<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 January 1, 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 February 4, 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 January 1, 2005, originally filed February 10, 2005
(the "Form 10-Q"), principally to reflect the restatement to reclassify the
Company's convertible preferred stock. As described in Note 13 subsequent to the
issuance of the Company's condensed consolidated financial statements for the
quarter ended January 1, 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 - January 1, 2005 and                   4
                  December 27, 2003 (as restated, Note 13)

                  Condensed Consolidated Statements of Income - Thirteen weeks ended            5
                  January 1, 2005 and December 27, 2003 and Twenty-six weeks ended
                  January 1, 2005 and December 27, 2003

                  Condensed Consolidated Statements of Cash Flows - Twenty-six weeks            6
                  ended January 1, 2005 and December 27, 2003 (as restated, Note 13)

                  Notes to Condensed Consolidated Financial Statements                          7

         Item 2:  Management's Discussion and Analysis of Financial Condition and              21
                  Results of Operations

         Item 3:  Quantitative and Qualitative Disclosures About Market Risk                   30

         Item 4:  Controls and Procedures                                                      31

PART II           OTHER INFORMATION

         Item 1:  Legal Proceedings                                                            32

         Item 4:  Submission of Matters to a Vote of Security Holders                          34

         Item 6:  Exhibits                                                                     37

                  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)                                 JANUARY 1, 2005   JULY 3, 2004
                                                                   (AS RESTATED, SEE NOTE 13)
<S>                                                              <C>               <C>
ASSETS
CURRENT ASSETS:
      Cash                                                          $  37,370       $  46,847
      Compensating balances on deposit                                 34,465          34,000
      Accounts receivable, less allowances                            279,734         180,391
      Inventories                                                     277,861         253,627
      Prepaid expenses and other current assets                        19,001          21,267
      Deferred income taxes                                            24,104          25,742
                                                                    ---------       ---------
        Total Current Assets                                          672,535         561,874
Property, Plant and Equipment, net                                     78,985          81,152
Tradenames                                                            186,484         184,421
Non-Current Deferred Tax Asset                                         17,668          11,589
Other Assets                                                           14,439          15,516
                                                                    ---------       ---------
TOTAL ASSETS                                                        $ 970,111       $ 854,552
                                                                    =========       =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Revolving line of credit and other current debt               $ 127,570       $  48,667
      Senior subordinated notes due 2005 - current                    125,000               -
      Accounts payable                                                133,258         137,671
      Accrued expenses                                                 85,004          60,627
      Income taxes payable                                             14,134           8,805
                                                                    ---------       ---------
        Total Current Liabilities                                     484,966         255,770
Senior Subordinated Notes Due 2005                                          -         125,000
Senior Subordinated Notes due 2008, including an adjustment of
  $8,332 and $9,581 to the carrying value related
   to interest rate swap agreements, respectively                     157,515         158,642
Term Loan and Other Notes Payable                                     101,943         100,761
Other Long Term Liabilities                                            17,683          17,288
                                                                    ---------       ---------
                                                                      762,107         657,461
Minority Interest                                                      26,347          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                                       56,107          56,147
      Accumulated Other Comprehensive Income                           21,219          12,668
      Retained Earnings                                               129,976         130,406
                                                                    ---------       ---------
        Total Stockholders' Equity                                    141,657         133,576
                                                                    ---------       ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 970,111       $ 854,552
                                                                    =========       =========
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       4

<PAGE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                13 WEEKS ENDED                   26 WEEKS ENDED
                                                    --------------------------------     --------------------------------
                                                                        December 27,                         December 27,
                                                    January 1, 2005         2003         January 1, 2005         2003
                                                    ---------------     ------------     ---------------     ------------
<S>                                                 <C>                 <C>              <C>                 <C>
NET SALES                                             $    376,976      $    397,103      $    651,111       $    635,642
Cost of Goods Sold                                         256,090           252,674           450,940            410,630
Distribution Expenses                                       21,330            21,051            37,098             37,451
                                                      ------------      ------------      ------------       ------------
GROSS PROFIT                                                99,556           123,378           163,073            187,561
Selling, General and Administrative Expenses                77,462            90,514           130,549            142,306
Restructuring Costs                                            118                 -               790                  -
                                                      ------------      ------------      ------------       ------------
OPERATING INCOME                                            21,976            32,864            31,734             45,255
Interest Expense, net                                       13,807            10,333            26,845             20,011
                                                      ------------      ------------      ------------       ------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST             8,169            22,531             4,889             25,244
Income Tax Expense                                           2,835             7,411             1,686              8,293
Minority Interest, net of tax                                2,577             2,774             3,633              3,864
                                                      ------------      ------------      ------------       ------------
NET INCOME (LOSS)                                     $      2,757      $     12,346      $       (430)      $     13,087
                                                      ============      ============      ============       ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING              11,372,138        11,189,836        11,371,542         11,188,496

WEIGHTED AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING                         15,138,664        15,307,519        11,371,542         15,206,259

Net Income (Loss) per Common Share: Basic             $       0.24      $       1.10      $      (0.04)      $       1.17

Net Income (Loss) per Common Share: Diluted           $       0.18      $       0.81      $      (0.04)      $       0.86
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                        5

<PAGE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                      26 WEEKS ENDED
                                                                             --------------------------
                                                                             JANUARY 1,    DECEMBER 27,
                                                                               2005            2003
                                                                             ----------    ------------
                                                                             (AS RESTATED, SEE NOTE 13)
                                                                             --------------------------
<S>                                                                          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (Loss) Income                                                          $    (430)      $  13,087
  Adjustments to Reconcile Net (Loss) Income to Net Cash from Operating
   Activities:
   Imputed interest on notes payable and other non-cash items                     (910)           (908)
   Deferred income tax provision                                                (5,878)            134
   Depreciation and amortization                                                12,125          10,877
   Bad debt (recovery) provision                                                (1,468)          1,063
   Loss on disposal of equipment                                                    38              63
   Inventory valuation adjustment                                                 (899)          1,262
   Foreign currency gains and losses                                              (925)            344
   Minority interest, net of tax                                                 3,633           3,864
   Changes in assets and liabilities:
    Accounts receivable                                                        (90,087)       (139,222)
    Inventories                                                                (15,386)        (20,173)
    Prepaid expenses and other current assets                                    2,164          (4,333)
    Other non-current assets                                                      (715)           (372)
    Accounts payable                                                            (9,769)         55,540
    Income taxes payable                                                         4,579          16,440
    Accrued expenses                                                            22,268          21,900
                                                                             ---------       ---------
     NET CASH FROM OPERATING ACTIVITIES                                        (81,660)        (40,434)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                          (5,962)         (9,058)
  Proceeds from sale of property and equipment                                     136               -
  Increase in compensating balances on deposit                                    (465)         (5,600)
                                                                             ---------       ---------
     NET CASH FROM INVESTING ACTIVITIES                                         (6,291)        (14,658)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from revolving line of credit and other short
   term debt                                                                    79,080          70,976
  Repayment of long term debt                                                     (486)           (429)
  Distributions to minority shareholders                                        (2,296)              -
  Costs associated with refinancing                                               (217)           (575)
  Additional payment for tradenames                                               (251)        (21,666)
  Common stock issued                                                               27              42
                                                                             ---------       ---------
     NET CASH FROM FINANCING ACTIVITIES                                         75,857          48,348
                                                                             ---------       ---------
Effect of Exchange Rate Changes on Cash                                          2,617             338
                                                                             ---------       ---------
Net Change in Cash                                                              (9,477)         (6,406)
Cash, Beginning of Period                                                       46,847          35,702
                                                                             ---------       ---------
Cash, End of Period                                                          $  37,370       $  29,296
                                                                             =========       =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Period for:
  Interest                                                                   $  23,190       $  19,018
  Income taxes, net of (refunds)                                             $   3,964       $  (8,376)
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       6
<PAGE>

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

1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      In the opinion of management, the accompanying condensed consolidated
      balance sheets and related interim condensed consolidated statements of
      income and cash flows include all adjustments, consisting only of normal
      recurring items, necessary for their fair presentation in conformity with
      principles, generally accepted in the United States of America. Preparing
      financial statements requires management to make estimates and assumptions
      that affect the reported amounts of assets, liabilities, revenue and
      expenses. Actual results may differ from these estimates. Our business is
      highly seasonal, with operating results varying from quarter to quarter.
      Interim results are not necessarily indicative of results for a full year.
      The information included in this Form 10-Q/A should be read in conjunction
      with Management's Discussion and Analysis and condensed 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 December 2004, the Financial Accounting Standards Board (FASB) issued
      Statement No. 123(R), "Share Based Payment", which replaces Statement No.
      123, "Accounting for Stock-Based Compensation," and APB 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 Act and
      does not intend to apply this provision to qualifying 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 L8 million ($15.3
      million) and a money market borrowing facility of up to L7 million
      ($13.4 million). In addition, Salton Europe has an invoice finance
      facility of between L15 and L40 million ($28.7 million and
      $76.6 million) depending on seasonality and accounts receivable levels. As
      of January 1, 2005, there was $41.4 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.

                                       7

<PAGE>

4.    STOCK-BASED COMPENSATION

      At January 1, 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 amended Form 10-K/A. The Company accounts
      for those plans in accordance with Accounting Principles Board Opinion No.
      25, "Accounting for Stock Issued to Employees" and related
      Interpretations. No stock-based employee compensation cost is reflected in
      net income, as no options granted under those plans had an exercise price
      less than the market value of the underlying common stock on the date of
      grant. The following table illustrates the effect on net income and
      earnings per share if the Company had applied the fair value recognition
      provisions of Statement of Financial Accounting Standards ("SFAS") No.
      123, "Accounting for Stock-Based Compensation."

<TABLE>
<CAPTION>
                                                                   13 WEEKS ENDED                26 WEEKS ENDED
                                                            --------------------------     ---------------------------
                                                            January 1,    December 27,     January 1,     December 27,
(In thousands except earnings per share)                       2005           2003            2005            2003
                                                            ----------    ------------     ----------     ------------
<S>                                                         <C>           <C>              <C>            <C>
Net income (loss) - as reported                             $   2,757      $   12,346      $    (430)      $   13,087
Less: Total stock-based employee compensation expense
  determined under fair value based method for all
  awards, net of related taxes                                    287             427            572              854
                                                            ---------      ----------      ---------       ----------
Net income (loss)- pro forma                                $   2,470      $   11,919      $  (1,002)      $   12,233
                                                            =========      ==========      =========       ==========
Earnings (Loss) per share - basic
  As reported                                               $    0.24      $     1.10      $   (0.04)      $     1.17
  Pro forma                                                      0.22            1.07          (0.09)            1.09

Earnings (Loss) per share - diluted
  As reported                                               $    0.18      $     0.81      $   (0.04)      $     0.86
  Pro forma                                                      0.16            0.78          (0.09)            0.80
</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.

      Options and warrants to purchase 2,524,372 shares of common stock at a
      price range of $5.83 to $37.00 per share and 1,155,070 shares of common
      stock at a price range of $13.92 to $37.00 per share were outstanding at
      January 1, 2005 and December 27, 2003, respectively, but were not included
      in the computation of diluted shares because the exercise prices were
      greater than the average market price of the common shares. Options to
      purchase 270,000 common shares at a price of $29.25 per share were not
      included in the computation of diluted shares for the twenty-six weeks
      ended December 27, 2003 because the options were contingent upon the
      Company's share price reaching specified targets for a specified period of
      time.

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 to limit exposure to
      exchange rate fluctuations, primarily related to the Great Britain Pound
      and the South Africa Rand to the U.S. Dollar.

                                       8

<PAGE>

      All foreign exchange contracts have been recorded in the consolidated
      balance sheets within accrued expenses at a fair value of $5.7 million and
      $8.7 million at January 1, 2005 and July 3, 2004, respectively. The change
      in the fair value of contracts in the second quarter of 2005 was $4.2
      million. There was $(2.3) million and $(6.0) million at January 1, 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 January 1, 2005, the Company had foreign exchange
      forward contracts for the purchase of 70.7 million U.S. dollars. Contracts
      for the purchase of 25.9 million U.S. dollars were entered into during the
      second quarter of fiscal 2005.

7.    COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

      For the thirteen weeks ended January 1, 2005 and December 27, 2003,
      components of other comprehensive income include foreign currency
      translation adjustments of $9.4 million and $8.3 million, respectively and
      derivative liability adjustments of $(1.9) million and $(5.2) million,
      respectively. For the twenty-six weeks ended January 1, 2005 and December
      27, 2003, components of other comprehensive income include foreign
      currency translation adjustments of $4.9 million and $10.9 million,
      respectively and derivative liability adjustments of $3.7 million and
      $(5.2) million, respectively.

<TABLE>
<CAPTION>
                                                   13 Weeks Ended           26 Weeks Ended
                                              ------------------------  -------------------------
                                              January 1,  December 27,  January 1,   December 27,
(In thousands)                                   2005        2003          2005          2003
                                              ----------  ------------  ----------   ------------
<S>                                           <C>         <C>           <C>          <C>
Net Income (Loss)                              $ 2,757      $12,346      $  (430)      $13,087
Other Comprehensive Income, net of tax of
  $(594) and $1,564, $1,157 and $1,568,
   respectively                                  7,492        3,104        8,551         5,732
                                               -------      -------      -------       -------
Comprehensive Income                           $10,249      $15,450      $ 8,121       $18,819
                                               -------      -------      -------       -------
</TABLE>

Accumulated other comprehensive income is comprised of the following:

<TABLE>
<CAPTION>
                                                                                                  As Of
                                                                                  -----------------------------------
(In thousands)                                                                    January 1, 2005        July 3, 2004
                                                                                  ---------------        ------------
<S>                                                                               <C>                    <C>
Minimum Pension Liability, net of tax of $5,041 and $4,888, respectively             $(10,530)            $(10,172)
Unrealized Loss on Derivative, net of tax of $1,014 and $2,663, respectively           (2,297)              (6,030)
Foreign Currency Translation                                                           34,046               28,870
                                                                                     --------             --------
                                                                                     $ 21,219             $ 12,668
                                                                                     ========             ========
</TABLE>

8.    PENSION BENEFIT PLANS

      The components of net periodic pension cost are as follows:

<TABLE>
<CAPTION>
                                                  Domestic                  Salton Europe                 Total
(In thousands)                            1/1/2005     12/27/2003     1/1/2005     12/27/2003     1/1/2005     12/27/2003
                                          --------     ----------     --------     ----------     --------     ----------
<S>                                       <C>          <C>            <C>          <C>            <C>          <C>
13 Weeks Ended:
  Service cost-benefits earned
   during the year                          $  42         $  42         $  79         $  73         $ 121         $ 115
  Interest cost on projected benefit
   obligation                                 176           179           559           466           735           645
  Actuarial return on plan assets            (156)         (166)         (433)         (346)         (589)         (512)
  Net amortization and deferral                65            99           188           177           253           276
                                            -----         -----         -----         -----         -----         -----
       Net pension cost                     $ 127         $ 154         $ 393         $ 370         $ 520         $ 524
                                            =====         =====         =====         =====         =====         =====
</TABLE>

                                       9

<PAGE>

<TABLE>
<CAPTION>
                                                  Domestic                  Salton Europe                   Total
(In thousands)                            1/1/2005     12/27/2003     1/1/2005     12/27/2003      1/1/2005     12/27/2003
                                          --------     ----------     --------     ----------      --------     ----------
<S>                                       <C>          <C>            <C>          <C>             <C>          <C>
26 Weeks Ended:
  Service cost-benefits earned
   during the year                          $  84         $  84         $ 156         $ 147         $  240        $   231
  Interest cost on projected benefit
   obligation                                 353           357         1,100           932          1,453          1,289
  Actuarial return on plan assets            (311)         (331)         (852)         (693)        (1,163)        (1,024)
  Net amortization and deferral               129           197           370           353            499            550
                                            -----         -----         -----         -----         ------        -------
       Net pension cost                     $ 255         $ 307         $ 774         $ 739         $1,029        $ 1,046
                                            =====         =====         =====         =====         ======        =======
</TABLE>

      The Company previously disclosed in its financial statements for the year
      ended July 3, 2004, that it expected to contribute $0.7 million to its
      domestic pension plans and $0.3 million to the Salton Europe pension plan
      in fiscal 2005. As of January 1, 2005, $0.5 million and $0.2 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 January 1, 2005, one
      customer accounted for 13.4% of total net sales. During the same period of
      fiscal 2004, one customer accounted for 11.5% of total net sales. For the
      first half of fiscal 2005, two customers accounted for 13.0% and 10.1% of
      total net sales, respectively. During the first half of fiscal 2004, no
      one customer accounted for more than 10.0% of net sales.

10.   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.

                                       10

<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.

                                       11

<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.

                                       12

<PAGE>

11.   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).

                                       13

<PAGE>

CONSOLIDATING BALANCE SHEET AS OF JANUARY 1, 2005 (AS RESTATED, SEE NOTE 13)
(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   $     700   $       -    $     701   $  36,669   $          -  $  37,370
 Compensating balances on deposits                    -           -           -            -      34,465              -     34,465
 Accounts receivable, net of allowances               -     127,318           -      127,318     152,416              -    279,734
 Inventories                                     12,350     156,078     (23,702)     144,726     133,135              -    277,861
 Prepaid expenses and other current assets        2,793       3,820           -        6,613      12,388              -     19,001
 Intercompany                                   114,711     (69,484)       (170)      45,057     (45,057)             -          -
 Deferred income taxes                            1,314      16,577           -       17,891       6,213              -     24,104
                                              ---------   ---------   ---------    ---------   ---------   ------------  ---------
  Total Current Assets                          131,169     235,009     (23,872)     342,306     330,229              -    672,535
Property, Plant and Equipment, net                8,611      13,482           -       22,093      56,892              -     78,985
Investments in Subsidiaries                     412,759      53,674    (466,433)           -           -              -          -
Tradenames                                      134,974      10,313           -      145,287      41,197              -    186,484
Non-current deferred tax asset                        -           -           -            -           -         17,668     17,668
Other Assets                                     10,414         861           -       11,275       3,164              -     14,439
                                              ---------   ---------   ---------    ---------   ---------   ------------  ---------
Total Assets                                  $ 697,927   $ 313,339   $(490,305)   $ 520,961   $ 431,482   $     17,668  $ 970,111
                                              =========   =========   =========    =========   =========   ============  =========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Revolving line of credit and other
   current debt                               $       -   $  81,507   $       -    $  81,507   $  46,063   $          -  $ 127,570
 Senior subordinated notes due 2005             125,000           -           -      125,000           -              -    125,000
 Accounts payable                                 2,068       4,039           2        6,109     127,149              -    133,258
 Accrued expenses                                 9,665      14,071           -       23,736      61,268              -     85,004
 Income taxes payable                             4,438      (1,469)          -        2,969      11,165                    14,134
                                              ---------   ---------   ---------    ---------   ---------   ------------  ---------
  Total current liabilities                     141,171      98,148           2      239,321     245,645              -    484,966
Non-current Deferred Income Taxes               (12,237)     (9,167)          -      (21,404)      3,736         17,668          -
Senior subordinated notes due 2008, including
 an adjustment of $8,332 to the carrying
 value related to interest rate swap
 agreements                                     157,515           -           -      157,515           -              -    157,515
Term loan and other notes payable                     -     100,082                  100,082       1,861              -    101,943
Other Long Term Liability                           486       3,651                    4,137      13,546              -     17,683
                                              ---------   ---------   ---------    ---------   ---------   ------------  ---------
  Total liabilities                             286,935     192,714           2      479,651     264,788         17,668    762,107
Minority interest                                     -           -           -            -      26,347              -     26,347
Convertible preferred stock                      40,000           -           -       40,000           -              -     40,000
Stockholders' Equity                            370,992     120,625    (490,307)       1,310     140,347              -    141,657
                                              ---------   ---------   ---------    ---------   ---------   ------------  ---------
Total Liabilities and Stockholders' Equity    $ 697,927   $ 313,339   $(490,305)   $ 520,961   $ 431,482   $     17,668  $ 970,111
                                              =========   =========   =========    =========   =========   ============  =========
</TABLE>

                                       14
<PAGE>

CONSOLIDATING BALANCE SHEET AS OF JULY 3, 2004 (AS RESTATED, SEE NOTE 13)
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     GUARANTOR                                 OTHER      CONSOLIDATED  CONSOLIDATED
                                           PARENT   SUBSIDIARIES ELIMINATIONS      TOTAL    SUBSIDIARIES EMLIMINATIONS     TOTALS
                                          --------- ------------ ------------   ----------  ------------ -------------  ------------
<S>                                       <C>       <C>          <C>            <C>         <C>          <C>            <C>
                   ASSETS
Current Assets:
 Cash                                     $       1   $    903   $          -   $      904  $     45,943  $          -  $     46,847
  Compensating balances on deposit                -          -              -            -        34,000                      34,000
 Accounts receivable, net of allowances         311     96,905              -       97,216        83,175             -       180,391
 Inventories                                  5,133    165,189        (28,341)     141,981       111,646             -       253,627
 Prepaid expenses and other current
  assets                                      5,054      2,597              -        7,651        13,616             -        21,267
 Intercompany                               131,818   (104,380)          (756)      26,682       (26,682)            -             -
 Deferred income taxes                          913     16,577              -       17,490         8,252             -        25,742
                                          ---------   --------   ------------   ----------  ------------  ------------  ------------
  Total current assets                      143,230    177,791        (29,097)     291,924       269,950             -       561,874
Property, Plant and Equipment,
 Net of Accumulated Depreciation             11,016     14,910              -       25,926        55,226             -        81,152
Investments in Subsidiaries                 390,773     53,646       (444,419)           -             -             -             -
Tradenames                                  134,723     10,313              -      145,036        39,385             -       184,421
Non-current deferred tax asset                    -          -              -            -             -        11,589        11,589
 Other Assets                                12,442        274              -       12,716         2,800             -        15,516
                                          ---------   --------   ------------   ----------  ------------  ------------  ------------
Total Assets                              $ 692,184   $256,934   $   (473,516)  $  475,602       367,361        11,589  $    854,552
                                          =========   ========   ============   ==========  ============  ============  ============
     LIABILITIES AND STOCKHOLDERS'
      EQUITY
Current Liabilities:
 Revolving line of credit and other
  current debt                            $       -   $ 33,189   $          -   $   33,189  $     15,478             -  $     48,667
 Accounts payable                             2,922      2,039           (584)       4,377       133,294             -       137,671
 Accrued expenses                             9,491     13,478              -       22,969        37,658             -        60,627
 Income taxes payable                        (2,336)    (1,496)             -       (3,832)       12,637             -         8,805
                                          ---------   --------   ------------   ----------  ------------  ------------  ------------
  Total current liabilities                  10,077     47,210           (584)      56,703       199,067             -       255,770
Non-current Deferred Income Taxes            (8,840)    (9,167)             -      (18,007)        6,418        11,589             -
Senior subordinated notes due 2005          125,000          -              -      125,000             -             -       125,000
Senior subordinated notes due 2008,
 including an adjustment of $9,581 to
 the carrying value related to
 interest rate swap agreements              158,642          -              -      158,642             -             -       158,642
Long-term debt-revolving credit
 agreement                                        -    100,000              -      100,000             -             -       100,000
Other notes payable                               -        175              -          175           586             -           761
Other long term liabilities                     418      3,932              -        4,350        12,938             -        17,288
                                          ---------   --------   ------------   ----------  ------------  ------------  ------------
  Total liabilities                         285,297    142,150           (584)     426,863       219,009        11,589       657,461
Minority Interest                                 -          -              -            -        23,515             -        23,515
Convertible preferred stock                  40,000          -              -       40,000             -             -        40,000
Stockholders' Equity                        366,887    114,784       (472,932)       8,739       124,837             -       133,576
                                          ---------   --------   ------------   ----------  ------------  ------------  ------------
Total Liabilities and Stockholders'
 Equity                                   $ 692,184   $256,934   $   (473,516)  $  475,602  $    367,361  $     11,589  $    854,552
                                          =========   ========   ============   ==========  ============  ============  ============
</TABLE>

                                       15

<PAGE>

CONSOLIDATING STATEMENT OF INCOME FOR THE THIRTEEN WEEKS ENDED JANUARY 1, 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                              $  70,297     $ 191,908     $(109,824)   $ 152,381     $ 306,357    $ (81,762)     $ 376,976
Cost of Goods Sold                        57,147       161,976      (112,679)     106,444       226,025      (76,379)       256,090
Distribution Expenses                          -        10,110             -       10,110        11,220                      21,330
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  Gross Profit                            13,150        19,822         2,855       35,827        69,112       (5,383)        99,556
Selling, General and Administrative
 expenses                                 16,641        12,380             -       29,021        53,824       (5,383)        77,462
Restructuring Costs                         (102)          220             -          118             -                         118
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  Operating Income                        (3,389)        7,222         2,855        6,688        15,288            -         21,976
Interest Expense, net                      7,028         4,042             -       11,070         2,737            -         13,807
Income (Loss) from Subsidiary             (8,509)          (20)        8,529            -             -            -              -
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  (Loss) Income Before Income Taxes
   and Minority Interest                  (1,908)        3,200        (5,674)      (4,382)       12,551            -          8,169
Income Tax (Benefit) Expense              (1,830)            -             -       (1,830)        4,665            -          2,835
Minority Interest, net of tax                  -             -             -            -         2,577            -          2,577
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  Net (Loss) Income                    $     (78)    $   3,200     $  (5,674)   $  (2,552)    $   5,309    $       -      $   2,757
                                       =========     =========     =========    =========     =========    =========      =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                     GUARANTOR                                 OTHER      CONSOLIDATED  CONSOLIDATED
                                        PARENT      SUBSIDIARIES  ELIMINATIONS    TOTAL     SUBSIDIARIES  ELIMINATIONS     TOTALS
                                       ---------    ------------  ------------  ---------   ------------  ------------  ------------
<S>                                    <C>          <C>           <C>           <C>         <C>           <C>           <C>
Net Sales                              $  94,317     $ 265,320     $(152,655)   $ 206,982     $ 289,853    $ (99,732)     $ 397,103
Cost of Goods Sold                        72,454       221,949      (155,770)     138,633       211,573      (97,532)       252,674
Distribution Expenses                          -        12,859             -       12,859         8,192            -         21,051
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  Gross Profit                            21,863        30,512         3,115       55,490        70,088       (2,200)       123,378
Selling, General and Administrative
 expenses                                 14,139        37,508             -       51,647        40,367       (1,500)        90,514
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  Operating Income (Loss)                  7,724        (6,996)        3,115        3,843        29,721         (700)        32,864
Interest Expense, net                      6,933         1,571             -        8,504         1,829            -         10,333
Income (Loss) from Subsidiary            (10,177)          216         9,961            -             -            -              -
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
 Income (Loss) Before Income Taxes
   and Minority Interest                  10,968        (8,783)       (6,846)      (4,661)       27,892         (700)        22,531
Income Tax (Benefit) Expense               1,252        (1,274)            -          (22)        7,433            -          7,411
Minority Interest, net of tax                  -             -                                    2,774            -          2,774
                                       ---------     ---------     ---------    ---------     ---------    ---------      ---------
  Net Income (Loss)                    $   9,716     $  (7,509)   $   (6,846)    $ (4,639)    $  17,685    $    (700)     $  12,346
                                       =========     =========     =========    =========     =========    =========      =========
</TABLE>

                                       16

<PAGE>

CONSOLIDATING STATEMENT OF INCOME FOR THE TWENTY SIX WEEKS ENDED JANUARY 1, 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                             $ 118,377    $    341,466  $   (191,974) $ 267,869   $    543,170  $   (159,928) $    651,111
Cost of Goods Sold                       96,488         286,266      (196,613)   186,141        415,060      (150,261)      450,940
Distribution Expenses                         -          18,763             -     18,763         18,335             -        37,098
                                      ---------    ------------  ------------  ---------   ------------  ------------  ------------
  Gross Profit                           21,889          36,437         4,639     62,965        109,775        (9,667)      163,073
Selling, General and
  Administrative expenses                30,984          22,665             -     53,649         86,567        (9,667)      130,549
Restructuring Costs                         354             436             -        790              -                         790
                                      ---------    ------------  ------------  ---------   ------------  ------------  ------------
  Operating Income                       (9,449)         13,336         4,639      8,526         23,208             -        31,734
Interest Expense, net                    14,335           7,521             -     21,856          4,989             -        26,845
Income (Loss) from Subsidiary           (14,943)            (27)       14,970          -              -             -             -
                                      ---------    ------------  ------------  ---------   ------------  ------------  ------------
  (Loss) Income Before Income Taxes
   and Minority Interest                 (8,841)          5,842       (10,331)   (13,330)        18,219             -         4,889
Income Tax (Benefit) Expense             (3,799)              -             -     (3,799)         5,485             -         1,686
Minority Interest, net of tax                 -               -             -          -          3,633             -         3,633
                                      ---------    ------------  ------------  ---------   ------------  ------------  ------------
  Net (Loss) Income                   $  (5,042)   $      5,842  $    (10,331) $  (9,531)  $      9,101  $          -  $       (430)
                                      =========    ============  ============  =========   ============  ============  ============
</TABLE>

CONSOLIDATING STATEMENT OF INCOME FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 27,
2003
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     GUARANTOR                                 OTHER      CONSOLIDATED  CONSOLIDATED
                                        PARENT      SUBSIDIARIES  ELIMINATIONS    TOTAL     SUBSIDIARIES  ELIMINATIONS     TOTALS
                                       ---------    ------------  ------------  ---------   ------------  ------------  ------------
<S>                                    <C>          <C>           <C>           <C>         <C>           <C>           <C>
Net Sales                              $ 166,957    $    441,197  $   (273,429) $ 334,725   $    496,680  $   (195,763) $    635,642
Cost of Goods Sold                       128,352         373,004      (272,346)   229,010        373,683      (192,063)      410,630
Distribution Expenses                          -          23,840                   23,840         13,611             -        37,451
                                       ---------    ------------  ------------  ---------   ------------  ------------  ------------
  Gross Profit                            38,605          44,353        (1,083)    81,875        109,386        (3,700)      187,561
Selling, General and Administrative
 expenses                                 25,385          60,827             -     86,212         59,094        (3,000)      142,306
                                       ---------    ------------  ------------  ---------   ------------  ------------  ------------
  Operating Income (Loss)                 13,220         (16,474)       (1,083)    (4,337)        50,292          (700)       45,255
Interest Expense, net                     14,166           2,486             -     16,652          3,359             -        20,011
Income (Loss) from Subsidiary            (16,091)            608        15,483          -              -             -             -
                                       ---------    ------------  ------------  ---------   ------------  ------------  ------------
 Income (Loss) Before Income Taxes
   and Minority Interest                  15,145         (19,568)      (16,566)   (20,989)        46,933          (700)       25,244
Income Tax (Benefit) Expense                 883          (4,113)            -     (3,230)        11,523                       8,293
Minority Interest, net of tax                  -               -             -          -          3,864                       3,864
                                       ---------    ------------  ------------  ---------   ------------  ------------  ------------
  Net Income (Loss)                    $  14,262    $    (15,455) $    (16,566) $ (17,759)  $     31,546  $       (700) $     13,087
                                       =========    ============  ============  =========   ============  ============  ============
</TABLE>

                                       17
<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED JANUARY 1,
2005 (AS RESTATED, SEE NOTE 13)
(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)                           $ (5,042)  $ 5,842     $   (10,331) $ (9,531)   $ 9,101         $ -      $   (430)
   Adjustments to reconcile net income
        (loss) to net cash used in operating
        activities:
      Imputed interest on notes payable
        and other non-cash items                 (1,127)        -               -    (1,127)       217           -          (910)
      Deferred income tax provision              (3,798)        -               -    (3,798)    (2,080)          -        (5,878)
       Foreign currency gains and lossess             -      (925)              -      (925)         -           -          (925)
      Depreciation and amortization               4,894     1,645               -     6,539      5,586                    12,125
       Bad debt (recovery) provision                       (1,476)              -    (1,476)         8                    (1,468)
      Loss on disposal of equipment                   -        70               -        70        (32)          -            38
      Inventory valuation adjustment                         (730)              -      (730)      (169)                     (899)
      Equity in net income of
        unconsolidated affilate/ consolidated
        subsidiaries                            (14,943)      (28)         14,971         -          -           -             -
      Minority interest                               -         -                         -      3,632           -         3,632
      Changes in assets and liabilities:                                                                                       -
        Accounts receivable                         311   (28,012)              -   (27,701)   (62,386)          -       (90,087)
        Inventories                              (7,217)    9,842          (4,640)   (2,015)   (13,371)                  (15,386)
        Prepaid expenses and other
        current assets                            2,261    (1,222)              -     1,039      1,125           -         2,164
        Other non-current assets                      0      (588)              -      (588)      (127)                     (715)
        Accounts payable                           (854)    2,587               -     1,733    (11,502)          -        (9,769)
        Taxes payable                             6,774        28               -     6,802     (2,223)          -         4,579
        Accrued expenses                         19,384   (35,178)              -   (15,794)    38,063           -        22,269
                                               --------   -------     -----------  --------    -------         ---      --------
            NET CASH FROM OPERATING ACTIVITIES      643   (48,145)              -   (47,502)   (34,158)          -       (81,660)
                                               --------   -------     -----------  --------    -------         ---      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                       (202)     (376)              -      (578)    (5,384)          -        (5,962)
        Proceeds from sale of
           property and equipment                     -        93               -        93         43           -           136
        Increase in compensating
           balances on deposit                        -                                   -       (465)                     (465)
                                               --------   -------     -----------  --------    -------         ---      --------
            NET CASH FROM INVESTING ACTIVITIES     (202)     (283)              -      (485)    (5,806)          -        (6,291)
                                               --------   -------     -----------  --------    -------         ---      --------
CASH FLOWS FROM FINANCING ACTIVITIES:

       Net proceeds from revolving
           line of credit and other
           short term debt                            -    48,562               -    48,562     30,518           -        79,080
       Repayment of long-term debt                    -      (337)              -      (337)      (149)          -          (486)
       Distributions to minority shareholders         -         -               -         -     (2,296)                   (2,296)
       Costs associated with refinancing           (217)        -               -      (217)         -           -          (217)
        Additional payment for trademarks          (251)        -               -      (251)         -           -          (251)
       Common stock issued                           27         -               -        27          -           -            27
                                               --------   -------     -----------  --------    -------         ---      --------
       NET CASH FROM FINANCING ACTIVITIES          (441)   48,225               -    47,784     28,073           -        75,857
                                               --------   -------     -----------  --------    -------         ---      --------

Effect of Exchange Rate Changes on Cash               -         -               -         -      2,617           -         2,617
                                               --------   -------     -----------  --------    -------         ---      --------
Net Change in Cash                                    -      (203)              -      (203)    (9,274)          -        (9,477)

Cash, Beginning of Period                             1       903               -       904     45,943           -        46,847
                                               --------   -------     -----------  --------    -------         ---      --------
Cash, End of Period                            $      1   $   700     $         -  $    701    $36,669         $ -      $ 37,370
                                               ========   =======     ===========  ========    =======         ===      ========
</TABLE>

                                       18

<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED DECEMBER
27, 2003 (AS RESTATED, SEE NOTE 13)
(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)                           $ 14,262  $(15,455)    $   (16,566) $(17,759) $    31,546  $     (700)  $   13,087
   Adjustments to reconcile net
    income (loss) to net cash used in
    operating activities:
      Imputed interest on notes payable and
       other non-cash items                      (1,127)        -               -    (1,127)         219           -         (908)
      Deferred income tax provision                   -         -               -         -          134           -          134
       Foreign currency gains and lossess             -       344               -       344            -           -          344
      Depreciation and amortization               4,805     1,877               -     6,682        4,195                   10,877
      Bad debt (recovery) provision                   -       (22)              -       (22)       1,085                    1,063
      Loss on disposal of equipment                   -         -               -         -           63           -           63
      Equity in income of unconsolidated
        affiliate/consolidated subsidiaries     (16,090)      607          15,483         -            -           -            -
      Inventory valuation adjustment                  0     1,262               -     1,262            -           -        1,262
      Minority interest                               -         -               -         -        3,864           -        3,864
      Changes in assets and liabilities:                                                                                        -
        Accounts receivable                        (312)  (55,859)              -   (56,171)     (83,051)          -     (139,222)
        Inventories                              (7,046)   (4,711)          1,083   (10,674)     (10,199)        700      (20,173)
        Prepaid expenses and other current
         assets                                    (496)     (596)              -    (1,092)      (3,241)          -       (4,333)
        Increase in other non-current assets          -         6               -         6         (378)          -         (372)
        Accounts payable                            878       795               -     1,673       53,867           -       55,540
        Taxes payable                            16,417    (5,127)              -    11,290        5,150           -       16,440
        Accrued expenses                         12,382    24,614               -    36,996      (15,096)          -       21,900
                                               --------  --------     -----------  --------  -----------  ----------   ----------
            NET CASH FROM OPERATING ACTIVITIES   23,673   (52,265)              -   (28,592)     (11,842)          -      (40,434)
                                               --------  --------     -----------  --------  -----------  ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                     (1,472)   (1,983)              -    (3,455)      (5,603)          -       (9,058)
       Increase in compensating balances
        on deposit                                    -         -               -         -       (5,600)          -       (5,600)
                                               --------  --------     -----------  --------  -----------  ----------   ----------
            NET CASH FROM INVESTING ACTIVITIES   (1,472)   (1,983)              -    (3,455)     (11,203)          -      (14,658)
                                               --------  --------     -----------  --------  -----------  ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:

       Net proceeds from revolving line of
        credit and other debt                         -    59,000               -    59,000       11,976           -       70,976
       Repayment of long-term debt                    -      (429)              -      (429)           -           -         (429)
       Costs associated with refinancing           (575)        -               -      (575)           -           -         (575)
       Additional payment for trademarks        (21,666)        -               -   (21,666)           -           -      (21,666)
       Common stock issued                           42         -               -        42            -           -           42
                                               --------  --------     -----------  --------  -----------  ----------   ----------
       NET CASH FROM FINANCING ACTIVITIES       (22,199)   58,571               -    36,372       11,976           -       48,348
                                               --------  --------     -----------  --------  -----------  ----------   ----------
Effect of Exchange Rate Changes on Cash               -         -               -         -          338           -          338
                                               --------  --------     -----------  --------  -----------  ----------   ----------
Net Change in Cash                                    2     4,323               -     4,325      (10,731)          -       (6,406)

Cash, Beginning of Period                             -     8,971               -     8,971       26,731           -       35,702
                                               --------  --------     -----------  --------  -----------  ----------   ----------
Cash, End of Period                            $      2  $ 13,294     $         -  $ 13,296  $    16,000  $        -   $   29,296
                                               ========  ========     ===========  ========  ===========  ==========   ==========
</TABLE>

                                       19

<PAGE>

12.   SUBSEQUENT EVENTS

On January 31, 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.

13.   RESTATEMENT AND RECLASSIFICATION

Subsequent to the issuance of the Company's condensed consolidated financial
statements as of and for the thirteen and twenty-six weeks ended January 1,
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 January 1, 2005
   Convertible preferred stock              $      -             $ 40,000
   Additional paid-in capital                 96,107               56,107
   Stockholders' equity (deficit)            181,657              141,657
As of July 3, 2004
   Convertible preferred stock              $      -             $ 40,000
   Additional paid-in capital                 96,147               56,147
   Stockholders' equity (deficit)            173,576              133,576
</TABLE>

Additionally, the change in compensating balances on deposit of $0.5 million at
January 1, 2005 and $5.6 million at December 27, 2003, which were previously
classified as part of financing activities on the Condensed Consolidated
Statements of Cash Flows have been reclassified as investing activities. Also,
the additional payments for tradenames, of $0.3 million at January 1, 2005 and
$21.7 million at December 27, 2003, which were previously classified as part of
investing activities on the Condensed Consolidated Statements of Cash Flows have
been reclassified as financing activities.

                                       20
<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 13.

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 14.0% of the
gross accounts receivable at January 1, 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.

                                       21

<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 47.5% and 53.7% of the Company's inventories as of January 1,
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.

                                       22

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123(R), "Share Based Payment", which replaces Statement No. 123,
"Accounting for Stock-Based Compensation," and APB 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 Act and does not intend to apply
this provision to qualifying 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 second quarter of fiscal 2005 (thirteen weeks ended January 1, 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 second quarter, Salton invested approximately $7.0 million of
selling, advertising, general and administrative costs to expand sales into
Spain, Italy and Germany, which resulted in beginning sales results of $5.8
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.

RESULTS OF OPERATIONS

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

                                       23

<PAGE>

<TABLE>
<CAPTION>
                                                13 WEEKS ENDED
                                      -----------------------------------
                                      JANUARY 1, 2005   DECEMBER 27, 2003
                                      ---------------   -----------------
<S>                                   <C>               <C>
Net sales                                   100.0%         100.0%
Cost of goods sold                           67.9           63.6
Distribution expenses                         5.7            5.3
                                            -----          -----
    Gross profit                             26.4%          31.1%
Selling, general and administrative
  expense                                    20.6           22.8
Restructuring costs                             -              -
                                            -----          -----
Operating income                              5.8%           8.3%
                                            =====          =====
</TABLE>

SECOND QUARTER FISCAL 2005 COMPARED TO SECOND QUARTER FISCAL 2004

NET SALES AND GROSS PROFIT

Sales for the second quarter of 2005 were $377.0 million compared to $397.1
million in the second quarter of 2004. The $20.1 million or 5.1% decrease was
primarily a result of a $49.0 million domestic sales decline, partially offset
by $28.9 million of foreign sales increases, which includes $20.3 million of
foreign currency fluctuation gain.

The Company experienced a decline in domestic volumes primarily driven by
product shortages and lower retail purchases over the prior year. The prior year
included higher then normal sales activity due to retailer concerns about supply
chain interruptions at West Coast ports.

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 weak retail environment. Several
retailers in the United Kingdom instituted temporary purchasing freezes during
the period.

Gross profit, as a percent of net sales, was 26.4% in second quarter of 2005 as
compared to 31.1% in second quarter of 2004, a decrease of 4.7%. This decrease
was a result of a higher volume of AMAP sales at substantially lower margins due
to the nature of their business in the electronics industry, the movement of
excess and discontinued product in the domestic market as a result of inventory
reduction plans and warehouse closures, promotional pricing to launch the
Company's coffee pod initiatives and higher industry wide product costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased to 20.6% of net sales or
$77.5 million in the second quarter of 2005 compared to 22.8% of net sales or
$90.5 million for the second quarter of 2004. The decrease was a result of
domestic cost reductions partially offset by approximately $7.0 million of
start-up expenses associated with our launch in Spain, Italy and Germany and
$4.3 million of foreign currency fluctuations.

For the second quarter of 2005, as a percent of sales, expenditures for
television, royalty expense, certain other media and cooperative advertising and
promotional activities decreased to 9.7% from 12.9% of net sales for second
quarter of 2004. Advertising expenses associated with the launch of several new
product categories in the prior year were not repeated in the same quarter this
year, resulting in more normalized rates of expenditure.

                                       24

<PAGE>

NET INTEREST EXPENSE

Net interest expense was $13.8 million for the second quarter of 2005 compared
to $10.3 million in the second quarter of 2004. Our annualized weighted average
rate of interest on average borrowings was 10.8% in the second quarter of 2005
compared to 9.7% in the same period in 2004. The average amount of all debt
outstanding was $512.8 million for the second quarter of 2005 compared to $427.7
million for the same period in 2004.

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 of 34.7% for fiscal 2005 to differ from the prior
year rate of 32.9% due to a shift in income mix from foreign jurisdictions to
the U.S. in 2005 as well as non-deductible goodwill impairment charges and the
establishment of deferred tax asset valuation allowances recorded in 2004.

FIRST HALF IN REVIEW

For the first half of fiscal 2005 (twenty-six weeks ended January 1, 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 $5.8 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.

In connection with the U.S. restructuring, we recorded pretax charges of $0.8
million in the first half of fiscal 2005 for consulting and legal fees and
termination and severance costs associated with the headcount reduction in the
U.S. 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>
                                                       26 WEEKS ENDED
                                                 -----------------------------
                                                 JANUARY 1,       DECEMBER 27,
                                                    2005              2003
                                                 ----------       ------------
<S>                                              <C>              <C>
Net sales                                         100.0%             100.0%
Cost of goods sold                                 69.3               64.6
Distribution expenses                               5.7                5.9
                                                  -----              -----
    Gross profit                                   25.0%              29.5%
Selling, general and administrative expense        20.0               22.4
Restructuring costs                                 0.1                  -
                                                  -----              -----
Operating income                                    4.9%               7.1%
                                                  =====              =====
</TABLE>

                                       25

<PAGE>

FIRST HALF FISCAL 2005 COMPARED TO FIRST HALF FISCAL 2004

NET SALES AND GROSS PROFIT

Salton's net sales for the twenty-six weeks ended January 1, 2005 were $651.1
million. This represented an increase in revenues of 2.4% compared to $635.6
million for the same period in 2004. This increase was primarily the result of
foreign sales increases of $64.8 million, which includes $30.7 million of
foreign currency fluctuation gain, substantially offset by decreases in the
domestic market.

Gross profit in first half of 2005 decreased to $163.1 million compared to
$187.6 million in the first half of 2004. As a percent of net sales, gross
profit decreased from 29.5% in the first half of 2004 to 25.0% of net sales in
the first half 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 20.0% of net sales or
$130.5 million in first half of 2005 compared to 22.4% of net sales or $142.3
million for first half of 2004. Cost reductions achieved under the U.S.
restructuring plan were partially offset by foreign increases of $7.0 million,
which included international expansion, and $6.3 million related to foreign
currency fluctuations.

For first half of 2005, as a percent of sales, expenditures for television,
royalty expense, certain other media and cooperative advertising and promotional
activities decreased to 8.9% from 11.1% of sales for first half of 2004. While
first quarter product launches increased direct advertising expenditures, second
quarter promotional and advertising expenditures were reduced, returning the
Company to more normalized levels for the first half of 2005 compared to those
of the same period for 2004.

RESTRUCTURING COSTS

In connection with the U.S. restructuring, we recorded pretax charges of $0.8
million in the first half of fiscal 2005 for consulting and legal fees and
termination and severance costs associated with the headcount reduction in the
U.S.

NET INTEREST EXPENSE

Net interest expense was $26.8 million for the first half of fiscal 2005
compared to $20.0 million in the first half of fiscal 2004. Our annualized
weighted average rate of interest on average borrowings was 11.0% in the first
half of 2005 compared to 9.8% in the same period in 2004. The average amount of
all debt outstanding was $489.1 million for the first half of 2005 compared to
$409.3 million for the same period in 2004.

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 of 34.5% for fiscal 2005 to differ from the prior
year rate of 32.9% due to a shift in income mix from foreign jurisdictions to
the U.S. in 2005 as well as non-deductible goodwill impairment charges and the
establishment of deferred tax asset valuation allowances recorded in 2004.

                                       26

<PAGE>

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 half
of fiscal 2005, Salton's operations used $81.7 million in cash flow, compared
with $40.4 million in the first half of fiscal 2004. The increase in cash
requirements were a result of $16.8 million in higher working capital needs and
$13.5 million in lower net income. The remaining change was a result of $11.0
million in non-cash items. Given the seasonal nature of our business, borrowings
and availability tend to be highest in mid-Fall and early Winter.

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

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

INVESTING ACTIVITIES

We incurred approximately $6.0 million for capital expenditures during the first
half of fiscal 2005, including approximately $2.7 million in construction-
in-progress for a warehouse renovation in Europe.

FINANCING ACTIVITIES

We had net proceeds from worldwide credit facilities of $79.1 million. The
increase in facility usage represents a seasonal increase in working capital
that was financed through our credit facilities in the U.S. and the UK.

REVOLVING CREDIT FACILITY

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

As of January 1, 2005, we had borrowed $181.3 million under the senior secured
revolving credit facility, $100.0 million of which is included in long-term
liabilities. We had approximately $3.6 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

                                       27

<PAGE>

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 7.3% at January 1, 2005; or the
Base Rate (prime rate), plus 3.0%, equaling 8.25% at January 1, 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.

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 $8.3 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.
We may incur additional debt, or may issue debt or equity securities, to repay
and/or refinance the 10-3/4% senior subordinated notes. The availability and
attractiveness of any outside sources of funds will depend on a number of
factors, some of which relate to our financial condition and performance, and
some of which are beyond our control, such as prevailing interest rates and
general economic conditions. We cannot assure you that such additional funds
will be available, or if available, that such funds will be on terms we find
acceptable. In the event that we are unable to repay and/or refinance the
10-3/4% senior subordinated notes, we may be required to pursue strategic
options including a restructuring of our debt and capital structure through sale
of assets or businesses, exchange offers and/or consent solicitations of our
outstanding securities. We cannot assure you that any of these strategic options
will be consummated.

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.

                                       28

<PAGE>

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

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

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

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

OTHER CREDIT FACILITIES

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

On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the Company's
wholly owned subsidiary, amended their facility agreement with Hong Kong
Shanghai Bank. As of January 1, 2005, there was $41.4 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.

                                       29

<PAGE>

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

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

FORWARD LOOKING

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

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

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

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.

                                       30

<PAGE>

All foreign exchange contracts have been recorded in the consolidated balance
sheets within accrued expenses at a fair value of $5.7 million and $8.7 million
at January 1, 2005 and July 3, 2004, respectively. The change in the fair value
of contracts in the second quarter was $4.2 million. There was $(2.3) million
and $(6.0) million at January 1, 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 January 1, 2005, the Company had foreign exchange
forward contracts for the purchase of 70.7 million U.S. dollars. Contracts for
the purchase of 25.9 million U.S. dollars were entered into during the second
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 13, "Restatement and Reclassification" to the accompanying
condensed consolidated financial statements, subsequent to the issuance of the
Company's condensed consolidated financial statements for the fiscal quarter
ended April 2, 2005, the Company determined that its Series A convertible
preferred stock should be classified outside of permanent equity in accordance
with the guidance of Emerging Issues Task Force Topic No. D-98 "Classification
and Measurement of Redeemable Securities", because the redemption of the Series
A convertible preferred stock in shares of common stock is outside of the
Company's control. The restatement to reclassify the Series A convertible
preferred shares had no effect on the Company's previously reported net income,
earnings per share or net cash flows. Current and historic debt covenants were
also unaffected. The Company has concluded that the circumstances that led to
the filing of this amendment on Form 10-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

                                       31

<PAGE>

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.

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.

                                       32

<PAGE>

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.

                                       33

<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.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Shareholders was held on December 9, 2004.

The following proposal was adopted by the margins indicated:

      1. To elect three Class I Directors for a term expiring in 2007.

<TABLE>
<CAPTION>
                                                     Number of Shares
                                        ----------------------------------------
                                            For                         Withheld
                                        ----------                      --------
<S>                                     <C>                             <C>
David C. Sabin                          13,981,078                      159,274
William B. Rue                          13,980,258                      160,094
Robert A. Bergmann                      13,986,933                      153,419
</TABLE>

The following proposal was adopted by the margins indicated:

      2. To ratify the appointment of Deloitte & Touche LLP as the auditors for
         the 2005 fiscal year.

<TABLE>
<S>                                                        <C>
For                                                        13,999,998
Against                                                       134,321
Abstain                                                         6,033
</TABLE>

                                       34

<PAGE>

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>
    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