<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


(Mark One)

[X]  Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
     Act Of 1934 For the Quarterly Period Ended April 2, 2005 or

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

     Commission file number:  0-19557

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

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

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

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



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                           Yes  X           No
                               ----            ----

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

                           Yes  X           No
                               ----            ----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 7, 2005, 11,376,297
shares of its $0.01 par value Common Stock.


<PAGE>


<TABLE>
<CAPTION>
                                                                                                 PAGE NO.
                                                                                                 --------
<S>       <C>                                                                                    <C>
PART I                FINANCIAL INFORMATION
          Item 1:     Consolidated Financial Statements (Unaudited)

                      Consolidated Balance Sheets - April 2, 2005 and July 3, 2004                 3

                      Consolidated Statements of Operations - Thirteen weeks ended                 4
                      April 2, 2005 and March 27, 2004 and Thirty-nine weeks ended
                      April 2, 2005 and March 27, 2004

                      Consolidated Statements of Cash Flows -Thirty-nine weeks ended               5
                      April 2, 2005 and March 27, 2004

                      Notes to Consolidated Financial Statements                                   6

          Item 2:     Management's  Discussion and Analysis of Financial Condition and             20
                      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                                                            31

          Item 5:     Other Information                                                            34

                      Signature                                                                    35

          Item 6:     Exhibits                                                                     36

</TABLE>




                                       2
<PAGE>
                                  SALTON, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                APRIL 2, 2005         JULY 3, 2004
                                                                -------------         ------------
<S>                                                             <C>                   <C>
ASSETS
CURRENT ASSETS:
  Cash                                                          $  18,214             $  43,217
  Compensating balances on deposit                                 34,194                34,000
  Accounts receivable, less allowances                            179,378               180,391
  Inventories                                                     271,743               253,627
  Prepaid expenses and other current assets                        20,719                21,267
  Deferred income taxes                                            20,139                25,742
                                                                ---------             ---------
     Total Current Assets                                         544,387               558,244
Property, Plant and Equipment, net                                 60,317                81,152
Tradenames                                                        185,691               184,421
Non-Current Deferred Tax Asset                                     34,991                18,007
Other Assets                                                       12,882                15,516
                                                                ---------             ---------
TOTAL ASSETS                                                    $ 838,268             $ 857,340
                                                                =========             =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Revolving line of credit and other current debt               $  73,200             $  48,667
  Senior subordinated notes due 2005 - current                    125,000                     -
  Accounts payable                                                 90,845               137,671
  Accrued expenses                                                 74,523                56,997
  Income taxes payable                                             11,283                 8,805
                                                                ---------             ---------
     Total Current Liabilities                                    374,851               252,140
Non-Current Deferred Income Taxes                                   5,802                 6,418
Senior Subordinated Notes Due 2005                                      -               125,000
Senior Subordinated Notes due 2008, including an adjustment
  of $7,702 and $9,581 to the carrying value related
  to interest rate swap agreements, respectively                  156,951               158,642
Term Loan and Other Notes Payable                                 101,957               100,761
Other Long Term Liabilities                                        18,540                17,288
                                                                ---------             ---------
                                                                  658,101               660,249
Minority Interest                                                  24,662                23,515
STOCKHOLDERS' EQUITY:
  Preferred Stock, $0.01 par value; authorized, 2,000,000
    shares; 40,000 shares issued                                        -                     -
  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                                       95,757                96,147
  Accumulated Other Comprehensive Income                           17,947                12,668
  Retained Earnings                                               107,446               130,406
                                                                ---------             ---------
     Total Stockholders' Equity                                   155,505               173,576
                                                                ---------             ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $ 838,268             $ 857,340
                                                                =========             =========
</TABLE>


                See Notes to Consolidated Financial Statements.


                                       3


<PAGE>
                                  SALTON, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


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

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING              11,376,297        11,276,572        11,373,127        11,217,907

WEIGHTED AVERAGE COMMON AND COMMON

   EQUIVALENT SHARES OUTSTANDING                        11,376,297        11,276,572        11,373,127        11,217,907

Net (Loss) per Common Share: Basic                    $      (1.98)     $      (5.14)     $      (2.02)     $      (4.01)

Net (Loss) per Common Share: Diluted                  $      (1.98)     $      (5.14)     $      (2.02)     $      (4.01)
</TABLE>



                 See Notes to Consolidated Financial Statements.


                                       4
<PAGE>
<TABLE>
<CAPTION>
                                                                                APRIL 2, 2005       MARCH 27, 2004
                                                                                -------------       --------------
<S>                                                                             <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (Loss)                                                                     $(22,960)          $(44,930)
  Adjustments to Reconcile Net (Loss) to Net Cash from Operating Activities:
    Imputed interest on notes payable and other non-cash items                     (1,362)            (1,354)
    Deferred income tax provision                                                 (14,488)             1,346
    Depreciation and amortization                                                  17,864             17,013
    Bad debt (recovery) provision                                                  (1,321)             1,740
    Loss on disposal of equipment                                                      41                335
    Inventory valuation adjustment                                                 (1,577)             1,278
    Impairment loss on goodwill and intangible assets                                 243             34,324
    Foreign currency gains and losses                                                  23                665
    Gain on sale of investment                                                       (109)                 -
    Minority interest, net of tax                                                   4,381              4,654
    Changes in assets and liabilities:
       Accounts receivable                                                          3,301             13,032
       Inventories                                                                (14,671)           (52,097)
       Prepaid expenses and other current assets                                      379             (6,864)
       Other non-current assets                                                       155               (198)
       Accounts payable                                                           (46,830)            58,644
       Income taxes payable                                                         2,573             (2,477)
       Accrued expenses                                                            21,440             19,860
                                                                                 --------           --------
          NET CASH FROM OPERATING ACTIVITIES                                      (52,918)            44,971

CASH FLOWS FROM INVESTING ACTIVITIES:

  Capital expenditures                                                             (8,137)           (13,991)
  Proceeds from sale of property and investments                                   15,486                951
  Additional payment for tradenames                                                  (619)           (21,750)
                                                                                 --------           --------
          NET CASH FROM INVESTING ACTIVITIES                                        6,730            (34,790)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from revolving line of credit and other debt                        25,369             12,689
  Repayment of long term debt                                                        (738)              (601)
  Distributions to minority shareholders                                           (2,296)                 -
  Costs associated with refinancing                                                  (967)            (1,130)
  Common stock issued                                                                  27                223
  Increase in compensating balances on deposit                                       (194)            (5,600)
                                                                                 --------           --------
          NET CASH FROM FINANCING ACTIVITIES                                       21,201              5,581
                                                                                 --------           --------
Effect of Exchange Rate Changes on Cash                                               (16)             1,613
                                                                                 --------           --------
Net Change in Cash                                                                (25,003)            17,375

Cash, Beginning of Period                                                          43,217             32,602
                                                                                 --------           --------
Cash, End of Period                                                              $ 18,214           $ 49,977
                                                                                 ========           ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash Paid (Received) During the Period for:

  Interest                                                                       $ 27,334           $ 20,807

  Income taxes, net of (refunds)                                                 $  5,424           $ (6,759)

</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

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

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

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



                 See Notes to Consolidated Financial Statements.



                                       5

<PAGE>

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

1.   CONSOLIDATED FINANCIAL STATEMENTS

     In the opinion of management, the accompanying consolidated balance sheets
     and related interim 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 should be read in conjunction with
     Management's Discussion and Analysis and consolidated financial statements
     and notes thereto included in the Salton, Inc. 2004 Annual Report on Form
     10-K. Certain reclassifications have been made for consistent presentation.

2.   NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

3.   FINANCING ARRANGEMENTS

     On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the
     Company's wholly owned subsidiary, amended its facility (the "Facility
     Letter") agreement with Hong Kong Shanghai Bank. The amended Facility
     Letter includes an overdraft facility of up to (pound)8 million ($15.0
     million) and a money market borrowing facility of up to (pound)7 million
     ($13.2 million). In addition, Salton Europe has an invoice finance facility
     of between (pound)15 and (pound)40 million ($28.2 million and $75.2
     million) depending

                                       6
<PAGE>
     on seasonality and accounts receivable levels. As of April 2, 2005, there
     was $16.5 million outstanding under the facility, which is included in
     other current debt.

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

4.   STOCK-BASED COMPENSATION

     At April 2, 2005, the Company had various stock-based employee compensation
     plans, which are described more fully in Note 10 of the Company's 2004
     Annual Report on Form 10-K. The Company accounts for those plans in
     accordance with APB Opinion No. 25, "Accounting for Stock Issued to
     Employees" and related Interpretations. No stock-based employee
     compensation cost is reflected in net income, as no options granted under
     those plans had an exercise price less than the market value of the
     underlying common stock on the date of grant. The following table
     illustrates the effect on net income and earnings per share if the Company
     had applied the fair value recognition provisions of Statement of Financial
     Accounting Standards No. 123, "Accounting for Stock-Based Compensation."


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


5.   NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

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

     For the thirteen weeks ended April 2, 2005 and March 27, 2004, and for the
     thirty-nine weeks ended April 2, 2005 and March 27, 2004, the dilutive
     effect of the Company's outstanding common stock equivalents, options and
     warrants were excluded from the computation of diluted earnings per share
     because they had an anti-dilutive effect due to the Company's losses in
     these periods.

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.


                                       7
<PAGE>

     All foreign exchange contracts have been recorded in the consolidated
     balance sheets within accrued expenses at a fair value of $0.2 million and
     $8.7 million at April 2, 2005 and July 3, 2004, respectively. The change in
     the fair value of contracts in the third quarter was $(5.5) million. There
     was $(0.6) million and $(6.0) million at April 2, 2005 and July 3, 2004,
     respectively, recorded in accumulated other comprehensive income, net of
     tax, related to these contracts. The Company anticipates that all gains and
     losses deferred in accumulated other comprehensive income related to
     foreign exchange contracts will be reclassified into earnings within the
     next twelve months as the related inventories are sold. At April 2, 2005,
     the Company had foreign exchange forward contracts for the purchase of 37.6
     million U.S. dollars. Contracts for the purchase of 25.1 million U.S.
     dollars were entered into during the third quarter of fiscal 2005.


7.   COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

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


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



     Accumulated other comprehensive income is comprised of the following:


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


8.   PENSION BENEFIT PLANS

     The components of net periodic pension cost are as follows:

<TABLE>
(In thousands)                                     Domestic                         Salton Europe                   Total
13 Weeks Ended:                                    04/02/05       03/27/04      04/02/05      03/27/04      04/02/05     03/27/04
                                                   --------       --------      --------      --------      --------     --------
<S>                                                <C>            <C>           <C>           <C>           <C>          <C>
Service cost-benefits earned during the year        $ 42           $ 42          $ 80         $  73         $ 122        $ 115
Interest cost on projected benefit obligation        176            179           566           466           742          645
Actuarial return on plan assets                     (156)          (166)         (439)         (346)         (595)        (512)
Net amortization and deferral                         65             99           191           177           256          276
                                                    -----          -----         -----        -----         -----        -----
           Net pension cost                         $ 127          $ 154         $ 398        $ 370         $ 525        $ 524
                                                    =====          =====         =====        =====         =====        =====
</TABLE>



                                    8
<PAGE>
<TABLE>
<CAPTION>
(In thousands)                                        Domestic                        Salton Europe                  Total
39 Weeks Ended:                                       04/02/05       03/27/04     04/02/05     03/27/04      04/02/05      03/27/04
                                                      --------       --------     --------     --------      --------      --------
<S>                                                   <C>            <C>          <C>          <C>           <C>           <C>
   Service cost-benefits earned during the year        $ 126         $  126      $   236      $   220       $   362       $   346
   Interest cost on projected benefit obligation         529            536        1,666        1,398         2,195         1,934
   Actuarial return on plan assets                      (467)          (497)      (1,291)      (1,039)       (1,758)       (1,536)
   Net amortization and deferral                         194            296          561          530           755           826
                                                       -----          -----      -------      -------       -------       -------
             Net pension cost                          $ 382          $ 461      $ 1,172      $ 1,109       $ 1,554       $ 1,570
                                                       =====          =====      =======      =======       =======       =======
</TABLE>


     The Company previously disclosed in its financial statements for the year
     ended July 3, 2004, that it expected to contribute $0.7 million to its
     domestic pension plans and $0.3 million to the Salton Europe pension plan
     in fiscal 2005. Due to a shortfall in the Europe plan, the Company is
     legally obligated to bring the plan up to 90% minimum funding level within
     3 years and 100% in 10 years. Therefore, the contributions under the Europe
     plan have been increased to an expected $1.0 million in fiscal 2005. As of
     April 2, 2005, $0.6 million and $0.6 million of contributions have been
     made to the domestic and Europe plans, respectively.

9.   OPERATING SEGMENTS AND MAJOR CUSTOMERS

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

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

10.  LEASE COMMITMENTS

     The Company leases certain facilities and equipment under long-term
     operating leases. During the third quarter of fiscal 2005, the Company
     entered into a sale agreement, whereby it sold a distribution warehouse in
     Europe for $15.2 million, which approximated book value at the date of
     sale. The Company subsequently entered into an operating lease agreement
     for this distribution warehouse with an initial lease termination date of
     2030. Terms of the lease include scheduled rent increases every five years.
     Rental expense under this lease was approximately $0.3 million for the
     thirteen weeks ended April 2, 2005. The future minimum lease payments for
     this lease as of April 2, 2005 were as follows:


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



                                       9
<PAGE>


11.  LEGAL PROCEEDINGS

     SECURITIES CLASS ACTION LAWSUITS

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

     PHILIPS

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

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


                                       10

<PAGE>



     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.

     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.


                                       11
<PAGE>



     ENVIRONMENTAL

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

     OTHER

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

12.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

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


                                       12
<PAGE>
CONSOLIDATING BALANCE SHEET AS OF APRIL 2, 2005
(IN THOUSANDS)

<Table>
<Caption>
                                                       GUARANTOR                               OTHER      CONSOLIDATED  CONSOLIDATED
                                             PARENT   SUBSIDIARIES  ELIMINATIONS   TOTAL    SUBSIDIARIES  ELIMINATIONS     TOTALS
                                            ----------------------------------------------------------------------------------------
<S>                                         <C>       <C>           <C>           <C>       <C>            <C>          <C>
                ASSETS
Current Assets:
  Cash                                      $    185   $    865     $       -     $  1,050     $ 17,164        $ -      $ 18,214
  Compensating balances on deposits                -          -             -            -       34,194          -        34,194
  Accounts receivable, net of allowances         122     89,969             -       90,091       89,287          -       179,378
  Inventories                                  5,790    161,751       (25,239)     142,302      129,441          -       271,743
  Prepaid expenses and other current
    assets                                     3,302      3,599             -        6,901       13,818          -        20,719
  Intercompany                               108,989    (67,307)          (17)      41,665      (41,665)         -             -
  Deferred income taxes                          846     10,059             -       10,905        9,234          -        20,139
                                            ------------------------------------------------------------------------------------
     Total Current Assets                    119,234    198,936       (25,256)     292,914      251,473          -       544,387
Property, Plant and Equipment, net             7,991     12,821             -       20,812       39,505          -        60,317
Investments in Subsidiaries                  390,594     53,682      (444,276)           -            -          -             -
Tradenames                                   135,099     10,312             -      145,411       40,280          -       185,691
Non-current deferred tax asset                     -          -        34,991       34,991            -          -        34,991
Other Assets                                  10,006        224             -       10,230        2,652          -        12,882
                                            ------------------------------------------------------------------------------------
Total Assets                                $662,924   $275,975     $(434,541)    $504,358     $333,910        $ -      $838,268
                                            ====================================================================================

  LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Revolving line of credit and other
    current debt                            $      -   $ 51,954     $       -     $ 51,954     $ 21,246        $ -      $ 73,200
  Senior subordinated notes due 2005         125,000          -             -      125,000            -          -       125,000
  Accounts payable                             2,926      5,179           155        8,260       82,585          -        90,845
  Accrued expenses                            18,010     11,758             -       29,768       44,755          -        74,523
  Income taxes payable                         3,988          -             -        3,988        7,295          -        11,283
                                            ------------------------------------------------------------------------------------
     Total current liabilities               149,924     68,891           155      218,970      155,881          -       374,851
Non-current Deferred Income Taxes            (30,122)    (4,869)       34,991            -        5,802          -         5,802
Senior subordinated notes due 2008,
   including an adjustment of $7,702 to
   the carrying value related to interest
   rate swap agreements                      156,951          -             -      156,951            -          -       156,951
Term loan and other notes payable                  -    100,085             -      100,085        1,872          -       101,957
Other Long Term Liability                        836      3,700             -        4,536       14,004          -        18,540
                                            ------------------------------------------------------------------------------------
     Total liabilities                       277,589    167,807        35,146      480,542      177,559          -       658,101
Minority interest                                  -          -             -            -       24,662          -        24,662
Stockholders' Equity                         385,335    108,168      (469,687)      23,816      131,689          -       155,505
                                            ------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity  $662,924   $275,975     $(434,541)    $504,358     $333,910        $ -      $838,268
                                            ====================================================================================
</Table>



                                       13
<PAGE>
CONSOLIDATING BALANCE SHEET AS OF JULY 3, 2004
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       GUARANTOR                               OTHER      CONSOLIDATED  CONSOLIDATED
                                              PARENT  SUBSIDIARIES  ELIMINATIONS   TOTAL    SUBSIDIARIES  ELIMINATIONS     TOTAL
                                            ----------------------------------------------------------------------------------------
<S>                                         <C>       <C>           <C>           <C>       <C>            <C>          <C>
                 ASSETS
Current Assets:
  Cash                                       $      1    $    903     $       -    $    904     $ 42,313    $      -       $ 43,217
   Compensating balances on deposit                 -           -             -           -       34,000           -         34,000
  Accounts receivable, net of allowances          311      96,905             -      97,216       83,175           -        180,391
  Inventories                                   5,133     165,189       (28,341)    141,981      111,646           -        253,627
  Prepaid expenses and other current
    assets                                      5,054       2,597             -       7,651       13,616           -         21,267
  Intercompany                                131,818    (104,380)         (756)     26,682      (26,682)          -              -
  Deferred income taxes                           913      16,577             -      17,490        8,252           -         25,742
                                             --------------------------------------------------------------------------------------
     Total current assets                     143,230     177,791       (29,097)    291,924      266,320           -        558,244
Property, Plant and Equipment,
   Net of Accumulated Depreciation             11,016      14,910             -      25,926       55,226           -         81,152
Investments in Subsidiaries                   390,773      53,646      (444,419)          -            -           -              -
Tradenames                                    134,723      10,313             -     145,036       39,385           -        184,421
Non-current deferred tax asset                  8,840       9,167             -      18,007            -           -         18,007
 Other Assets                                  12,442         274             -      12,716        2,800           -         15,516
                                             --------------------------------------------------------------------------------------
Total Assets                                 $701,024    $266,101     $(473,516)   $493,609     $363,731    $      -       $857,340
                                            =======================================================================================

  LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Revolving line of credit and other
    current debt                             $      -    $ 33,189     $       -    $ 33,189     $ 15,478    $      -       $ 48,667
  Accounts payable                              2,922       2,039          (584)      4,377      133,294           -        137,671
  Accrued expenses                              9,491      13,478             -      22,969       34,028           -         56,997
  Income taxes payable                         (2,336)     (1,496)            -      (3,832)      12,637           -          8,805
                                             --------------------------------------------------------------------------------------
     Total current liabilities                 10,077      47,210          (584)     56,703      195,437           -        252,140
Non-current Deferred Income Taxes                   -           -             -           -        6,418           -          6,418
Senior subordinated notes due 2005            125,000           -             -     125,000            -           -        125,000
Senior subordinated notes due 2008,
    including an adjustment of $9,581
    to the carrying value related to
    interest rate swap agreements             158,642           -             -     158,642            -           -        158,642
Long-term debt-revolving credit agreement           -     100,000             -     100,000            -           -        100,000
Other notes payable                                 -         175             -         175          586           -            761
Other long term liabilities                       418       3,932             -       4,350       12,938           -         17,288
                                             --------------------------------------------------------------------------------------
     Total liabilities                        294,137     151,317          (584)    444,870      215,379           -        660,249
Minority Interest                                   -           -             -           -       23,515           -         23,515
Stockholders' Equity                          406,887     114,784      (472,932)     48,739      124,837           -        173,576
                                             --------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity   $701,024    $266,101     $(473,516)   $493,609     $363,731    $      -       $857,340
                                             ======================================================================================
</TABLE>



                                       14
<PAGE>
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED APRIL 2, 2005
(IN THOUSANDS)

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


CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS
ENDED MARCH 27, 2004
(IN THOUSANDS)



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


                                       15


<PAGE>
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS
ENDED APRIL 2, 2005
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                    GUARANTOR                              OTHER        CONSOLIDATED  CONSOLIDATED
                                         PARENT   SUBSIDIARIES   ELIMINATIONS    TOTAL    SUBSIDIARIES  ELIMINATIONS     TOTALS
                                        ------------------------------------------------------------------------------------------
<S>                                     <C>          <C>         <C>            <C>       <C>           <C>            <C>
Net Sales                               $174,077     $466,239     $(279,066)    $361,250    $703,320    $(210,094)      $854,476
Cost of Goods Sold                       141,134      396,695      (282,168)     255,661     542,058     (199,820)       597,899
Distribution Expenses                          -       27,364             -       27,364      25,567            -         52,931
                                        ----------------------------------------------------------------------------------------
    Gross Profit                          32,943       42,180         3,102       78,225     135,695      (10,274)       203,646
Selling, General and Administrative
  expenses                                42,123       36,726             -       78,849     119,307      (10,274)       187,882
Intangible Impairment Loss                     -          243             -          243           -            -            243
Restructuring Costs                          527          550             -        1,077           -            -          1,077
                                        ----------------------------------------------------------------------------------------
    Operating Income                      (9,707)       4,661         3,102       (1,944)     16,388            -         14,444
Interest Expense, net                     21,589       11,312             -       32,901       7,344            -         40,245
Income (Loss) from Subsidiary              4,123          (36)       (4,087)           -           -            -              -
                                        ----------------------------------------------------------------------------------------
  (Loss) Income Before Income Taxes      (35,419)      (6,615)        7,189      (34,845)      9,044            -        (25,801)
Income Tax (Benefit) Expense              (9,394)           -             -       (9,394)      2,172            -         (7,222)

Minority Interest, net of tax                  -            -             -            -       4,381            -          4,381
                                        ----------------------------------------------------------------------------------------
    Net (Loss) Income                   $(26,025)    $ (6,615)    $   7,189     $(25,451)   $  2,491    $       -       $(22,960)
                                        ========================================================================================
</TABLE>




CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS
ENDED MARCH 27, 2004
(IN THOUSANDS)

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


                                       16
<PAGE>
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTY-NINE WEEKS
ENDED APRIL 2, 2005
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        GUARANTOR                              OTHER      CONSOLIDATED  CONSOLIDATED
                                              PARENT   SUBSIDIARIES  ELIMINATIONS   TOTAL   SUBSIDIARIES  ELIMINATIONS     TOTALS
                                             ---------------------------------------------------------------------------------------
<S>                                          <C>       <C>          <C>            <C>      <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                         $(26,025)    $ (6,615)    $  7,189     $(25,451)    $  2,491    $       -    $(22,960)
  Adjustments to reconcile net income
  (loss) to net cash used in operating
  activities:
    Imputed interest on notes payable
    and other non-cash items                  (1,690)           -            -       (1,690)         328            -      (1,362)
    Deferred income tax provision            (21,215)      10,816            -      (10,399)      (4,089)           -     (14,488)
    Depreciation and amortization              7,091        2,457            -        9,548        8,316            -      17,864
    Bad debt (recovery) provision                  -       (1,367)           -       (1,367)          46            -      (1,321)
    Loss on disposal of equipment                  -          100            -          100          (59)           -          41
    Inventory valuation adjustment                 -         (662)           -         (662)        (915)           -      (1,577)
    Impairment loss on intangible asset            -          243            -          243            -            -         243
    Foreign currency gains and losses              -           23            -           23            -            -          23
    Gain on sale of investment                     -            -            -            -         (109)           -        (109)
    Equity in net income of
      unconsolidated affiliate/
      consolidated subsidiaries                4,124          (36)      (4,088)           -            -            -           -
    Minority interest                              -            -            -            -        4,381            -       4,381
    Changes in assets and liabilities:
      Accounts receivable                        189        8,280            -        8,469       (5,168)           -       3,301
      Inventories                               (657)       4,099       (3,101)         341      (15,012)           -     (14,671)
      Prepaid expenses and other current
      assets                                   1,753       (1,002)           -          751         (372)           -         379
      Other non-current assets                     -           52            -           52          103            -         155
      Accounts payable                             3        3,881            -        3,884      (50,714)           -     (46,830)
      Taxes payable                            6,324        1,497            -        7,821       (5,248)           -       2,573
      Accrued expenses                        32,202      (39,750)           -       (7,548)      28,988            -      21,440
                                            -------------------------------------------------------------------------------------
       NET CASH FROM OPERATING ACTIVITIES      2,099      (17,984)           -      (15,885)     (37,033)           -     (52,918)
                                            -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures                      (599)        (524)           -       (1,123)      (7,014)           -      (8,137)
      Proceeds from sale of property and
      investments                                  -          120            -          120       15,366            -      15,486
      Additional payment for patents and
      trademarks                                (376)        (243)           -         (619)           -            -        (619)
                                            -------------------------------------------------------------------------------------
       NET CASH FROM INVESTING ACTIVITIES       (975)        (647)           -       (1,622)       8,352            -       6,730
                                            -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from revolving line of
      credit and other debt                        -       19,070            -       19,070        6,299            -      25,369
      Repayment of long-term debt                  -         (477)           -         (477)        (261)           -        (738)
      Distributions to minority shareholders       -            -            -            -       (2,296)                  (2,296)
      Costs associated with refinancing         (967)           -            -         (967)           -            -        (967)
      Common stock issued                         27            -            -           27            -            -          27
      Increase in compensating balances
      on deposit                                   -            -            -            -         (194)           -        (194)
                                            -------------------------------------------------------------------------------------
       NET CASH FROM FINANCING ACTIVITIES       (940)      18,593            -       17,653        3,548            -      21,201
                                            -------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash            -            -            -            -          (16)           -         (16)
                                            -------------------------------------------------------------------------------------
Net Change in Cash                               184          (38)           -          146      (25,149)           -     (25,003)
Cash, Beginning of Period                          1          903            -          904       42,313            -      43,217
                                            -------------------------------------------------------------------------------------
Cash, End of Period                         $    185     $    865     $      -     $  1,050     $ 17,164    $       -    $ 18,214
                                            =====================================================================================

</TABLE>


                                       17
<PAGE>
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTY-NINE WEEKS
ENDED MARCH 27, 2004
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                       GUARANTOR                               OTHER      CONSOLIDATED  CONSOLIDATED
                                              PARENT  SUBSIDIARIES  ELIMINATIONS    TOTAL   SUBSIDIARIES  ELIMINATIONS     TOTALS
                                            ----------------------------------------------------------------------------------------
<S>                                          <C>       <C>          <C>          <C>        <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                         $(44,162)   $(43,361)   $ 34,137     $(53,386)   $  8,456      $     -       $(44,930)
  Adjustments to reconcile net income
  (loss) to net cash used in operating
  activities:
    Imputed interest on notes payable         (1,691)          -           -       (1,691)        337            -         (1,354)
    Deferred income tax provision              1,794        (519)          -        1,275          71            -          1,346
    Depreciation and amortization              7,088       3,074           -       10,162       6,851            -         17,013
    Bad debt provision                             -       1,740           -        1,740           -            -          1,740
    Loss on disposal of equipment                  -           -           -            -         335            -            335
    Equity in net income of
      unconsolidated affiliate/
      consolidated subsidiaries               37,832         753     (38,585)           -           -            -              -
    Inventory valuation adjustment                 -       1,278           -        1,278           -            -          1,278
    Impairment loss on goodwill and
      intangible assets                            -      24,143           -       24,143      10,181            -         34,324
    Foreign currency gains and losses              -         665           -          665           -            -            665
    Minority interest                              -           -           -            -       4,654            -          4,654
    Changes in assets and liabilities:
      Accounts receivable                       (116)     16,836           -       16,720      (3,688)           -         13,032
      Inventories                             (7,019)    (19,341)      4,448      (21,912)    (30,185)           -        (52,097)
      Prepaid expenses and other current
        assets                                (1,098)        423           -         (675)     (6,189)           -         (6,864)
     Other non-current assets                      -           -           -            -        (198)           -           (198)
      Accounts payable                         2,048         886           -        2,934      55,710            -         58,644
      Taxes payable                           15,848     (20,268)          -       (4,420)      1,943            -         (2,477)
      Accrued expenses                        14,503      21,791           -       36,294     (16,434)           -         19,860
                                            --------------------------------------------------------------------------------------
        NET CASH FROM OPERATING ACTIVITIES    25,027     (11,900)          -       13,127      31,844            -         44,971
                                            --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Capital expenditures                   (2,051)     (2,828)          -       (4,879)     (9,112)           -        (13,991)
       Proceeds from sale of investment            -           -           -            -         951            -            951
       Additional payment for tradenames     (21,750)          -           -      (21,750)          -            -        (21,750)
                                            --------------------------------------------------------------------------------------
         NET CASH FROM INVESTING ACTIVITIES  (23,801)     (2,828)          -      (26,629)     (8,161)           -        (34,790)
                                            --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from revolving line of
       credit and other debt                       -       7,500           -        7,500       5,189            -         12,689
       Repayment of long-term debt              (317)       (284)          -         (601)          -            -           (601)
      Costs associated with refinancing       (1,130)          -           -       (1,130)          -            -         (1,130)
      Common stock issued                        223           -           -          223           -            -            223
      Increase in compensating balances
       on deposit                                  -           -           -            -      (5,600)           -         (5,600)
                                            -------------------------------------------------------------------------------------
       NET CASH FROM FINANCING ACTIVITIES     (1,224)      7,216           -        5,992        (411)           -          5,581
                                            -------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash            -           -           -            -       1,613            -          1,613
Net Change in Cash                                 2      (7,512)          -       (7,510)     24,885            -         17,375
Cash, Beginning of Period                          -       8,972           -        8,972      23,630            -         32,602
                                            -------------------------------------------------------------------------------------
Cash, End of Period                         $      2    $  1,460   $       -     $  1,462    $ 48,515      $     -       $ 49,977
                                            =====================================================================================

</Table>

13.  SUBSEQUENT EVENT

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

                                       18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

As used in this quarterly report on Form 10-Q, "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 consolidated financial statements

ALLOWANCE FOR DOUBTFUL ACCOUNTS - We calculate allowances for estimated
losses resulting from the inability of our customers to make required
payments. We utilize a number of tools to evaluate and mitigate our
customer credit risk. Management evaluates each new customer account using
a combination of some or all of the following sources of information:
credit bureau reports, industry credit group reports, customer financial
statement analysis, customer supplied credit references and bank
references. Appropriate credit limits are set in accordance with our credit
risk policy and monitored on an on-going basis. Existing customers are
monitored and credit limits are adjusted according to changes in their
financial condition. We calculate additional accounts receivable allowances
for anticipated future customer returns and claims. This additional accrual
covers defective product (warranty), sales returns and other customer
allowances. The amounts and trends are analyzed to develop appropriate
percentages that are applied against future sales. Based on the procedures
outlined herein, and the fact that only one customer accounted for 12.1% of
the gross accounts receivable at April 2, 2005 and no customer accounted
for 10.0% or more of the gross accounts receivable at July 3, 2004, we
believe there is no concentration of credit risk.

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.



                                       19
<PAGE>
     INVENTORY VALUATION - The Company's domestic inventories are generally
     determined using the last-in, first-out (LIFO) method. These inventories
     account for approximately 50.1% and 53.7% of the Company's inventories as
     of April 2, 2005 and July 3, 2004, respectively. All remaining inventory
     cost is determined on the first-in, first-out basis. The Company records
     inventory at the lower of its cost or net realizable value. Management
     regularly evaluates the composition of inventory to identify slow-moving
     and obsolete inventories and for items that we are unable to sell at prices
     above their original cost. When such items are identified, a charge to
     operations results to reduce the book value to the net amount expected to
     be realized upon the sale of such items. There is inherent subjectivity and
     uncertainty in this estimation process.

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

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

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

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

     NEW ACCOUNTING PRONOUNCEMENTS

     In March 2005, the Financial Accounting Standards Board (FASB) issued FASB
     Interpretation No. 47, "Accounting for Conditional Asset Retirement
     Obligations" to clarify certain provisions of FASB Statement No. 143,
     "Accounting for Asset Retirement Obligations." Interpretation No. 47
     specifies that the term "conditional asset retirement obligation" includes
     an entity's legal obligation to perform


                                       20
<PAGE>

     an asset retirement activity for which the timing and (or) method of
     settlement are conditional on a future event that may or may not be in the
     control of the entity. This interpretation provides that an entity is
     required to recognize a liability for a conditional asset retirement
     obligation if the fair value of the obligation can be reasonably estimated.
     Interpretation No. 47 is effective no later than the end of fiscal years
     ending after December 15, 2005. The company is currently evaluating the
     impact of this interpretation on its financial statements.

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

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


     QUARTER IN REVIEW

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

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

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

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



                                       21
<PAGE>
     RESULTS OF OPERATIONS
     The following table sets forth our results of operations as a percentage of
     net sales for the periods indicated:


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

     THIRD QUARTER FISCAL 2005 COMPARED TO THIRD QUARTER FISCAL 2004

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

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

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

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

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

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


                                       22
<PAGE>

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

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

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

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

     THIRTY-NINE WEEKS IN REVIEW

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

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

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


                                       23
<PAGE>


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

     RESULTS OF OPERATIONS

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

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

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

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

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

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
     Selling, general and administrative expenses decreased to 22.0% of net
     sales or $187.9 million in first thirty-nine weeks of 2005 compared to
     25.5% of net sales or $210.6 million for first thirty-nine weeks of 2004.
     Cost reductions achieved under the U.S. restructuring plan were partially
     offset by foreign increases which included international expansion, and
     $7.9 million related to foreign currency fluctuations.


                                       24
<PAGE>

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

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

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

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

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

                                       25
<PAGE>

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

     LIQUIDITY AND CAPITAL RESOURCES

     CASH FLOW FROM OPERATIONS
     Our primary sources of liquidity are our cash flow from operations and
     borrowings under our senior secured revolving credit facility. In the first
     thirty-nine weeks of fiscal 2005, Salton's operations used $52.9 million in
     cash flow, compared with cash inflow of $45.0 million in the first
     thirty-nine weeks of fiscal 2004. The most significant impact was in
     accounts payable, which was a source of cash rising $58.6 million in the
     prior year but decreased to $46.8 million in the current year. Given the
     seasonal nature of our business, borrowings and availability tend to be
     highest in mid-Fall and early Winter.

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

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

     INVESTING ACTIVITIES
     We incurred approximately $8.1 million for capital expenditures during the
     first thirty-nine weeks of fiscal 2005, including approximately $2.7
     million in construction-in-progress for a warehouse renovation in Europe.
     We received proceeds of $15.5 million from the sale of property and
     investments, primarily from the sale of the renovated warehouse in Europe.

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


                                       26
<PAGE>

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

     As of April 2, 2005, we had borrowed $151.7 million under the senior
     secured revolving credit facility, $100.0 million of which is included in
     long-term liabilities. We had approximately $7.8 million available under
     this facility for future borrowings.

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

     Borrowings under our senior secured credit facility accrue interest, at our
     option, at either: LIBOR, plus 5.0%, equaling 7.7% at April 2, 2005; or the
     Base Rate (prime rate), plus 3.0%, equaling 8.75% at April 2, 2005. The
     Company has the option to convert any base rate loan to LIBOR rate loan,
     which includes an applicable margin of 5.0%. LIBOR rate loans are to be no
     lower than a rate of 7.0%.

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

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

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

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

                                       27
<PAGE>

     SENIOR SUBORDINATED NOTES
     In addition to borrowings under our senior secured revolving credit
     facility, we have $125.0 million of 10 3/4% senior subordinated notes due
     December 15, 2005 outstanding and $150.0 million of 12 1/4% senior
     subordinated notes due April 15, 2008 outstanding (excluding $7.7 million
     related to the fair value of interest rate swap agreements that have been
     monetized).

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

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

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

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

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

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

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

     On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the
     Company's wholly owned subsidiary, amended their facility agreement with
     Hong Kong Shanghai Bank. As of April 2, 2005, there was $16.5 million
     utilized under the facility included in other current debt.


                                       28
<PAGE>

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

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

     We are currently pursuing various strategic options to raise the funds
     required to repay the $125.0 million of outstanding 10-3/4% senior
     subordinated notes due December 15, 2005 and allow us to satisfy our
     anticipated liquidity needs. These strategic options may include, among
     other things, incurring additional debt, issuing debt or equity securities,
     sales of assets or businesses, reducing expenditures for new product
     development and/or cutting other costs, exchange offers and/or consent
     solicitations of our outstanding securities. The availability and success
     of any of these options will depend on a number of factors, some of which
     relate to our financial condition and performance, and some of which are
     beyond our control, such as prevailing interest rates and general economic
     conditions. We will have to accomplish several of the foregoing options,
     some of which require the consent of our senior lenders and/or the holders
     of our senior subordinated notes, within the next six months in order to
     enable us to repay the outstanding 10-3/4% subordinated notes and satisfy
     our liquidity needs. We cannot assure you that any of such options could be
     effected, or if so, on terms favorable to us, that such options would
     enable us to repay the outstanding 10-3/4% subordinated notes or satisfy
     our liquidity needs and/or that such options would be permitted under the
     terms of our senior secured revolving credit facility or the indentures
     governing our senior subordinated notes.

     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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


                                       29
<PAGE>

     All foreign exchange contracts have been recorded in the consolidated
     balance sheets within accrued expenses at a fair value of $0.2 million and
     $8.7 million at April 2, 2005 and July 3, 2004, respectively. The change in
     the fair value of contracts in the third quarter was $(5.5) million. There
     was $(0.6) million and $(6.0) million at April 2, 2005 and July 3, 2004,
     respectively, recorded in accumulated other comprehensive income, net of
     tax, related to these contracts. The Company anticipates that all gains and
     losses deferred in accumulated other comprehensive income related to
     foreign exchange contracts will be reclassified into earnings within the
     next twelve months as the related inventories are sold. At April 2, 2005,
     the Company had foreign exchange forward contracts for the purchase of 37.6
     million U.S. dollars. Contracts for the purchase of 25.1 million U.S.
     dollars were entered into during the third quarter of fiscal 2005.


     ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures. Based on their evaluation
     as of a date within 90 days of the filing date of this Quarterly Report on
     Form 10-Q, the Company's principal executive officer and principal
     financial officer have 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")) are effective to
     ensure that information required to be disclosed by the Company in reports
     that it files or submits under the Exchange Act is recorded, processed,
     summarized and reported within the time periods specified in Securities and
     Exchange Commission rules and forms.

(b)  Changes in internal controls. There were no significant changes in the
     Company's internal controls or in 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.


                                       30
<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.


                                       31
<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.



                                       32
<PAGE>

     ITEM 5. OTHER INFORMATION

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

     The Amendment is subject to certain conditions, including that the Company
     deliver to the senior lender within certain time periods stock pledges of
     certain of the Company's foreign subsidiaries, including AMAP.






                                       33
<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:  May 12, 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)




                                       34
<PAGE>
                                  EXHIBIT INDEX

EXHIBIT NUMBER                     DESCRIPTION OF DOCUMENT
--------------                     -----------------------

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

    12(A)           Computation of Ratio of Earnings to Fixed Charges

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

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


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

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



                                       35