            -          -          -        34,194            -        34,194
  Accounts receivable, net of allowances         122       89,969          -     90,091        89,287            -       179,378
  Inventories                                  5,790      161,751    (25,239)   142,302       129,441            -       271,743
  Prepaid expenses and other current assets    3,302        3,599          -      6,901        13,818            -        20,719
  Intercompany                               108,989      (67,307)       (17)    41,665       (41,665)           -             -
  Deferred income taxes                          846       10,059          -     10,905         9,234            -        20,139
                                           ---------    --------- ----------  ---------     ---------      -------     ---------
     Total Current Assets                    119,234      198,936    (25,256)   292,914       251,473            -       544,387
Property, Plant and Equipment, net             7,991       12,821          -     20,812        39,505            -        60,317
Investments in Subsidiaries                  390,594       53,682   (444,276)         -             -            -             -
Tradenames                                   135,099       10,312          -    145,411        40,280            -       185,691
Non-current deferred tax asset                     -            -     34,991     34,991             -            -        34,991
Other Assets                                  10,006          224          -     10,230         2,652            -        12,882
                                           ---------    --------- ----------  ---------     ---------      -------     ---------
Total Assets                               $ 662,924    $ 275,975 $ (434,541) $ 504,358     $ 333,910      $     -     $ 838,268
                                           =========    ========= ==========  =========     =========      =======     =========
     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Revolving line of credit and
   other current debt                      $       -    $  51,954 $        -  $  51,954     $  21,246      $     -     $  73,200
  Senior subordinated notes due 2005         125,000            -          -    125,000             -            -       125,000
  Accounts payable                             2,926        5,179        155      8,260        82,585            -        90,845
  Accrued expenses                            18,010       11,758          -     29,768        44,755            -        74,523
  Income taxes payable                         3,988            -          -      3,988         7,295            -        11,283
                                           ---------    --------- ----------  ---------     ---------      -------     ---------
     Total current liabilities               149,924       68,891        155    218,970       155,881            -       374,851
Non-current Deferred Income Taxes            (30,122)      (4,869)    34,991          -         5,802            -         5,802
Senior subordinated notes due 2008,
 including an adjustment of $7,702 to
 the carrying value related to interest
 rate swap agreements                        156,951            -          -    156,951             -            -       156,951
Term loan and other notes payable                  -      100,085          -    100,085         1,872            -       101,957
Other Long Term Liability                        836        3,700          -      4,536        14,004            -        18,540
                                           ---------    --------- ----------  ---------     ---------      -------     ---------
     Total liabilities                       277,589      167,807     35,146    480,542       177,559            -       658,101
Minority interest                                  -            -          -          -        24,662            -        24,662
Convertible Preferred Stock                   40,000            -          -     40,000             -            -        40,000
Stockholders' Equity                         345,335      108,168   (469,687)   (16,184)      131,689            -       115,505
                                           ---------    --------- ----------  ---------     ---------      -------     ---------
Total Liabilities and Stockholders' Equity $ 662,924    $ 275,975 $ (434,541) $ 504,358     $ 333,910      $     -     $ 838,268
                                           =========    ========= ==========  =========     =========      =======     =========
</TABLE>

                                       13
<PAGE>

CONSOLIDATING BALANCE SHEET AS OF JULY 3, 2004 (AS RESTATED, SEE NOTE 14)
(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                                       $       1   $     903    $        -  $    904    $ 42,313         $     -    $ 43,217
   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     266,320               -     558,244
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                   8,840       9,167             -    18,007           -               -      18,007
 Other Assets                                   12,442         274             -    12,716       2,800               -      15,516
                                             ---------   ---------    ----------  --------    --------         -------    --------
Total Assets                                 $ 701,024   $ 266,101    $ (473,516) $493,609      363,731              -    $857,340
                                             =========   =========    ==========  ========    =========        =======    ========
    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      34,028               -      56,997
  Income taxes payable                          (2,336)     (1,496)            -    (3,832)     12,637               -       8,805
                                             ---------   ---------    ----------  --------    --------         -------    --------
     Total current liabilities                  10,077      47,210          (584)   56,703     195,437               -     252,140
Non-current Deferred Income Taxes                    -           -             -         -       6,418               -       6,418
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                         294,137     151,317          (584)  444,870     215,379               -     660,249
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   $ 701,024   $ 266,101    $ (473,516) $493,609    $363,731         $     -    $857,340
                                             =========   =========    ==========  ========    ========         =======    ========
</TABLE>

                                       14
<PAGE>

CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED APRIL 2, 2005
(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                                     $  55,700  $ 124,772    $ (87,092)   $  93,380  $ 160,150    $ (50,165)   $ 203,365
Cost of Goods Sold                               44,646    110,428      (85,555)      69,519    126,998      (49,558)     146,959
Distribution Expenses                                 -      8,601            -        8,601      7,232                    15,833
                                              ---------  ---------    ---------    ---------  ---------    ---------    ---------
    Gross Profit                                 11,054      5,743       (1,537)      15,260     25,920         (607)      40,573
Selling, General and Administrative expenses     11,139     14,061            -       25,200     32,740         (607)      57,333
Intangible Impairment Loss                            -        243            -          243          -                       243
Impairment loss on Goodwill and
  Intangible Assets                                 173        114            -          287          -            -          287
                                              ---------  ---------    ---------    ---------  ---------    ---------    ---------
    Operating(Loss) Income                         (258)    (8,675)      (1,537)     (10,470)    (6,820)           -      (17,290)
Interest Expense, Net                             7,254      3,792            -       11,046      2,354            -       13,400
Equity in Earnings of Subsidiaries               19,066         (9)     (19,057)           -          -            -            -
                                              ---------  ---------    ---------    ---------  ---------    ---------    ---------
  (Loss) Income Before Income Taxes
     and Minority Interest                      (26,578)   (12,458)      17,520      (21,516)    (9,174)           -      (30,690)
Income Tax (Benefit) Expense                     (5,594)         -            -       (5,594)    (3,314)           -       (8,908)
Minority interest                                     -          -            -                     748            -          748
                                              ---------  ---------    ---------    ---------  ---------    ---------    ---------
    Net (Loss) Income                         $ (20,984) $ (12,458)   $  17,520    $ (15,922) $  (6,608)   $       -    $ (22,530)
                                              =========  =========    =========    =========  =========    =========    =========
</TABLE>

CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED
MARCH 27, 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                                  $  47,801    $ 120,623    $ (71,041)   $  97,383    $ 154,242    $ (60,249)   $ 191,376
Cost of Goods Sold                            35,411       91,688      (67,676)      59,423      124,600      (48,052)     135,971
Distribution Expenses                              -       10,752            -       10,752        6,061            -       16,813
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Gross Profit                              12,390       18,183       (3,365)      27,208       23,581      (12,197)      38,592
Selling, General and Administrative
  expenses                                    19,264       25,694            -       44,958       36,238      (12,896)      68,300
Impairment loss on Goodwill and
  Intangible Assets                                -       24,143            -       24,143       10,181            -       34,324
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Operating(Loss) Income                    (6,874)     (31,654)      (3,365)     (41,893)     (22,838)         699      (64,032)
Interest Expense, Net                          6,886        1,274            -        8,160        1,623            -        9,783
Equity in Earnings of Subsidiaries            53,923          145      (54,068)           -            -            -            -
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
  (Loss) Income Before Income Taxes
      and Minority Interest                  (67,683)     (33,073)      50,703      (50,053)     (24,461)         699      (73,815)
Income Tax (Benefit) Expense                  (9,259)      (5,167)           -      (14,426)      (2,162)           -      (16,588)
Minority interest                                  -            -            -                       790            -          790
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Net (Loss) Income                      $ (58,424)   $ (27,906)   $  50,703    $ (35,627)   $ (23,089)   $     699    $ (58,017)
                                           =========    =========    =========    =========    =========    =========    =========
</TABLE>

                                       15
<PAGE>

CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED APRIL 2,
2005
(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                                   $ 174,077    $ 466,239    $(279,066)   $ 361,250    $ 703,320    $(210,094)   $ 854,476
Cost of Goods Sold                            141,134      396,695     (282,168)     255,661      542,058     (199,820)     597,899
Distribution Expenses                               -       27,364            -       27,364       25,567            -       52,931
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Gross Profit                               32,943       42,180        3,102       78,225      135,695      (10,274)     203,646
Selling, General and Administrative
  expenses                                     42,123       36,726            -       78,849      119,307      (10,274)     187,882
Intangible Impairment Loss                          -          243                       243            -            -          243
Restructuring Costs                               527          550            -        1,077            -            -        1,077
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Operating Income                           (9,707)       4,661        3,102       (1,944)      16,388            -       14,444
Interest Expense, net                          21,589       11,312            -       32,901        7,344            -       40,245
Income (Loss) from Subsidiary                   4,123          (36)      (4,087)           -            -            -            -
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
  (Loss) Income Before Income Taxes
      and Minority Interest                   (35,419)      (6,615)       7,189      (34,845)       9,044            -      (25,801)
Income Tax (Benefit) Expense                   (9,394)           -            -       (9,394)       2,172            -       (7,222)
Minority Interest, net of tax                       -            -            -            -        4,381            -        4,381
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Net (Loss) Income                       $ (26,025)   $  (6,615)   $   7,189    $ (25,451)   $   2,491    $       -    $ (22,960)
                                            =========    =========    =========    =========    =========    =========    =========
</TABLE>

CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED MARCH 27,
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                                  $ 214,758    $ 561,820    $(344,470)   $ 432,108    $ 650,922    $(256,012)   $ 827,018
Cost of Goods Sold                           163,762      464,694     (340,022)     288,434      498,283     (240,116)     546,601
Distribution Expenses                              -       34,591            -       34,591       19,673            -       54,264
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Gross Profit                              50,996       62,535       (4,448)     109,083      132,966      (15,896)     226,153
Selling, General and Administrative
  expenses                                    44,650       86,520            -      131,170       95,333      (15,896)     210,607
Impairment Loss on Goodwill and
  Intangible Assets                                -       24,143            -       24,143       10,181                    34,324
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Operating (Loss) Income                    6,346      (48,128)      (4,448)     (46,230)      27,452            -      (18,778)
Interest Expense, Net                         21,052        3,760            -       24,812        4,982            -       29,794
Equity in Earnings of Subsidiaries            37,832          754      (38,586)           -            -            -            -
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
  (Loss) Income Before Income Taxes
        and Minority Interest                (52,538)     (52,642)      34,138      (71,042)      22,470            -      (48,572)
Income Tax (Benefit) Expense                  (8,376)      (9,282)           -      (17,658)       9,362            -       (8,296)
Minority interest                                  -            -            -            -        4,654                     4,654
                                           ---------    ---------    ---------    ---------    ---------    ---------    ---------
    Net (Loss) Income                      $ (44,162)   $ (43,360)   $  34,138    $ (53,384)   $   8,454    $       -    $ (44,930)
                                           =========    =========    =========    =========    =========    =========    =========
</TABLE>

                                       16
<PAGE>


CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED APRIL 2,
2005 (AS RESTATED, SEE NOTE 14)
(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)                        $(26,025)   $ (6,615)    $  7,189    $(25,451)    $  2,491     $      -      $(22,960)
   Adjustments to reconcile net income
    (loss) to net cash used in operating
    activities:
      Imputed interest on notes payable
           and other non-cash items           (1,690)          -            -      (1,690)         328            -        (1,362)
      Deferred income tax provision          (21,215)     10,816            -     (10,399)      (4,089)           -       (14,488)
      Depreciation and amortization            7,091       2,457            -       9,548        8,316                     17,864
       Bad debt (recovery) provision               -      (1,367)           -      (1,367)          46                     (1,321)
      Loss on disposal of equipment                -         100            -         100          (59)           -            41
      Inventory valuation adjustment               -        (662)           -        (662)        (915)                    (1,577)
      Impairment loss on intangible asset          -         243                      243            -            -           243
       Foreign currency gains and lossess          -          23            -          23            -            -            23
       Gain on sale of investment                  -           -            -           -         (109)                      (109)
      Equity in net income of
        unconsolidated affilate/
        consolidated subsidiaries              4,124         (36)      (4,088)          -            -            -             -
      Minority interest                            -           -            -           -        4,381            -         4,381
      Changes in assets and liabilities:
        Accounts receivable                      189       8,280            -       8,469       (5,168)           -         3,301
        Inventories                             (657)      4,099       (3,101)        341      (15,012)                   (14,671)
        Prepaid expenses and other current
         assets                                1,753      (1,002)           -         751         (372)           -           379
        Other non-current assets                   -          52            -          52          103                        155
        Accounts payable                           3       3,881            -       3,884      (50,714)           -       (46,830)
        Taxes payable                          6,324       1,497            -       7,821       (5,248)           -         2,573
        Accrued expenses                      32,202     (39,750)           -      (7,548)      28,988            -        21,440
                                            --------    --------     --------    --------     --------     --------      --------
         NET CASH FROM OPERATING ACTIVITIES    2,099     (17,984)           -     (15,885)     (37,033)           -       (52,918)
                                            --------    --------     --------    --------     --------     --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                    (599)       (524)           -      (1,123)      (7,014)           -        (8,137)
        Proceeds from sale of property and
         investments                               -         120            -         120       15,366            -        15,486
        Increase in compensating balances
          on deposit                               -                                    -         (194)                      (194)
                                            --------    --------     --------    --------     --------     --------      --------
         NET CASH FROM INVESTING ACTIVITIES     (599)       (404)           -      (1,003)       8,158            -         7,155
                                            --------    --------     --------    --------     --------     --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net proceeds from revolving line of
        credit and other short term debt           -      19,070            -      19,070        6,299            -        25,369
       Repayment of long-term debt                 -        (477)           -        (477)        (261)           -          (738)
       Distributions to minority
         shareholders                              -           -            -           -       (2,296)                    (2,296)
       Costs associated with refinancing        (967)          -            -        (967)           -            -          (967)
        Additional payment for patents and
         trademarks                             (376)       (243)           -        (619)           -            -          (619)
       Common stock issued                        27           -            -          27            -            -            27
                                            --------    --------     --------    --------     --------     --------      --------
        NET CASH FROM FINANCING ACTIVITIES    (1,316)     18,350            -      17,034        3,742            -        20,776
                                            --------    --------     --------    --------     --------     --------      --------
Effect of Exchange Rate Changes on Cash            -           -            -           -          (16)           -           (16)
                                            --------    --------     --------    --------     --------     --------      --------
Net Change in Cash                               184         (38)           -         146      (25,149)           -       (25,003)
Cash, Beginning of Period                          1         903            -         904       42,313            -        43,217
                                            --------    --------     --------    --------     --------     --------      --------
Cash, End of Period                         $    185    $    865     $      -    $  1,050     $ 17,164     $      -      $ 18,214
                                            ========    ========     ========    ========     ========     ========      ========
</TABLE>

                                       17
<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED MARCH 27,
2004 (AS RESTATED, SEE NOTE 14)
(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)                        $(44,162)   $(43,361)    $ 34,137    $(53,386)    $  8,456     $     -       $(44,930)
   Adjustments to reconcile net income
    (loss) to net cash used in operating
    activities:
      Imputed interest on notes payable       (1,691)          -            -      (1,691)         337           -         (1,354)
      Deferred income tax provision            1,794        (519)           -       1,275           71           -          1,346
      Depreciation and amortization            7,088       3,074            -      10,162        6,851           -         17,013
      Bad debt provision                           -       1,740                    1,740            -           -          1,740
      Loss on disposal of equipment                -           -            -           -          335           -            335
      Equity in net income of
        unconsolidated affilate/
        consolidated subsidiaries             37,832         753      (38,585)          -            -           -              -
      Inventory valuation adjustment               -       1,278                    1,278            -           -          1,278
      Impairment loss on goodwill and
        intangible assets                          -      24,143            -      24,143       10,181           -         34,324
      Foreign currency gains and losses            -         665            -         665            -           -            665
      Minority interest                            -           -            -           -        4,654           -          4,654
      Changes in assets and liabilities:
        Accounts receivable                     (116)     16,836            -      16,720       (3,688)          -         13,032
        Inventories                           (7,019)    (19,341)       4,448     (21,912)     (30,185)          -        (52,097)
        Prepaid expenses and other current
         assets                               (1,098)        423            -        (675)      (6,189)          -         (6,864)
       Other non-current assets                    -           -            -           -         (198)          -           (198)
        Accounts payable                       2,048         886            -       2,934       55,710           -         58,644
        Taxes payable                         15,848     (20,268)           -      (4,420)       1,943           -         (2,477)
        Accrued expenses                      14,503      21,791            -      36,294      (16,434)          -         19,860
                                            --------    --------     --------    --------     --------    --------       --------
         NET CASH FROM OPERATING ACTIVITIES   25,027     (11,900)           -      13,127       31,844           -         44,971
                                            --------    --------     --------    --------     --------    --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                  (2,051)     (2,828)           -      (4,879)      (9,112)          -        (13,991)
        Proceeds from sale of investment           -           -            -           -          951           -            951
        Increase in compensating balances
         on deposit                                -           -            -           -       (5,600)          -         (5,600)
                                            --------    --------     --------    --------     --------    --------       --------
         NET CASH FROM INVESTING ACTIVITIES   (2,051)     (2,828)           -      (4,879)     (13,761)          -        (18,640)
                                            --------    --------     --------    --------     --------    --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net proceeds from revolving line of
         credit and other short term debt          -       7,500            -       7,500        5,189           -         12,689
       Repayment of long-term debt              (317)       (284)           -        (601)           -           -           (601)
       Costs associated with refinancing      (1,130)          -            -      (1,130)           -           -         (1,130)
       Additional payment for tradenames     (21,750)          -            -     (21,750)           -           -        (21,750)
       Common stock issued                       223           -            -         223            -           -            223
                                            --------    --------     --------    --------     --------    --------       --------
        NET CASH FROM FINANCING ACTIVITIES   (22,974)      7,216            -     (15,758)       5,189           -        (10,569)
                                            --------    --------     --------    --------     --------    --------       --------
Effect of Exchange Rate Changes on Cash            -           -            -           -        1,613           -          1,613
Net Change in Cash                                 2      (7,512)           -      (7,510)      24,885           -         17,375
Cash, Beginning of Period                          -       8,972            -       8,972       23,630           -         32,602
                                            --------    --------     --------    --------     --------    --------       --------
Cash, End of Period                         $      2    $  1,460     $      -    $  1,462     $ 48,515    $      -       $ 49,977
                                            ========    ========     ========    ========     ========    ========       ========
</TABLE>

                                       18
<PAGE>

13. SUBSEQUENT EVENT

On May 11, 2005, the Company entered into a Second Amendment to the Amended and
Restated Credit Agreement by and among Wells Fargo Foothill, Inc., as
administrative agent and collateral agent, Silver Point Finance, LLC, as the
co-agent, syndication agent, documentation agent, arranger and book runner, the
Company and each of the Company's domestic subsidiaries. The Second Amendment
amends and restates (a) the minimum Consolidated Fixed Charge Coverage Ratio
that the Company must maintain for the rolling twelve-month periods ending each
calendar month from March 31, 2005 through December 31 2005, (b) the minimum
EBITDA covenant and (c) the definition of "Borrowing Base" to provide up to an
additional $11 million of availability. The Amendment subjects the Company's
foreign subsidiaries (other than Amalgamated Appliance Holdings Limited
("AMAP")) to the covenants currently restricting the Company and its domestic
subsidiaries from engaging in certain actions without the consent of the senior
lender, including incurring debt, engaging in mergers or certain sales of
assets, making guaranties, incurring liens or engaging in sale and leaseback
transactions. The Second Amendment also increases the prepayment premium and
provides for certain mandatory prepayments upon issuance of debt or equity, or
sales of certain assets, by the Company's foreign subsidiaries. The Amendment is
subject to certain conditions, including that the Company deliver to the senior
lender within certain time periods stock pledges of certain of the Company's
foreign subsidiaries, including AMAP.

14. RESTATEMENT AND RECLASSIFICATION

Subsequent to the issuance of the Company's condensed consolidated financial
statements as of and for the thirteen and thirty-nine weeks ended April 2, 2005,
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 April 2, 2005
 Convertible preferred stock         $      -      $ 40,000
 Additional paid-in capital            95,757        55,757
 Stockholders' equity (deficit)       155,505       115,505
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 $0.2 million at
April 2, 2005 and $5.6 million at March 27, 2004, 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 $0.6 million at April 2, 2005 and
$21.8 million at March 27, 2004, which were previously classified as part of
investing activities on the Condensed Consolidated Statements of Cash Flows have
been reclassified as financing activities.

                                       19
<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 14.

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 12.1% of the
gross accounts receivable at April 2, 2005 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.

                                       20
<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 50.1% and 53.7% of the Company's inventories as of April 2,
2005 and July 3, 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.

REVENUE RECOGNITION - The Company recognizes revenue at FOB shipping point which
corresponds to when title and risks and rewards of ownership transfer to its
customers. Fees charged for shipping and handling are included in net sales and
the associated costs are included in distribution expenses. Provision is made
for estimated cost of returns, warranties and product liability claims.

                                       21
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In March 2005, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations"
to clarify certain provisions of FASB Statement No. 143, "Accounting for Asset
Retirement Obligations." Interpretation No. 47 specifies that the term
"conditional asset retirement obligation" includes an entity's legal obligation
to perform an asset retirement activity for which the timing and (or) method of
settlement are conditional on a future event that may or may not be in the
control of the entity. This interpretation provides that an entity is required
to recognize a liability for a conditional asset retirement obligation if the
fair value of the obligation can be reasonably estimated. Interpretation No. 47
is effective no later than the end of fiscal years ending after December 15,
2005. The company is currently evaluating the impact of this interpretation on
its financial statements.

In December 2004, the FASB issued Statement No. 123(R), "Share Based Payment",
which replaces Statement No. 123, "Accounting for Stock-Based Compensation," and
Accounting Principals Board (APB) opinion No. 25, "Accounting for Stock Issued
to Employees." This statement requires compensation expense to be measured based
on fair value of the stock options, and to be recognized as an expense on the
financial statements. This statement is effective for fiscal periods beginning
after June 15, 2005. The Company will be adopting this statement for the first
quarter of fiscal 2006, beginning July 3, 2005, and is currently evaluating the
impact on its financial statements.

On October 22, 2004, the American Jobs Creation Act (the "AJCA") was signed into
law. The AJCA provides for a deduction of 85% of certain foreign earnings that
are repatriated, as defined in the AJCA. The Company has completed its
evaluation of the repatriation provision of the AJCA and does not intend to
apply this provision to qualifying foreign earnings repatriations. The Company
currently has options to employ lower tax alternatives for potential future
foreign earnings repatriations, including accumulated foreign earnings that were
previously taxed in the U.S., as well as the use of the Company's U.S. net
operating loss carryforward.

QUARTER IN REVIEW

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

During the third quarter, Salton invested approximately $4.2 million of selling,
advertising, general and administrative costs to expand sales into Spain, Italy
and Germany, which resulted in new sales of $4.5 million for the quarter.

Domestic price increases are underway within the industry to offset rising
product costs to the domestic market. Although the Company believes the
industry-wide cost drivers will ultimately result in the acceptance of the price
increases, existing industry inventories built under lower cost structures could
delay full acceptance of the price increases in the immediate future.

We continued to implement the U.S. restructuring plan with additional headcount
reductions and facility closures in the domestic operations. Our U.S.
restructuring plan is on-target and, when fully implemented this fiscal year, is
expected to generate in excess of $40.0 million in annual cost savings.

                                       22
<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                        13 WEEKS ENDED
                                                 -----------------------------
                                                 APRIL 2, 2005  MARCH 27, 2004
                                                 -------------  --------------
<S>                                              <C>            <C>
Net sales                                            100.0%         100.0%
Cost of goods sold                                    72.2           71.0
Distribution expenses                                  7.8            8.8
                                                     -----          -----
      Gross profit                                    20.0%          20.2%
Selling, general and administrative expense           28.2           35.7
Intangible Impairment Loss                             0.1           17.9
Restructuring Costs                                    0.1            0.0
                                                     -----          -----
Operating income                                      -8.4%         -33.4%
                                                     =====          =====
</TABLE>

THIRD QUARTER FISCAL 2005 COMPARED TO THIRD QUARTER FISCAL 2004

NET SALES AND GROSS PROFIT

Sales for the third quarter of 2005 were $203.4 million compared to $191.4
million the third quarter of 2004. The $12.0 million or 6.3% increase was
primarily a result of a $3.3 million domestic sales increase, led primarily by
an increase in the sale of George Foreman branded products and an $8.7 million
foreign sales increase primarily driven by increases in AMAP. Foreign sales
increase includes $7.8 million of foreign currency fluctuation gain.

International growth from AMAP, Brazil and Mexico and new growth from our
start-up operations in Spain, Italy and Germany, was partially offset by softer
sales in the United Kingdom as a result of a continued weak retail environment.

Gross profit, as a percent of net sales, was 20.0% in third quarter of 2005 as
compared to 20.2% in third quarter of 2004, a decrease of 0.2%. The gross profit
was impacted by lower gross margins domestically, principally as a result of
higher materials costs and inventory reduction efforts.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased to 28.2% of net sales or
$57.3 million in the third quarter of 2005 compared to 35.7% of net sales or
$68.3 million for the third quarter of 2004. The decrease was a result of
domestic cost reductions partially offset by approximately $4.2 million of
additional expenses associated with our new subsidiaries in Spain, Italy and
Germany and $1.6 million of foreign currency fluctuations.

For the third quarter of 2005, as a percent of sales, expenditures for
television, royalty expense, certain other media and cooperative advertising and
promotional activities decreased to 9.8% from 14.5% of net sales for second
quarter of 2004. Most of the decrease was in cooperative advertising and
promotional activities in the domestic market, which were reduced to more
normalized levels in the current year.

NET INTEREST EXPENSE

Net interest expense was $13.4 million for the third quarter of 2005 compared to
$9.8 million in the third quarter of 2004. Our annualized weighted average rate
of interest on average borrowings was 11.6% in the third quarter of 2005
compared to 10.5% in the same period in 2004. The average amount of all debt
outstanding was $463.7 million for the third quarter of 2005 compared to $373.3
million for the same period in 2004.

                                       23
<PAGE>

IMPAIRMENT LOSS ON GOODWILL AND INTANGIBLE ASSETS

Effective with the beginning of Fiscal Year 2003, the Company adopted SFAS No.
142, "Goodwill and Other Intangible Assets". Upon adoption of SFAS No. 142, the
Company discontinued the amortization of goodwill and indefinite lived
intangible assets and instead, performs an annual fair-value based impairment
test which is done more frequently if circumstances indicate a potential
impairment.

The annual test for impairment of goodwill and other intangible assets is
conducted during the fourth quarter of each fiscal year, with interim reviews
performed by Management quarterly. Management determined that the balance of
$0.2 million of goodwill was impaired and was therefore written off in the third
quarter 2005. There was no other impairment of the Tradenames comprising the
remaining balances. During the third quarter of 2004, Management determined that
the combination of certain events including the shortfall in meeting projected
operating results along with the Company's inability to meet its financial debt
covenant requirement for its senior secured revolving credit facility for two
consecutive quarters and a downgrade in the debt rating could have an adverse
effect on the carrying value of the Goodwill and Other Intangible Assets so an
interim impairment test was conducted. As a result, the Company determined that
the implied fair value of goodwill and the fair value of certain other
indefinite lived intangible assets were less than their carrying values and the
Company recorded a non-cash impairment charge totaling $34.3 million pre-tax or
$29.9 million net of tax, consisting of consolidated goodwill of $28.2 million
and certain other indefinite lived intangible assets of $6.1 million.

RESTRUCTURING EXPENSE

Restructuring expenses in the current quarter included closure costs for certain
distribution facilities and consulting fees.

INCOME TAXES

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 benefit for the third quarter of 2005 of (29.0)%
to differ from the prior year rate of (22.5)% due to a shift in income mix from
lower rate foreign jurisdictions to the U.S. in 2005 as well as non-deductible
goodwill impairment charges and the establishment of deferred tax valuation
allowances recorded in 2004. The effective tax rate benefit for the third
quarter 2005 was also impacted by $1.1 million of adjustments to certain
deferred tax asset balances and an increase in tax reserves based upon
management's estimates of probable losses. The adjustments of the deferred tax
asset balances are not material to the Company's estimated full year earnings
per share, cash from operations or shareholders' equity.

THIRTY-NINE WEEKS IN REVIEW

For the first thirty-nine weeks of fiscal 2005 (thirty-nine weeks ended April 2,
2005), 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.

Salton continued its international expansion and opened operations in Spain,
Italy and Germany, generating $10.3 million in new international business.

We continued to implement the U.S. restructuring plan with additional headcount
reductions and facility closures in the domestic operations. Our U.S.
restructuring plan is on-target and, when fully implemented this fiscal year, is
expected to generate at least $40.0 million in annual cost savings.

                                       24
<PAGE>

In connection with the U.S. restructuring, we recorded pretax charges of $1.1
million in the first thirty-nine weeks of fiscal 2005 for consulting and legal
fees, termination and severance costs associated with the headcount reduction in
the U.S. and costs involved in the closure of certain distribution facilities
Although the dollar amount is minimal, these costs do impact the overall
comparability of reported operating income, net income and earnings per share
for the first half of fiscal 2005.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                      39 WEEKS ENDED
                                                -----------------------------
                                                APRIL 2, 2005  MARCH 27, 2004
                                                -------------  --------------
<S>                                             <C>            <C>
Net sales                                           100.0%         100.0%
Cost of goods sold                                   70.0           66.1
Distribution expenses                                 6.2            6.6
                                                    -----          -----
      Gross profit                                   23.8%          27.3%
Selling, general and administrative expense          22.0           25.5
Intangible impairment loss                            0.0            4.1
Restructuring costs                                   0.1            0.0
                                                    -----          -----
Operating income                                      1.7%          -2.3%
                                                    =====          =====
</TABLE>

FIRST THIRTY-NINE WEEKS OF 2005 COMPARED TO FIRST THIRTY-NINE WEEKS OF FISCAL
2004

NET SALES AND GROSS PROFIT

Salton's net sales for the thirty-nine weeks ended April 2, 2005 were $854.5
million. This represented an increase in revenues of 3.3% compared to $827.0
million for the same period in 2004. This increase was primarily the result of
foreign sales increases of $73.5 million, which includes $38.5 million of
foreign currency fluctuation gain, substantially offset by decreases in the
domestic market from the first half of 2005.

Gross profit in first thirty-nine weeks of 2005 decreased to $203.6 million
compared to $226.1 million in the first thirty-nine weeks of 2004. As a percent
of net sales, gross profit decreased from 27.3% in the first thirty-nine weeks
of 2004 to 23.8% of net sales in the first thirty-nine weeks of 2005. The
percentage decline was primarily a result of a higher volume of lower margin
electronic sales from AMAP, higher industry-wide product costs, promotional
pricing to launch the Company's coffee pod initiatives combined with a large
volume of lower margin sales in the domestic market in an effort to move
discontinued product under our inventory reduction plans and warehouse closures.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased to 22.0% of net sales or
$187.9 million in first thirty-nine weeks of 2005 compared to 25.5% of net sales
or $210.6 million for first thirty-nine weeks of 2004. Cost reductions achieved
under the U.S. restructuring plan were partially offset by foreign

                                       25
<PAGE>

increases which included international expansion, and $7.9 million related to
foreign currency fluctuations.

For the first thirty-nine weeks of 2005, as a percent of sales, expenditures for
television, royalty expense, certain other media and cooperative advertising and
promotional activities decreased to 9.1% from 11.9% of sales for first
thirty-nine weeks of 2004. While first quarter product launches increased direct
advertising expenditures, second quarter promotional and direct advertising
expenditures were reduced and third quarter cooperative advertising and
promotional activities returned to more normalized levels. This returned the
Company's overall rate of expenditures to a more normalized level.

IMPAIRMENT LOSS ON GOODWILL AND INTANGIBLE ASSETS

Effective with the beginning of Fiscal Year 2003, the Company adopted SFAS No.
142, "Goodwill and Other Intangible Assets". Upon adoption of SFAS No. 142, the
Company discontinued the amortization of goodwill and indefinite lived
intangible assets and instead, performs an annual fair-value based impairment
test which is done more frequently if circumstances indicate a potential
impairment.

The annual test for impairment of goodwill and other intangible assets is
conducted during the fourth quarter of each fiscal year, with interim reviews
performed by Management quarterly. Management determined that the balance of
$0.2 million of goodwill was impaired and was therefore written off in the third
quarter 2005. There was no other impairment of the Tradenames comprising the
remaining balances. During the third quarter of 2004, Management determined that
the combination of certain events including the shortfall in meeting projected
operating results along with the Company's inability to meet its financial debt
covenant requirement for its senior secured revolving credit facility for two
consecutive quarters and a downgrade in the debt rating could have an adverse
effect on the carrying value of the Goodwill and Other Intangible Assets so an
interim impairment test was conducted. As a result, the Company determined that
the implied fair value of goodwill and the fair value of certain other
indefinite lived intangible assets were less than their carrying values and the
Company recorded a non-cash impairment charge totaling $34.3 million pre-tax or
$29.9 million net of tax, consisting of consolidated goodwill of $28.2 million
and certain other indefinite lived intangible assets of $6.1 million.

RESTRUCTURING COSTS

In connection with the U.S. restructuring, we recorded pretax charges of $1.1
million in the first thirty-nine weeks of fiscal 2005 for consulting and legal
fees, termination and severance costs associated with the headcount reduction in
the U.S. and costs involved in the closure of certain distribution facilities.

NET INTEREST EXPENSE

Net interest expense was $40.2 million for the first thirty-nine weeks of fiscal
2005 compared to $29.8 million in the first thirty-nine weeks of fiscal 2004.
Our annualized weighted average rate of interest on average borrowings was 11.2%
in the first thirty-nine weeks of 2005 compared to 10.0% in the same period in
2004. The average amount of all debt outstanding was $480.7 million for the
first thirty-nine weeks of 2005 compared to $397.3 million for the same period
in 2004.

                                       26
<PAGE>

INCOME TAXES

Our provision for income taxes is based upon estimated annual tax rates for the
year applied to federal, state, and foreign income. We expect our effective tax
rate benefit for the thirty-nine weeks ended April 2, 2005 of (28.0)% to differ
from the prior year rate of (17.1)% due to a shift in income mix from lower rate
foreign jurisdictions to the U.S. in 2005 as well as non-deductible goodwill
impairment charges and the establishment of deferred tax valuation allowances
recorded in 2004. The effective tax rate benefit for the thirty-nine weeks ended
April 2, 2005 was also impacted by a $1.1 million of adjustments to certain
deferred tax asset balances and an increase in tax reserves based upon
management's estimates of probable losses. The adjustments of the deferred tax
asset balances are not material to our estimated full year earnings per share,
cash from operations or shareholders' equity.

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 the first
thirty-nine weeks of fiscal 2005, Salton's operations used $52.9 million in cash
flow, compared with cash inflow of $45.0 million in the first thirty-nine weeks
of fiscal 2004. The most significant impact was in accounts payable, which was a
source of cash rising $58.6 million in the prior year but decreased to $46.8
million in the current year. 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, we have recently experienced an upward trend in raw
material prices and expects this trend could continue.

We also currently use 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 $8.1 million for capital expenditures during the first
thirty-nine weeks of fiscal 2005, including approximately $2.7 million in
construction-in-progress for a warehouse renovation in Europe. We received
proceeds of $15.4 million from the sale of property and investments, primarily
from the sale of the renovated warehouse in Europe.

FINANCING ACTIVITIES

We had net proceeds from worldwide credit facilities of $25.4 million. The
increase in facility usage represents an increase in working capital that was
financed through our credit facilities in the U.S. and the UK.

                                       27
<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
based on the date of prepayment.

As of April 2, 2005, we had borrowed $151.7 million under the senior secured
revolving credit facility, $100.0 million of which is included in long-term
liabilities. We had approximately $7.8 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 7.7% at April 2, 2005; or the Base
Rate (prime rate), plus 3.0%, equaling 8.75% at April 2, 2005. 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.

We failed to comply with certain financial covenants contained in the senior
secured credit revolving facility for the fiscal month ended April 2, 2005.

On May 11, 2005, we entered into a Second Amendment to the Amended and Restated
Credit Agreement by and among Wells Fargo Foothill, Inc., as administrative
agent and collateral agent, Silver Point Finance, LLC, as the co-agent,
syndication agent, documentation agent, arranger and book runner, the Company
and each of the Company's domestic subsidiaries. The Second Amendment amends and
restates (a) the minimum Consolidated Fixed Charge Coverage Ratio that we must
maintain for the rolling twelve-month periods ending each calendar month from
March 31, 2005 through December 31 2005, (b) the minimum EBITDA covenant and (c)
the definition of "Borrowing Base" to provide up to an additional $11 million of
availability. The Amendment subjects the Company's foreign subsidiaries (other
than Amalgamated Appliance Holdings Limited ("AMAP")) to the covenants currently
restricting us and our domestic subsidiaries from engaging in certain actions

                                       28
<PAGE>

without the consent of the senior lender, including incurring debt, engaging in
mergers or certain sales of assets, making guaranties, incurring liens or
engaging in sale and leaseback transactions. The Second Amendment also increases
the prepayment premium and provides for certain mandatory prepayments upon
issuance of debt or equity, or sales of certain assets, by our foreign
subsidiaries. The Amendment is subject to certain conditions, including that we
deliver to the senior lender within certain time periods stock pledges of
certain of our foreign subsidiaries, including AMAP.

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 $7.7 million related to the fair value of
interest rate swap agreements that have been monetized).

Under the terms of our senior secured revolving credit facility, our senior
lenders in their discretion may establish a reserve against our availability
under such facility at any time during the 90-day period before the maturity
date of the 10 3/4% senior subordinated notes in an amount equal to the lesser
of $50.0 million or the amount due and payable under such notes upon maturity.

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.

                                       29
<PAGE>

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 April 2, 2005, there was $16.5 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 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 are currently pursuing various strategic options to raise the funds required
to repay the $125.0 million of outstanding 10 3/4% senior subordinated notes due
December 15, 2005 and allow us to satisfy our anticipated liquidity needs. These
strategic options may include, among other things, incurring additional debt,
issuing debt or equity securities, sales of assets or businesses, reducing

                                       30
<PAGE>

      expenditures for new product development and/or cutting other costs,
      exchange offers and/or consent solicitations of our outstanding
      securities. The availability and success of any of these options 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 will have
      to accomplish several of the foregoing options, some of which require the
      consent of our senior lenders and/or the holders of our senior
      subordinated notes, within the next six months in order to enable us to
      repay the outstanding 10 3/4% subordinated notes and satisfy our liquidity
      needs. We cannot assure you that any of such options could be effected, or
      if so, on terms favorable to us, that such options would enable us to
      repay the outstanding 10 3/4% subordinated notes or satisfy our liquidity
      needs and/or that such options would be permitted under the terms of our
      senior secured revolving credit facility or the indentures governing our
      senior subordinated notes.

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 consolidated
      balance sheets within accrued expenses at a fair value of $0.2 million and
      $8.7 million at April 2, 2005 and July 3, 2004, respectively. The change
      in the fair value of contracts in the third quarter was $(5.5) million.
      There was $(0.6) million and $(6.0) million at April 2, 2005 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
      April 2, 2005, the Company had foreign exchange forward contracts for the
      purchase of 37.6 million U.S. dollars. Contracts for the purchase of 25.1
      million U.S. dollars were entered into during the third 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 14, "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

                                       31
<PAGE>

      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-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: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

   SECURITIES CLASS ACTION LAWSUITS

      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.

                                       32
<PAGE>

      PHILIPS

      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.

                                       33
<PAGE>

      PRODUCT LIABILITY

      On or about October 27, 2004, a lawsuit entitled DiNatale vs. Salton was
      filed in the New York State Supreme Court against the Company. The
      plaintiffs, who seek unspecified damages, allege that they were injured by
      water contaminated with lead taken from a tea kettle sold by the Company
      under its Russell Hobbs brand. The plaintiffs' attorney is seeking to
      convert the lawsuit into a class action suit. The manufacturer of the
      product and its insurer are defending this lawsuit. The Company's
      attorneys and its insurers are cooperating in the defense of the lawsuit.

      Shortly after receiving notice of the lawsuit, the Company voluntarily
      suspended selling the product. The Company believes that at substantially
      the same time, the two retailers who had purchased the kettle from the
      Company also suspended selling the product. Based on information received
      from the two retailers, the Company believes that only a limited number of
      the kettles were sold to consumers. The Company voluntarily contacted the
      U.S. Food and Drug Administration and has shared its information and test
      results concerning the product with the agency.

      The Company is reviewing the status of any other similar products, which
      the same manufacturer has sold to the Company in recent years.

      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

      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.

      ENVIRONMENTAL

      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.

      OTHER

      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.

                                       34
<PAGE>

ITEM 5. OTHER INFORMATION

      On May 11, 2005, the Company entered into a Second Amendment to the
      Amended and Restated Credit Agreement by and among Wells Fargo Foothill,
      Inc., as administrative agent and collateral agent, Silver Point Finance,
      LLC, as the co-agent, syndication agent, documentation agent, arranger and
      book runner, the Company and each of the Company's domestic subsidiaries.
      The Second Amendment amends and restates (a) the minimum Consolidated
      Fixed Charge Coverage Ratio that the Company must maintain for the rolling
      twelve-month periods ending each calendar month from March 31, 2005
      through December 31, 2005, (b) the minimum EBITDA covenant and (c) the
      definition of "Borrowing Base" to provide up to an additional $11 million
      of availability. The Amendment subjects the Company's foreign subsidiaries
      (other than Amalgamated Appliance Holdings Limited ("AMAP")) to the
      covenants currently restricting the Company and its domestic subsidiaries
      from engaging in certain actions without the consent of the senior lender,
      including incurring debt, engaging in mergers or certain sales of assets,
      making guaranties, incurring liens or engaging in sale and leaseback
      transactions. The Second Amendment also increases the prepayment premium
      and provides for certain mandatory prepayments upon issuance of debt or
      equity, or sales of certain assets, by the Company's foreign subsidiaries.
      The Amendment is subject to certain conditions, including that the Company
      deliver to the senior lender within certain time periods stock pledges of
      certain of the Company's foreign subsidiaries, including AMAP.

ITEM. 6 EXHIBITS.

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

                                       35
<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)

                                       36
<PAGE>

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER                   DESCRIPTION OF DOCUMENT
--------------                   -----------------------
<S>              <C>
     10.25       Second Amendment to Amended and Restated Credit Agreement dated as
                 of May 11, 2005 by and among the Lenders that are signatories
                 thereto, Wells Fargo Foothill, Inc., as administrative agent and
                 collateral agent for the Lenders, Silver Point Finance, LLC, as the
                 co-agent, syndication agent, documentation agent, arranger and book
                 runner, Salton, Inc., a Delaware corporation, each of its
                 subsidiaries that are signatories thereto as the Borrowers and each
                 of its other subsidiaries that are signatories thereto as Guarantors

     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>

                                       37