##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For The Quarterly Period Ended
    September 29, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) Of THE
    SECURITIES EXCHANGE ACT OF 1934For The Transition Period
    From          to          .   Commission file
    number: 0-19557
  SALTON, INC.
 (Exact Name Of Registrant As
    Specified In Its Charter)
   Delaware(State of other jurisdiction
    of
    Incorporation or organization)

36-3777824(I.R.S. Employer
    Identification Number)1955 Field Court
    Lake Forest, IL(Address of Principal
    Executive Offices)

60045(Zip Code)   Registrants Telephone Number, including area code:
 (847) 803-4600
   þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




---



##### 



Page No.PART I
    Financial InformationItem 1:


Financial StatementsCondensed Consolidated Balance Sheets 
    September 29, 2007 and June 30, 2007


3Condensed Consolidated Statements of
    Operations  Thirteen weeks ended 
    September 29, 2007 and September 30, 2006


4Condensed Consolidated Statements of Cash
    Flows  Thirteen weeks ended September 29, 2007
    and September 30, 2006


5Notes to Condensed Consolidated Financial
    Statements


7Item 2:


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


23Item 3:


Quantitative and Qualitative Disclosures About Market Risk


29Item 4:


Controls and Procedures


29PART IIOther InformationItem 1:


Legal Proceedings


29Item 6:


Exhibits


30Signature


31Index of Exhibits


E-1Computation of Ratio of Earnings to Fixed Charges302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer   2




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##### Table of Contents



SALTON,
    INC.
  CONDENSED CONSOLIDATED BALANCE SHEETS
  September 29,


June 30,2007


2007(Unaudited)(In thousands except share data)ASSETSCurrent Assets:Cash

$
11,457


$
14,189Compensating balances on deposit


41,240



40,880Accounts receivable, less allowances


99,181



74,421Inventories


116,665



115,933Prepaid expenses and other current assets


15,112



11,510Prepaid income taxes


424



2,267Deferred tax asset


2,325



2,242Total Current Assets


286,404



261,442Property, Plant and Equipment, net


30,360



32,519Trade Names


130,205



129,534Non-Current Deferred Tax Asset


7,759



7,071Other Assets


8,733



5,230Total Assets

$
463,461


$
435,796LIABILITIES AND STOCKHOLDERS DEFICITCurrent Liabilities:Revolving line of credit and other current debt

$
142,325


$
112,691Second lien notes, including an adjustment of $7,496 and $13,013
    for accrued interest, respectively


110,768



116,284Senior subordinated notes, including an adjustment of $565 and
    $808 to the carrying value related to terminated interest rate
    swap agreements, respectively


58,679



58,898Accounts payable


91,796



86,414Accrued expenses


35,198



31,085Accrued interest


4,647



4,152Income taxes payable


5,247



2,228Total Current Liabilities


448,660



411,752Non-Current Deferred Tax Liability


11,440



10,241Series C Preferred Stock, $0.1 par value;
    authorized, 150,000 shares, 135,217 shares issued


10,302



10,026Term Loan and Other Notes Payable


12,684



13,226Other Long Term Liabilities


9,830



10,234Total Liabilities


492,916



455,479Convertible Series A Preferred Stock, $0.01 par
    value; authorized, 2,000,000 shares; 40,000 shares
    issued


40,000



40,000Commitments and contingenciesStockholders Deficit:Common stock, $0.01 par value; authorized,
    40,000,000 shares; issued and outstanding:
    15,351,539 shares


188



188Treasury stock, 7,885,845 shares, at cost


(65,793
)


(65,793
)Additional paid-in capital


67,070



67,057Accumulated other comprehensive income


21,286



19,369Accumulated deficit


(92,206
)


(80,504
)Total Stockholders Deficit


(69,455
)


(59,683
)Total Liabilities and Stockholders Deficit

$
463,461


$
435,796    3




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##### Table of Contents



SALTON,
    INC.
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
  13 Weeks EndedSeptember 29,


September 30,2007


2006(In thousands except share and per share data)Net Sales

$
132,755


$
138,307Cost of Goods Sold


90,247



94,178Distribution Expenses


9,412



9,687Gross Profit


33,096



34,442Selling, General and Administrative Expenses


31,102



33,546Restructuring Costs


34



845Operating Income


1,960



51Interest Expense, net


10,011



9,277Loss Before Income Taxes


(8,051
)


(9,226
)Income Tax Expense


1,835



798Net Loss

$
(9,886
)

$
(10,024
)Weighted Average Common Shares Outstanding  Basic and
    Diluted


15,351,539



14,384,961Net Loss per Common Share: Basic and Diluted

$
(0.64
)

$
(0.70
)    4




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##### Table of Contents



SALTON,
    INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  13 Weeks EndedSeptember 29,


September 30,2007


2006(In thousands)Cash Flows from Operating Activities:Net Loss

$
(9,886
)

$
(10,024
)Adjustments to Reconcile Net Loss to Net Cash from Operating
    Activities:Imputed interest on notes payable and other non-cash items


58



51Deferred income tax benefit (provision)


26



(311
)Stock based compensation expense


13



324Depreciation and amortization


2,699



3,566Amortization of deferred financing costs


2,469



1,795Bad debt provision (recovery)


558



(33
)(Gain) loss on disposal of property and equipment


(213
)


14Inventory valuation adjustment


185



Foreign currency (gains) losses


(215
)


119Changes in assets and liabilities:Accounts receivable


(23,902
)


(15,013
)Inventories


822



(1,776
)Prepaid expenses and other current assets


(3,482
)


(1,585
)Other non-current assets


(7
)


16Accounts payable


4,830



(444
)Income taxes payable


3,495



(933
)Accrued expenses


2,817



3,081Net Cash from Operating Activities


(19,733
)


(21,153
)Cash Flows from Investing Activities:Capital expenditures


(486
)


(1,713
)Proceeds from sale of property and equipment


334



154Increase in compensating balances on deposit


(360
)


(180
)Net Cash from Investing Activities


(512
)


(1,739
)Cash Flows from Financing Activities:Net proceeds from revolving line of credit and other short term
    debt


29,435



25,923Repayment of long term debt


(6,276
)


(5,918
)Costs associated with credit agreements


(5,930
)


(1,827
)Net Cash from Financing Activities


17,229



18,178Effect of Exchange Rate Changes on Cash


284



106DECREASE IN CASH


(2,732
)


(4,608
)CASH, BEGINNING OF PERIOD


14,189



18,103CASH, END OF PERIOD

$
11,457


$
13,495SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash Paid (Received) During the Period for:Interest

$
11,414


$
10,719Income taxes, net of refunds

$
(1,635
)

$
1,944    5




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##### Table of Contents



Supplemental
    Disclosure of Noncash Investing and Financing
    Activities:
       6




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  1.
    CONDENSED
    CONSOLIDATED FINANCIAL STATEMENTS  Form 10-Q Form 10-K.
  2.
    GOING
    CONCERN      3.
    SENIOR
    SECURED CREDIT FACILITY, LETTERS OF CREDIT AND LONG-TERM
    DEBT  Sixteenth Amendment to Senior Secured Credit
    Facility 
       7




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Letters of Credit 
  Salton Europe Facility Agreement 
      4.
    STOCK-BASED
    COMPENSATION  Stock Options 
      WeightedAverageShares


Exercise(000)


PriceOutstanding as of June 30, 2007


1,006


$
14.91Granted


Exercised


Expired or Canceled


(90
)


13.57Outstanding as of September 29, 2007


916


$
15.04Options exercisable at September 29, 2007


916


$
15.04Weighted-average fair value of options granted during the period






N/A  8




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding and ExercisableWeighted-Average


Weighted-Remaining


AverageShares

Contractual


ExerciseRange of Exercise Prices

(000)

Life (Years)


Price$ 6.333 - $10.60

482


3.85



8.89$13.917 - $17.50

261


2.01



15.21$ 18.95 - $37.00

173


1.93



32.01$ 6.333 - $37.00

916


2.96


$
15.04     Stock Grants
    Warrants
  5.
    CAPITAL
    STOCK    13 Weeks EndedSeptember 29, 2007Common





AdditionalShares


Common


Paid InOutstanding


Stock


Capital(In thousands)Balance, June 30, 2007


15,352


$
188


$
67,057Stock based compensation










13Balance, September 29, 2007


15,352


$
188


$
67,070   6.
    RECENT
    ACCOUNTING PRONOUNCEMENTS   9




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    NET
    INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE  No. 03-6, EITF 03-06,
    8.
    COMPREHENSIVE
    INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME    13 Weeks EndedSeptember 29,


September 30,2007


2006(In thousands)Net Loss

$
(9,886
)

$
(10,024
)Other Comprehensive Income, net of tax of $23 and $-0-,
    respectively


1,917



489Comprehensive Loss

$
(7,969
)

$
(9,535
)  10




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As ofSeptember 29,


June 30,2007


2007(In thousands)Pension plans adjustments, net of tax of $(3,062) and $(3,016),
    respectively

$
(5,207
)

$
(5,147
)Derivative liability adjustments


(53
)


Foreign currency translation adjustments


26,546



24,516Accumulated Other Comprehensive Income

$
21,286


$
19,369   9.
    PENSION
    BENEFIT PLANS    Domestic


Salton Europe


TotalThirteen Weeks Ended:

9/29/07


9/30/06


9/29/07


9/30/06


9/29/07


9/30/06(In thousands)Service cost-benefits earned during the period

$
42


$
42


$
111


$
120


$
153


$
162Interest cost on projected benefit obligation


175



175



689



606



864



781Actuarial return on plan assets


(177
)


(167
)


(792
)


(581
)


(969
)


(748
)Net amortization and deferral


42



48



6



147



48



195Net pension cost

$
82


$
98


$
14


$
292


$
96


$
390     10.
    OPERATING
    SEGMENTS AND MAJOR CUSTOMERS      11.
    LEGAL
    PROCEEDINGS  Product
    Liability
   11




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Arbitration
      Other
    Litigation
    Environmental
    Other
    12.
    INCOME
    TAXES   12




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ,
          FIN 48-1. FIN 48-1 FIN 48-1.
 13




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.
    SUPPLEMENTAL
    CONSOLIDATING FINANCIAL INFORMATION       14




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating Balance Sheet as of September 29, 2007
  Foreign BorrowersGuarantor








and Guarantor


Other





Total Other


Consolidated


ConsolidatedParent


Subsidiaries


Eliminations


Total


Subsidiaries


Subsidiaries


Eliminations


Subsidiaries


Eliminations


Totals(In thousands)ASSETSCurrent Assets:Cash

$



$
103


$



$
103


$
5,492


$
5,862


$



$
11,354


$



$
11,457Compensating balances on deposit






















41,240







41,240







41,240Accounts receivable, net of allowances


897



48,508







49,405



34,488



15,288







49,776







99,181Inventories


8,923



50,388



(8,497
)


50,814



46,309



19,542







65,851







116,665Prepaid expenses and other current assets


1,413



2,833







4,246



6,125



4,741







10,866







15,112Intercompany


92,613



(124,135
)


197



(31,325
)


(6,407
)


37,732







31,325







Prepaid income taxes


424











424























424Deferred income taxes






















172



2,153



2,325







2,325Total Current Assets


104,270



(22,303
)


(8,300
)


73,667



86,007



124,577



2,153



212,737







286,404Property, Plant and Equipment, net


2,543



5,486







8,029



8,243



14,088







22,331







30,360Investments in Subsidiaries


88,276



143,695



(231,971
)










83,368



(83,368
)










Trade Names


83,725



4,556







88,281



41,924











41,924







130,205Non-Current Deferred Tax Asset


















2,009



648



5,102



7,759







7,759Other Assets, net


6,675



73







6,748



1,970



15







1,985







8,733Total Assets

$
285,489


$
131,507


$
(240,271
)

$
176,725


$
140,153


$
222,696


$
(76,113
)

$
286,736


$



$
463,461LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current Liabilities:Revolving line of credit and other current debt

$



$
124,052


$



$
124,052


$
16,861


$
1,412


$




18,273


$



$
142,325Second Lien


110,768











110,768























110,768Senior subordinated notes


58,679











58,679























58,679Accounts payable


10,650



7,210



369



18,229



5,985



67,582







73,567







91,796Accrued expenses


3,774



5,291







9,065



21,718



4,415







26,133







35,198Accrued interest


3,651



996







4,647























4,647Income taxes payable


599











599



1,905



2,213



530



4,648







5,247Total Current Liabilities


188,121



137,549



369



326,039



46,469



75,622



530



122,621







448,660Non-Current Deferred Tax Liability


7,087











7,087







(482
)


4,835



4,353







11,440Series C Preferred Stock


10,302











10,302























10,302Term Loan and Other Notes Payable


















12,684











12,684







12,684Other Long Term Liabilities






1,423







1,423



8,352



55







8,407







9,830Total Liabilities


205,510



138,972



369



344,851



67,505



75,195



5,365



148,065







492,916Convertible Preferred Stock


40,000











40,000























40,000Stockholders Equity (Deficit)


39,979



(7,465
)


(240,640
)


(208,126
)


72,648



147,501



(81,478
)


138,671







(69,455
)Total Liabilities and Stockholders Equity (Deficit)

$
285,489


$
131,507


$
(240,271
)

$
176,725


$
140,153


$
222,696


$
(76,113
)

$
286,736


$



$
463,461  15




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating Balance Sheet as of June 30, 2007
  Foreign BorrowersGuarantor








and Guarantor


Other





Total Other


Consolidated


ConsolidatedParent


Subsidiaries


Eliminations


Total


Subsidiaries


Subsidiaries


Eliminations


Subsidiaries


Eliminations


Totals(In thousands)ASSETSCurrent Assets:Cash

$



$
4,115


$



$
4,115


$
5,172


$
4,902


$



$
10,074


$



$
14,189Compensating balances on deposit






















40,880







40,880







40,880Accounts receivable, net of allowances


88



34,439







34,527



27,154



12,740







39,894







74,421Inventories


6,979



53,000



(9,166
)


50,813



45,586



19,534







65,120







115,933Prepaid expenses and other current assets


1,460



1,686







3,146



4,615



3,749







8,364







11,510Intercompany


102,548



(137,559
)


(57
)


(35,068
)


(9,170
)


44,238







35,068







Prepaid income taxes


2,267











2,267























2,267Deferred income taxes






















89



2,153



2,242







2,242Total Current Assets


113,342



(44,319
)


(9,223
)


59,800



73,357



126,132



2,153



201,642







261,442Property, Plant and Equipment, net


2,793



5,688







8,481



8,372



15,666







24,038







32,519Investments in Subsidiaries


138,727



144,288



(283,015
)










83,368



(83,368
)










Trade Names


83,725



4,556







88,281



41,253











41,253







129,534Non-Current Deferred Tax Asset


















1,824



617



4,630



7,071







7,071Other Assets, net


2,816



73







2,889



2,327



14







2,341







5,230Total Assets

$
341,403


$
110,286


$
(292,238
)

$
159,451


$
127,133


$
225,797


$
(76,585
)

$
276,345


$



$
435,796LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current Liabilities:Revolving line of credit and other current debt

$



$
100,010


$



$
100,010


$
11,979


$
702


$




12,681


$



$
112,691Second lien notes


116,284











116,284























116,284Senior subordinated notes


58,898











58,898























58,898Accounts payable


8,196



3,382



115



11,693



4,604



70,117







74,721







86,414Accrued expenses


4,766



4,810







9,576



17,494



4,015







21,509







31,085Accrued interest


2,339



1,813







4,152























4,152Income taxes payable


600











600



1,247



96



285



1,628







2,228Total Current Liabilities


191,083



110,015



115



301,213



35,324



74,930



285



110,539







411,752Non-Current Deferred Tax Liability


6,351











6,351







(10
)


3,900



3,890







10,241Series C Preferred Stock


10,026











10,026























10,026Term Loan and Other Notes Payable


















13,226











13,226







13,226Other Long Term Liabilities






1,651







1,651



8,521



62







8,583







10,234Total Liabilities


207,460



111,666



115



319,241



57,071



74,982



4,185



136,238







455,479Convertible Preferred Stock


40,000











40,000























40,000Stockholders Equity (Deficit)


93,943



(1,380
)


(292,353
)


(199,790
)


70,062



150,815



(80,770
)


140,107







(59,683
)Total Liabilities and Stockholders Equity (Deficit)

$
341,403


$
110,286


$
(292,238
)

$
159,451


$
127,133


$
225,797


$
(76,585
)

$
276,345


$



$
435,796  16




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating Statement of Operations for the Thirteen Weeks
    ended September 29, 2007
  Foreign BorrowersGuarantor








and Guarantor


Other





Total Other


Consolidated


ConsolidatedParent


Subsidiaries


Eliminations


Total


Subsidiaries


Subsidiaries


Eliminations


Subsidiaries


Eliminations


Totals(In thousands)Net Sales

$
31,227


$
72,041


$
(38,908
)

$
64,360


$
49,585


$
28,546


$



$
78,131


$
(9,736
)

$
132,755Cost of Goods Sold


23,677



61,375



(39,577
)


45,475



31,214



22,164







53,378



(8,606
)


90,247Distribution Expenses






4,316







4,316



3,715



1,381







5,096







9,412Gross Profit


7,550



6,350



669



14,569



14,656



5,001







19,657



(1,130
)


33,096Selling, General and Administrative expenses


6,082



7,795







13,877



11,824



6,531







18,355



(1,130
)


31,102Restructuring costs


18



16







34























34Operating Income (loss)


1,450



(1,461
)


669



658



2,832



(1,530
)






1,302







1,960Interest Expense, Net


4,150



4,032







8,182



1,306



523







1,829







10,011(Income) Loss from Subsidiaries


7,199



593



(7,792
)


























(Loss) Income Before Income Taxes


(9,899
)


(6,086
)


8,461



(7,524
)


1,526



(2,053
)






(527
)






(8,051
)Income Tax Expense (Benefit)


737











737



480



(89
)


707



1,098







1,835Net (Loss) Income


(10,636
)


(6,086
)


8,461



(8,261
)


1,046



(1,964
)


(707
)


(1,625
)






(9,886
)Net (Loss) Income

$
(10,636
)

$
(6,086
)

$
8,461


$
(8,261
)

$
1,046


$
(1,964
)

$
(707
)

$
(1,625
)

$



$
(9,886
)  17




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating Statement of Operations for the Thirteen Weeks
    ended September 30, 2006
  Foreign BorrowersGuarantor








and Guarantor


Other





Total Other


Consolidated


ConsolidatedParent


Subsidiaries


Eliminations


Total


Subsidiaries


Subsidiaries


Eliminations


Subsidiaries


Eliminations


Totals(In thousands)Net Sales

$
36,413


$
89,935


$
(49,126
)

$
77,222


$
42,586


$
36,326


$



$
78,912


$
(17,827
)

$
138,307Cost of Goods Sold


28,934



75,448



(50,443
)


53,939



27,692



29,182







56,874



(16,635
)


94,178Distribution Expenses






5,333







5,333



3,050



1,304







4,354







9,687Gross Profit


7,479



9,154



1,317



17,950



11,844



5,840







17,684



(1,192
)


34,442Selling, General and Administrative expenses


8,302



10,858







19,160



10,338



5,240







15,578



(1,192
)


33,546Restructuring costs


674



171







845























845Operating Income (loss)


(1,497
)


(1,875
)


1,317



(2,055
)


1,506



600







2,106







51Interest Expense, Net


3,844



3,641







7,485



1,461



331







1,792







9,277(Income) Loss from Subsidiaries


6,524



239



(6,763
)


























(Loss) Income Before Income Taxes


(11,865
)


(5,755
)


8,080



(9,540
)


45



269







314







(9,226
)Income Tax Expense


147











147



245



334



72



651







798Net (Loss) Income


(12,012
)


(5,755
)


8,080



(9,687
)


(200
)


(65
)


(72
)


(337
)






(10,024
)Net (Loss)

$
(12,012
)

$
(5,755
)

$
8,080


$
(9,687
)

$
(200
)

$
(65
)

$
(72
)

$
(337
)

$



$
(10,024
)  18




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating Statement of Cash Flows for the Thirteen Weeks
    ended September 29, 2007
  Foreign BorrowersGuarantor








and Guarantor


Other





Total Other


Consolidated


ConsolidatedParent


Subsidiaries


Eliminations


Total


Subsidiaries


Subsidiaries


Eliminations


Subsidiaries


Eliminations


Totals(In thousands)Cash flows from operating activities:Net loss

$
(10,636
)

$
(6,086
)

$
8,461


$
(8,261
)

$
1,046


$
(1,964
)

$
(707
)

$
(1,625
)





$
(9,886
)Adjustments to reconcile net loss to net cash from operating
    activities:Imputed interest on note payable and other non-cash items


58











58























58Deferred income tax (benefit) provision


737











737



(154
)


(557
)






(711
)






26Stock based compensation expense


13











13























13Depreciation and amortization


263



207







470



322



1,907







2,229







2,699Amortization of deferred financing costs


2,078











2,078



391











391







2,469Bad debt provision


















53



505







558







558(Gain) loss on disposal of property and equipment


















(257
)


44







(213
)






(213
)Inventory valuation adjustment


















185











185







185Foreign currency gains and losses






(164
)






(164
)


(51
)










(51
)






(215
)Equity in income of unconsolidated affilate/consolidated
    subsidiaries


7,199



593



(7,792
)


























Changes in assets and liabilities, net of acquisitions:Accounts receivable


(809
)


(13,905
)






(14,714
)


(6,506
)


(2,682
)






(9,188
)






(23,902
)Inventories


(1,945
)


2,613



(669
)


(1
)


217



606







823







822Prepaid expenses and other current assets


47



(1,148
)






(1,101
)


(1,424
)


(957
)






(2,381
)






(3,482
)Other non-current assets






(7
)






(7
)






















(7
)Accounts payable


2,648



3,888







6,536



913



(2,619
)






(1,706
)






4,830Income taxes payable


1,843











1,843



633



312



707



1,652







3,495Accrued expenses


9,965



(14,041
)






(4,076
)


678



6,215







6,893







2,817Net cash from operating activities


11,461



(28,050
)






(16,589
)


(3,954
)


810







(3,144
)






(19,733
)Cash flows from investing activities:Capital expenditures


(15
)


(4
)






(19
)


(109
)


(358
)






(467
)






(486
)Proceeds from sale of property and equipment


















328



6







334







334Increase in compensating balances on deposit






















(360
)






(360
)






(360
)Net cash from investing activities


(15
)


(4
)






(19
)


219



(712
)






(493
)






(512
)Cash flows from financing activities:Net proceeds (repayments) from revolving line of credit and
    other short term debt






24,049







24,049



4,722



664







5,386







29,435Repayment of long-term debt


(5,516
)


(7
)






(5,523
)


(753
)










(753
)






(6,276
)Costs associated with credit agreement


(5,930
)










(5,930
)






















(5,930
)Net cash from financing activities


(11,446
)


24,042







12,596



3,969



664







4,633







17,229The effect of exchange rate changes on cash


















86



198







284







284Net (decrease)/increase in cash and cash equivalents






(4,012
)






(4,012
)


320



960







1,280







(2,732
)Cash, beginnng of period






4,115







4,115



5,172



4,902







10,074







14,189Cash, end of period

$



$
103


$



$
103


$
5,492


$
5,862


$



$
11,354


$



$
11,457  19




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##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating Statement of Cash Flows for the Thirteen Weeks
    ended September 30, 2006
  Foreign BorrowersGuarantor








and Guarantor


Other





Total Other


Consolidated


ConsolidatedParent


Subsidiaries


Eliminations


Total


Subsidiaries


Subsidiaries


Eliminations


Subsidiaries


Eliminations


Totals(In thousands)Cash flows from operating activities:Net loss

$
(12,012
)

$
(5,755
)

$
8,080


$
(9,687
)

$
(200
)

$
(65
)

$
(72
)

$
(337
)





$
(10,024
)Adjustments to reconcile net loss to net cash from operating
    activities:Imputed interest on note payable and other non-cash items


51











51























51Deferred income tax (benefit) provision


(250
)










(250
)


(60
)


(1
)






(61
)






(311
)Stock based compensation expense


324











324























324Depreciation and amortization


642



443







1,085



320



2,161







2,481







3,566Amortization of deferred financing costs


1,492











1,492



303











303







1,795Bad debt provision






(76
)






(76
)


36



7







43







(33
)Gain on sale of discontinued operations






11







11







3







3







14Foreign currency gains and losses






40







40



79











79







119Equity in income of unconsolidated affilate/consolidated
    subsidiaries


6,524



239



(6,763
)


























Changes in assets and liabilities, net of acquisitions:Accounts receivable


323



(8,660
)






(8,337
)


(3,697
)


(2,979
)






(6,676
)






(15,013
)Inventories


(6,285
)


3,100



(1,317
)


(4,502
)


4,804



(2,078
)






2,726







(1,776
)Prepaid expenses and other current assets


(577
)


(1,694
)






(2,271
)


(723
)


1,409







686







(1,585
)Other non-current assets






16







16























16Accounts payable


4,538



6,227







10,765



(623
)


(10,586
)






(11,209
)






(444
)Income taxes payable


(1,708
)










(1,708
)


397



306



72



775







(933
)Accrued expenses


13,990



(25,678
)






(11,688
)


1,832



12,937







14,769







3,081Net cash from operating activities


7,052



(31,787
)






(24,735
)


2,468



1,114







3,582







(21,153
)Cash flows from investing activities:Capital expenditures


(33
)


(215
)






(248
)


(178
)


(1,287
)






(1,465
)






(1,713
)Proceeds from sale of property and equipment






140







140







14







14







154Increase in compensating balances on deposit






















(180
)






(180
)






(180
)Net cash from investing activities


(33
)


(75
)






(108
)


(178
)


(1,453
)






(1,631
)






(1,739
)Cash flows from financing activities:Net proceeds (repayments) from revolving line of credit and
    other short term debt






27,611







27,611



(1,761
)


73







(1,688
)






25,923Repayment of long-term debt


(5,516
)


(7
)






(5,523
)


(395
)










(395
)






(5,918
)Costs associated with credit agreement


(1,504
)










(1,504
)


(323
)










(323
)






(1,827
)Net cash from financing activities


(7,020
)


27,604







20,584



(2,479
)


73







(2,406
)






18,178The effect of exchange rate changes on cash


















87



19







106







106Net (decrease)/increase in cash and cash equivalents


(1
)


(4,258
)






(4,259
)


(102
)


(247
)






(349
)






(4,608
)Cash, beginnng of period


1



4,437







4,438



7,247



6,418







13,665







18,103Cash, end of period

$



$
179


$



$
179


$
7,145


$
6,171


$



$
13,316


$



$
13,495  20




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    SUBSEQUENT
    EVENTS  Merger Agreement 
      Financing Related Agreements  and/or
     21




---



##### Table of Contents



SALTON,
    INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Waiver, Consent, Forebearance and Seventeenth Amendment to
    Senior Secured Credit Facility; Waiver, Consent and First
    Amendment to Second Lien Credit Agreement; Amended and Restated
    Intercreditor Agreement and Junior Intercreditor
    Agreement  Form 10-K
  Sale of Time Products Business 
   22




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q,
  Introduction
  ® ® TM ® ® ® ® ®
  Liquidity
    and Strategic Alternatives
    Recent
    Developments
  Merger Agreement 
     23




---



##### Table of Contents



Financing Related Agreements  and/or
        Waiver, Consent, Forebearance and Seventeenth Amendment to
    Senior Secured Credit Facility; Waiver, Consent and First
    Amendment to Second Lien Credit Agreement; Amended and Restated
    Intercreditor Agreement and Junior Intercreditor
    Agreement  10-K
  Sale of Time Products Business 
 24




---



##### Table of Contents



Forward
    Looking Statements
  Form 10-Q
  Merger-Related
    Risk Factors:
  
    the failure to obtain approval of the merger and other related
    proposals from Salton stockholders;
    the ability of the two businesses to be integrated successfully;
    the ability of the combined company to fully realize the cost
    savings and synergies from the proposed transaction within the
    proposed time frame;
    disruption from the merger may make it more difficult to
    maintain relationships with customers, employees or suppliers;
    completion of the merger may result in dilution of future
    earnings per share to the stockholders of Salton;
    the combined companys net operating loss carryforwards may
    be limited as a result of the merger; and
    costs associated with the merger are difficult to estimate, may
    be higher than expected and may harm the financial results of
    the combined company.  Operational
    and Other Risk Factors:
  
    our ability to repay or refinance our indebtedness as it matures
    and satisfy the redemption obligations under our preferred stock;
    our ability to find other strategic alternatives, in the event
    the merger does not close as anticipated;
    our ability to continue to realize the benefits we expect from
    our U.S. restructuring;
    our substantial indebtedness and our ability to comply with
    restrictive covenants in our debt instruments;
    our ability to access the capital markets on attractive terms or
    at all;
    our relationship and contractual arrangements with key
    customers, suppliers, strategic partners and licensors;
    unfavorable outcomes from pending legal proceedings;
    cancellation or reduction of orders;
    the timely development, introduction and delivery to and
    acceptance by customers of our products;
    dependence on foreign suppliers and supply and marketing
    constraints;
    competitive products and pricing;
    economic conditions and the retail environment;
    international business activities;
    the cost and availability of raw materials and purchased
    components for our products; 25




---



##### Table of Contents




    the risks related to intellectual property rights; and
    the risks relating to regulatory matters and other risks and
    uncertainties detailed from time to time in our Securities and
    Exchange Commission Filings.  Form 10-Q Form 10-Q.
  Consolidated
    Results of Operations
  Form 10-Q Form 10-K.
  FIRST
    QUARTER 2008 COMPARED TO FIRST QUARTER 2007
    Thirteen Weeks EndedSept 29,


Sept 30,2007


2006Net sales


100.0
%


100.0
%Cost of goods sold


68.0
%


68.1
%Distribution expenses


7.1
%


7.0
%Gross profit


24.9
%


24.9
%Selling, general and administrative expense


23.4
%


24.3
%Restructuring costs


0.0
%


0.6
%Operating income


1.5
%


0.0
%   Net Sales
    and Gross Profit
        Selling,
    General and Administrative Expenses
   26




---



##### Table of Contents



Net
    Interest Expense
    Income
    Taxes
    LIQUIDITY
    AND CAPITAL RESOURCES
  Cash
    Flows from Operations
        Investing
    Activities
    Financing
    Activities
   27




---



##### Table of Contents



Credit
    Facilities, Other Debt and Preferred Stock
  Form 10-K
  
    Senior Secured Credit Facility
    Second Lien Credit Agreement
    Intercreditor Agreement
    Senior Subordinated Notes
    Salton Europe Facility Agreement
    Other Credit Facilities
    Series C Preferred Stock
    Convertible Series A Preferred Stock    Senior Secured Credit Facility 
    Second Lien Credit Agreement 
  Salton Europe Facility Agreement 
    Discussion
    of Critical Accounting Policies
   28




---



##### Table of Contents



Forward
    Looking
    and/or and/or and/or
    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risks  Form 10-K.
  Item 4.
    Controls
    and Procedures  Evaluation of disclosure controls and
    procedures. Rule 13a-15
  Changes in internal
    controls. Form 10-K,
    Part II:
    Other Information
  Item 1:
    Legal
    Proceedings  Product
    Liability
   29




---



##### Table of Contents



Arbitration
      Other
    Litigation
    Environmental
    Other
    Item.
    6  Exhibits.
  Form 10-Q.
 30




---



##### Table of Contents



SIGNATURE
    SALTON, INC.
  /s/
    WILLIAM M. LUTZ  William M. Lutz
 Interim Chief Executive Officer
 Date: November 13, 2007
 31




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description of Document12(A)

Computation of Ratio of Earnings to Fixed Charges31.1

Certification By The Chief Executive Officer Pursuant To Section
    302 Of The Sarbanes-Oxley Act Of 200231.2

Certification By The Chief Financial Officer Pursuant To Section
    302 Of The Sarbanes-Oxley Act Of 200232.1

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 200232.2

Certification of The Chief Financial Officer Pursuant to
    18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002  E-1