<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 October 2, 2004 or

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

      Commission file number:  0-19557

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

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

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

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

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

                 Yes [X]   No [ ]

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

                 Yes [X]   No [ ]

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

                                       1

<PAGE>

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

          Item 1:  Consolidated Financial Statements (Unaudited)

                   Consolidated Balance Sheets - October 2,
                   2004 and July 3, 2004                                                                         3

                   Consolidated Statements of Income - Thirteen weeks
                   ended October 2, 2004 and September 27, 2003                                                  4

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

                   Notes to Consolidated Financial Statements                                                    6

          Item 2:  Management's Discussion and Analysis of Financial Condition and Results of Operations        17

          Item 3:  Quantitative and Qualitative Disclosures About Market Risk                                   24

          Item 4:  Controls and Procedures                                                                      24

PART II            OTHER INFORMATION

          Item 1:  Legal Proceedings                                                                            25

                   Signature                                                                                    27

          Item 6:  Exhibits
</TABLE>

                                       2

<PAGE>

                                  SALTON, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

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

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Revolving line of credit and other current debt                  $     105,049     $      48,667
  Accounts payable                                                       158,750           137,671
  Accrued expenses                                                        75,187            60,627
  Income taxes payable                                                     9,467             8,805
                                                                   -------------     -------------
     Total Current Liabilities                                           348,453           255,770
Senior Subordinated Notes Due 2005                                       125,000           125,000
Senior Subordinated Notes due 2008, including an adjustment of
  $8,957 and $9,581 to the carrying value related
    to interest rate swap agreements, respectively                       158,078           158,642
Term Loan and Other Notes Payable                                        101,843           100,761
Other Long Term Liabilities                                               16,855            17,288
                                                                   -------------     -------------
                                                                         750,229           657,461
Minority Interest                                                         23,221            23,515
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: 2005-11,371,197 shares;
  2004-11,370,282 shares                                                     148               148
  Treasury Stock - at cost                                               (65,793)          (65,793)
  Additional Paid-In Capital                                              96,040            96,147
  Accumulated Other Comprehensive Income                                  13,727            12,668
  Retained Earnings                                                      127,219           130,406
                                                                   -------------     -------------
     Total Stockholders' Equity                                          171,341           173,576
                                                                   -------------     -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $     944,791     $     854,552
                                                                   =============     =============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       3

<PAGE>

                                  SALTON, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

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

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

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

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

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

                 See Notes to Consolidated Financial Statements.

                                       4

<PAGE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                                                    13 WEEKS ENDED
                                                                                          --------------------------------
                                                                                           OCTOBER 2,        SEPTEMBER 27,
                                                                                               2004               2003
                                                                                          ------------        ------------
<S>                                                                                       <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (Loss) Income                                                                       $     (3,187)       $        741
  Adjustments to Reconcile Net (Loss) Income to Net Cash from Operating Activities:
    Imputed interest on notes payable and other non-cash items                                    (458)               (447)
    Deferred income tax provision                                                               (1,784)                276
    Depreciation and amortization                                                                5,968               5,172
    Bad debt (recovery) provision                                                               (1,634)                  4
    Loss on disposal of equipment                                                                   52                  58
    Inventory valuation adjustment                                                              (2,252)                962
    Foreign currency gains and losses                                                             (478)                551
    Minority interest                                                                            1,056               1,090
    Changes in assets and liabilities:
       Accounts receivable                                                                     (69,453)            (44,047)
       Inventories                                                                             (46,657)            (35,660)
       Prepaid expenses and other current assets                                                  (489)             (2,367)
       Decrease in other non-current assets                                                       (238)               (328)
       Accounts payable                                                                         24,799              35,016
       Taxes payable                                                                             1,293               6,092
       Accrued expenses                                                                         21,161               9,515
                                                                                          ------------        ------------
          NET CASH FROM OPERATING ACTIVITIES                                                   (72,301)            (23,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                                          (4,102)             (5,129)
  Proceeds from sale of property and equipment                                                       9                   -
  Additional payment for tradenames                                                               (126)            (21,500)
                                                                                          ------------        ------------
          NET CASH FROM INVESTING ACTIVITIES                                                    (4,219)            (26,629)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from revolving line of credit and other debt                                     57,883              51,000
  Repayment of long term debt                                                                     (220)               (121)
  Costs associated with refinancing                                                                  -                (347)
  Common stock issued                                                                               18                   4
  Increase in compensating balances on deposit                                                    (451)             (5,600)
                                                                                          ------------        ------------
          NET CASH FROM FINANCING ACTIVITIES                                                    57,230              44,936
                                                                                          ------------        ------------
Effect of Exchange Rate Changes on Cash                                                         (1,021)                 56
                                                                                          ------------        ------------
Net Change in Cash                                                                             (20,311)             (5,009)
Cash, Beginning of Period                                                                       46,847              35,702
                                                                                          ------------        ------------
Cash, End of Period                                                                       $     26,536        $     30,693
                                                                                          ============        ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash Paid (Received) During the Period for:
  Interest                                                                                $      3,004        $        929
  Income taxes, net of (refunds)                                                          $       (387)       $     (5,417)
</TABLE>

                 See Notes to 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.    CREDIT FACILITY

      On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the
      Company's wholly owned subsidiary, amended its facility (the "Facility
      Letter") agreement with Hong Kong Shanghai Bank. The amended Facility
      Letter includes an overdraft facility of up to Great Britain Pound (GBP)8
      million ($14.4 million) and a money market borrowing facility of up to
      (GBP)7 million ($12.6 million). In addition, Salton Europe has an invoice
      finance facility of between (GBP)15 and (GBP)40 million ($27.0 million and
      $72.0 million) depending on seasonality and level of accounts receivable.
      As of October 2, 2004, there was $32.3 million outstanding under the
      facility included in other current debt.

3.    STOCK-BASED COMPENSATION

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

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

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

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

                                       6

<PAGE>

4.    NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

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

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

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

5.    DERIVATIVE FINANCIAL INSTRUMENTS

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

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

                                       7

<PAGE>

6.    COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

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

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

      Accumulated other comprehensive income is comprised of the following:

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

7.    PENSION BENEFIT PLANS

      The components of net periodic pension cost are as follows:

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

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

                                       8

<PAGE>

8.    OPERATING SEGMENTS AND MAJOR CUSTOMERS

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

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

9.    LEGAL PROCEEDINGS

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

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

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

                                       9

<PAGE>

      breached its contract with Philips in the process of developing and
      manufacturing the One:One coffee maker for Salton.

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

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

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

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

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

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

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

                                       10

<PAGE>

10.   SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

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

                                       11

<PAGE>

CONSOLIDATING BALANCE SHEET AS OF OCTOBER 2, 2004
(IN THOUSANDS)

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

Current Assets:
  Cash                                                           $     187    $     538     $        -   $     725
  Compensating balances on deposits                                      -            -              -           -
  Accounts receivable, net of allowances                               314      122,729              -     123,043
  Inventories                                                       16,338      166,189        (26,557)    155,970
  Prepaid expenses and other current assets                          3,265        2,678              -       5,943
  Intercompany                                                     116,274      (87,806)           216      28,684
  Deferred income taxes                                              1,314       16,577              -      17,891
                                                                 ---------    ---------     ----------   ---------
     Total Current Assets                                          137,692      220,905        (26,341)    332,256
Property, Plant and Equipment, net                                   9,756       14,280              -      24,036
Investments in Subsidiaries                                        398,657       53,654       (452,311)          -
Tradenames                                                         134,849       10,313                    145,162
Non-current deferred tax asset                                           -            -              -           -
Other Assets                                                        11,300          451              -      11,751
                                                                 ---------    ---------     ----------   ---------
Total Assets                                                     $ 692,254    $ 299,603     $ (478,652)  $ 513,205
                                                                 =========    =========     ==========   =========

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Revolving line of credit and other current debt                $       -    $  68,179     $        -   $  68,179
  Accounts payable                                                   1,989        4,534            388       6,911
  Accrued expenses                                                  17,845       16,397              -      34,242
   Income taxes payable                                             (2,282)      (1,496)             -      (3,778)
                                                                 ---------    ---------     ----------   ---------
     Total current liabilities                                      17,552       87,614            388     105,554
Non-current Deferred Income Taxes                                  (10,407)      (9,167)             -     (19,574)
Senior subordinated notes due 2005                                 125,000            -              -     125,000
Senior subordinated notes due 2008, including an adjustment
  of $8,957 to the carrying value related to interest rate swap
  agreements                                                       158,078            -              -     158,078
Term loan and other notes payable                                        -      100,128                    100,128
Other Long Term Liability                                              544        3,602                      4,146
                                                                 ---------    ---------     ----------   ---------
     Total liabilities                                             290,767      182,177            388     473,332
Minority interest                                                        -            -              -           -
Stockholders' Equity                                               401,487      117,426       (479,040)     39,873
                                                                 ---------    ---------     ----------   ---------
Total Liabilities and Stockholders' Equity                       $ 692,254    $ 299,603     $ (478,652)  $ 513,205
                                                                 =========    =========     ==========   =========

<CAPTION>
                                                                      OTHER      CONSOLIDATED  CONSOLIDATED
                                                                   SUBSIDIARIES  ELIMINATIONS     TOTALS
                                                                   ------------  ------------  ------------
<S>                                                                <C>           <C>           <C>
                            ASSETS

Current Assets:
  Cash                                                               $ 25,811    $          -   $  26,536
  Compensating balances on deposits                                    34,451               -      34,451
  Accounts receivable, net of allowances                              125,932               -     248,975
  Inventories                                                         142,868               -     298,838
  Prepaid expenses and other current assets                            15,573               -      21,516
  Intercompany                                                        (28,684)              -           -
  Deferred income taxes                                                 5,442               -      23,333
                                                                    ---------    ------------   ---------
     Total Current Assets                                             321,393               -     653,649
Property, Plant and Equipment, net                                     55,723               -      79,759
Investments in Subsidiaries                                                 -               -           -
Tradenames                                                             38,576               -     183,738
Non-current deferred tax asset                                              -          13,192      13,192
Other Assets                                                            2,702               -      14,453
                                                                    ---------    ------------   ---------
Total Assets                                                        $ 418,394    $     13,192   $ 944,791
                                                                    =========    ============   =========

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Revolving line of credit and other current debt                    $ 36,870    $          -   $ 105,049
  Accounts payable                                                    151,839               -     158,750
  Accrued expenses                                                     40,945               -      75,187
   Income taxes payable                                                13,245                       9,467
                                                                    ---------    ------------   ---------
     Total current liabilities                                        242,899               -     348,453
Non-current Deferred Income Taxes                                       6,382          13,192           -
Senior subordinated notes due 2005                                          -               -     125,000
Senior subordinated notes due 2008, including an adjustment
  of $8,957 to the carrying value related to interest rate swap
  agreements                                                                -               -     158,078
Term loan and other notes payable                                       1,715               -     101,843
Other Long Term Liability                                              12,709               -      16,855
                                                                    ---------    ------------   ---------
     Total liabilities                                                263,705          13,192     750,229
Minority interest                                                      23,221               -      23,221
Stockholders' Equity                                                  131,468               -     171,341
                                                                    ---------    ------------   ---------
Total Liabilities and Stockholders' Equity                          $ 418,394    $     13,192   $ 944,791
                                                                    =========    ============   =========
</TABLE>

                                       12

<PAGE>

CONSOLIDATING BALANCE SHEET AS OF JULY 3, 2004
(IN THOUSANDS)

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

Current Assets:
  Cash                                                           $       1    $     903     $        -   $     904
   Compensating balances on deposit                                      -            -              -           -
  Accounts receivable, net of allowances                               311       96,905              -      97,216
  Inventories                                                        5,133      165,189        (28,341)    141,981
  Prepaid expenses and other current assets                          5,054        2,597              -       7,651
  Intercompany                                                     131,818     (104,380)          (756)     26,682
  Deferred income taxes                                                913       16,577              -      17,490
                                                                 ---------    ---------     ----------   ---------
     Total current assets                                          143,230      177,791        (29,097)    291,924
Property, Plant and Equipment,
   Net of Accumulated Depreciation                                  11,016       14,910              -      25,926
Investments in Subsidiaries                                        390,773       53,646       (444,419)          -
Tradenames                                                         134,723       10,313              -     145,036
Non-current deferred tax asset                                           -            -              -           -
 Other Assets                                                       12,442          274              -      12,716
                                                                 ---------    ---------     ----------   ---------
Total Assets                                                     $ 692,184    $ 256,934     $ (473,516)  $ 475,602
                                                                 =========    =========     ==========   =========

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Revolving line of credit and other current debt                $       -    $  33,189     $        -   $  33,189
  Accounts payable                                                   2,922        2,039           (584)      4,377
  Accrued expenses                                                   9,491       13,478              -      22,969
   Income taxes payable                                             (2,336)      (1,496)             -      (3,832)
                                                                 ---------    ---------     ----------   ---------
     Total current liabilities                                      10,077       47,210           (584)     56,703
Non-current Deferred Income Taxes                                   (8,840)      (9,167)             -     (18,007)
Senior subordinated notes due 2005                                 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
Long-term debt-revolving credit agreement                                -      100,000              -     100,000
Other notes payable                                                      -          175              -         175
Other long term liabilities                                            418        3,932              -       4,350
                                                                 ---------    ---------     ----------   ---------
     Total liabilities                                             285,297      142,150           (584)    426,863
Minority Interest                                                        -            -              -           -
Stockholders' Equity                                               406,887      114,784       (472,932)     48,739
                                                                 ---------    ---------     ----------   ---------
Total Liabilities and Stockholders' Equity                       $ 692,184    $ 256,934     $ (473,516)  $ 475,602
                                                                 =========    =========     ==========   =========

<CAPTION>
                                                                      OTHER      CONSOLIDATED  CONSOLIDATED
                                                                   SUBSIDIARIES  ELIMINATIONS     TOTALS
                                                                   ------------  ------------  ------------
<S>                                                                <C>           <C>           <C>
                           ASSETS

Current Assets:
  Cash                                                              $  45,943    $          -   $  46,847
   Compensating balances on deposit                                    34,000                      34,000
  Accounts receivable, net of allowances                               83,175               -     180,391
  Inventories                                                         111,646               -     253,627
  Prepaid expenses and other current assets                            13,616               -      21,267
  Intercompany                                                        (26,682)              -           -
  Deferred income taxes                                                 8,252               -      25,742
                                                                    ---------    ------------   ---------
     Total current assets                                             269,950               -     561,874
Property, Plant and Equipment,
   Net of Accumulated Depreciation                                     55,226               -      81,152
Investments in Subsidiaries                                                 -               -           -
Tradenames                                                             39,385               -     184,421
Non-current deferred tax asset                                              -          11,589      11,589
 Other Assets                                                           2,800               -      15,516
                                                                    ---------    ------------   ---------
Total Assets                                                          367,361          11,589   $ 854,552
                                                                    =========    ============   =========

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Revolving line of credit and other current debt                   $  15,478               -   $  48,667
  Accounts payable                                                    133,294               -     137,671
  Accrued expenses                                                     37,658               -      60,627
   Income taxes payable                                                12,637               -       8,805
                                                                    ---------    ------------   ---------
     Total current liabilities                                        199,067               -     255,770
Non-current Deferred Income Taxes                                       6,418          11,589           -
Senior subordinated notes due 2005                                          -               -     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
Long-term debt-revolving credit agreement                                   -               -     100,000
Other notes payable                                                       586               -         761
Other long term liabilities                                            12,938               -      17,288
                                                                    ---------    ------------   ---------
     Total liabilities                                                219,009          11,589     657,461
Minority Interest                                                      23,515               -      23,515
Stockholders' Equity                                                  124,837               -     173,576
                                                                    ---------    ------------   ---------
Total Liabilities and Stockholders' Equity                          $ 367,361    $     11,589   $ 854,552
                                                                    =========    ============   =========
</TABLE>

                                       13
<PAGE>

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

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

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

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

<CAPTION>
                                              CONSOLIDATED       CONSOLIDATED
                                              ELIMINATIONS          TOTALS
                                              -------------------------------
<S>                                           <C>                <C>
Net Sales                                     $   (96,032)          $ 238,539
Cost of Goods Sold                                (94,532)            157,956
Distribution Expenses                                   -              16,400
                                              -------------------------------
    Gross Profit                                   (1,500)             64,183
Selling, General and Administrative expenses       (1,500)             51,792
Impairment Loss on Intangible Asset                                         -
                                              -------------------------------
    Operating Income (Loss)                             -              12,391
Interest Expense, Net                                   -               9,678
Fair Market Value Adjustment on Derivatives             -                   -
(Income) loss from subsidiary                           -                   -
                                              -------------------------------
  Income (Loss) Before Income Taxes                     -               2,713
Income Tax (Benefit) Expense                            -                 882
Minority interest                                                       1,090
                                              -------------------------------
    Net Income (Loss)                         $         -           $     741
                                              ===============================
</TABLE>

                                       14

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    GUARANTOR
                                                                   PARENT          SUBSIDIARIES      ELIMINATIONS         TOTAL
                                                                  ---------------------------------------------------------------
<S>                                                               <C>              <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income                                              $(6,353)              2,642           $ (3,267)       $ (6,978)
   Adjustments to reconcile net income (loss) to net cash
   used in operating activities:
      Imputed interest on notes payable                              (564)                  -                  -            (564)
      Deferred income tax provision                                (1,968)                  -                  -          (1,968)
      Depreciation and amortization                                 2,461                 834                  -           3,295
      Bad debt (recovery) provision                                     -              (1,694)                 -          (1,694)
      Loss on disposal of equipment                                     -                  54                  -              54
      Equity in net income of unconsolidated affiliate/
        consolidated subsidiaries                                  (5,043)                 (8)             5,051               -
      Inventory valuation adjustment                                    -              (2,252)                 -          (2,252)
      Foreign currency gains and losses                                 -                (478)                 -            (478)
      Minority interest                                                 -                   -                  -               -
      Changes in assets and liabilities:
        Accounts receivable                                            (3)            (23,654)                 -         (23,657)
        Inventories                                               (11,205)              1,252             (1,784)        (11,737)
        Prepaid expenses and other current assets                   1,790                 (81)                 -           1,709
        Decrease in other non-current assets                            -                (177)                 -            (177)
        Accounts payable                                             (934)              3,468                  -           2,534
        Taxes payable                                                  54                   1                  -              55
        Accrued expenses                                           22,123             (14,959)                 -           7,164
                                                                  --------------------------------------------------------------
            NET CASH FROM OPERATING ACTIVITIES                        358             (35,052)                 -         (34,694)
                                                                  --------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                                          (64)               (255)                 -            (319)
        Proceeds from sale of equipment                                 -                   -                  -               -
        Additional payment for tradenames                            (126)                  -                  -            (126)
                                                                  --------------------------------------------------------------
            NET CASH FROM INVESTING ACTIVITIES                       (190)               (255)                 -            (445)
                                                                  --------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:

       Net proceeds from revolving line of credit and other debt        -              35,119                  -          35,119
        Repayment of long-term debt                                     -                (178)                 -            (178)
        Common stock issued                                            18                   -                  -              18
        Increase in compensating balance on deposit                     -                   -                  -               -
                                                                  --------------------------------------------------------------
        NET CASH FROM FINANCING ACTIVITIES                             18              34,941                  -          34,959
                                                                  --------------------------------------------------------------
Effect of Exchange Rate Changes on Cash                                 -                   -                  -               -

Net Change in Cash                                                    186                (366)                 -            (180)

Cash, Beginning of Period                                               1                 903                  -             904
                                                                  --------------------------------------------------------------
Cash, End of Period                                               $   187                 538           $      -        $    725
                                                                  ==============================================================

<CAPTION>
                                                                     OTHER               CONSOLIDATED      CONSOLIDATED
                                                                  SUBSIDIARIES           ELIMINATIONS         TOTALS
                                                                  -----------------------------------------------------
<S>                                                               <C>                    <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income                                                    3,791                  -              (3,187)
   Adjustments to reconcile net income (loss) to net cash
   used in operating activities:
      Imputed interest on notes payable                                   106                  -                (458)
      Deferred income tax provision                                       184                  -              (1,784)
      Depreciation and amortization                                     2,673                  -               5,968
      Bad debt (recovery) provision                                        60                  -              (1,634)
      Loss on disposal of equipment                                        (2)                 -                  52
      Equity in net income of unconsolidated affiliate/
        consolidated subsidiaries                                           -                  -                   -
      Inventory valuation adjustment                                        -                  -              (2,252)
      Foreign currency gains and losses                                     -                  -                (478)
      Minority interest                                                 1,056                  -               1,056
      Changes in assets and liabilities:
        Accounts receivable                                           (45,796)                 -             (69,453)
        Inventories                                                   (34,920)                 -             (46,657)
        Prepaid expenses and other current assets                      (2,198)                 -                (489)
        Decrease in other non-current assets                              (61)                 -                (238)
        Accounts payable                                               22,265                  -              24,799
        Taxes payable                                                   1,238                  -               1,293
        Accrued expenses                                               13,997                  -              21,161
                                                                  --------------------------------------------------
            NET CASH FROM OPERATING ACTIVITIES                        (37,607)                 -             (72,301)
                                                                  --------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                                           (3,783)                 -              (4,102)
        Proceeds from sale of equipment                                     9                  -                   9
        Additional payment for tradenames                                   -                  -                (126)
                                                                  --------------------------------------------------
           NET CASH FROM INVESTING ACTIVITIES                          (3,774)                 -              (4,219)
                                                                  --------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:

       Net proceeds from revolving line of credit and other debt       22,764                  -              57,883
        Repayment of long-term debt                                       (42)                 -                (220)
        Common stock issued                                                 -                  -                  18
        Increase in compensating balance on deposit                      (451)                 -                (451)
                                                                  --------------------------------------------------
           NET CASH FROM FINANCING ACTIVITIES                          22,271                  -              57,230
                                                                  --------------------------------------------------
Effect of Exchange Rate Changes on Cash                                (1,021)                 -              (1,021)

Net Change in Cash                                                    (20,131)                 -             (20,311)

Cash, Beginning of Period                                              45,943                  -              46,847
                                                                  --------------------------------------------------
Cash, End of Period                                                    25,811                  -              26,536
                                                                  ==================================================
</TABLE>

                                       15
<PAGE>


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

<TABLE>
<CAPTION>
                                                                            GUARANTOR                                OTHER
                                                                  PARENT   SUBSIDIARIES ELIMINATIONS   TOTAL      SUBSIDIARIES
                                                                  -------- ------------ ------------ ----------   ------------
<S>                                                               <C>      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                              $ 4,547  $ (7,947)     $ (9,720)   $ (13,120)    $ 13,861
   Adjustments to reconcile net income (loss) to net cash
   used in operating activities:
      Imputed interest on notes payable and other non-cash items     (565)        -             -         (565)         118
      Deferred income tax provision                                     1         -             -            1          275
       Foreign currency gains and losses                                -       551             -          551            -
      Depreciation and amortization                                 2,340       842             -        3,182        1,990
      Loss on disposal of equipment                                     -         -             -            -           58
      Equity in net income of unconsolidated affiliate/
        consolidated subsidiaries                                  (5,914)      392         5,522            -            -
      Minority interest                                                 -         -             -            -        1,090
      Changes in assets and liabilities:
        Accounts receivable                                             -   (25,120)            -      (25,120)     (18,923)
        Inventories                                                (8,426)  (21,193)        4,198      (25,421)      (9,277)
        Prepaid expenses and other current assets                     140    (1,800)            -       (1,660)        (707)
        Increase in other non-current assets                          (71)     (257)            -         (328)           -
        Accounts payable                                            1,223       684             -        1,907       33,109
        Taxes payable                                               5,765    (3,558)            -        2,207        3,885
        Accrued expenses                                           23,762     2,859             -       26,621      (17,106)
                                                                  ---------------------------------------------------------
            NET CASH FROM OPERATING ACTIVITIES                     22,802   (54,547)            -      (31,745)       8,373
                                                                  ---------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                                         (957)     (841)            -       (1,798)      (3,331)
        Additional payment for patents and trademarks             (21,500)        -             -      (21,500)           -
                                                                  ---------------------------------------------------------
           NET CASH FROM INVESTING ACTIVITIES                     (22,457)     (841)            -      (23,298)      (3,331)
                                                                  ---------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net proceeds from revolving line of credit and other debt        -    51,000             -       51,000            -
       Repayment of long-term debt                                      -      (121)            -         (121)           -
       Costs associated with refinancing                             (347)        -             -         (347)           -
       Common stock issued                                              4         -             -            4            -
        Increase in compensating balances on deposit                    -         -             -            -       (5,600)
                                                                  ---------------------------------------------------------
        NET CASH FROM FINANCING ACTIVITIES                           (343)   50,879             -       50,536       (5,600)
                                                                  ---------------------------------------------------------
Effect of Exchange Rate Changes on Cash                                 -         -             -            -           56
                                                                  ---------------------------------------------------------
Net Change in Cash                                                      2    (4,509)            -       (4,507)        (502)
Cash, Beginning of Period                                               -     8,972             -        8,972       26,730
                                                                  ---------------------------------------------------------
Cash, End of Period                                               $     2  $  4,463      $      -    $   4,465     $ 26,228
                                                                  =========================================================
<CAPTION>
                                                                         CONSOLIDATED CONSOLIDATED
                                                                         ELIMINATIONS   TOTALS
                                                                         ------------ ------------
<S>                                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                           $ -     $    741
   Adjustments to reconcile net income (loss) to net cash
   used in operating activities:
      Imputed interest on notes payable and other non-cash items                 -         (447)
      Deferred income tax provision                                              -          276
       Foreign currency gains and losses                                         -          551
      Depreciation and amortization                                              -        5,172
      Loss on disposal of equipment                                              -           58
      Equity in net income of unconsolidated affiliate/
        consolidated subsidiaries                                                -            -
      Minority interest                                                          -        1,090
      Changes in assets and liabilities:                                                      -
        Accounts receivable                                                      -      (44,043)
        Inventories                                                                     (34,698)
        Prepaid expenses and other current assets                                -       (2,367)
        Increase in other non-current assets                                     -         (328)
        Accounts payable                                                         -       35,016
        Taxes payable                                                            -        6,092
        Accrued expenses                                                         -        9,515
                                                                               ----------------
            NET CASH FROM OPERATING ACTIVITIES                                   -      (23,372)
                                                                               ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                                                     -       (5,129)
        Additional payment for patents and trademarks                            -      (21,500)
                                                                               ----------------
           NET CASH FROM INVESTING ACTIVITIES                                    -      (26,629)
                                                                               ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net proceeds from revolving line of credit and other debt                 -       51,000
       Repayment of long-term debt                                               -         (121)
       Costs associated with refinancing                                         -         (347)
       Common stock issued                                                       -            4
        Increase in compensating balances on deposit                             -       (5,600)
                                                                               ----------------
        NET CASH FROM FINANCING ACTIVITIES                                       -       44,936
                                                                               ----------------
Effect of Exchange Rate Changes on Cash                                          -           56
                                                                               ----------------
Net Change in Cash                                                               -       (5,009)
Cash, Beginning of Period                                                        -       35,702
                                                                               ----------------
Cash, End of Period                                                            $ -     $ 30,693
                                                                               ================
</TABLE>

                                       16
<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 10.2% of the gross accounts receivable at October 2, 2004
      and no customer accounted for 10.0% or more of the gross accounts
      receivable at July 3, 2004, we believe there is no concentration of credit
      risk.

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

                                       17
<PAGE>

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

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

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

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

                                       18
<PAGE>

      NEW ACCOUNTING PRONOUNCEMENTS

      In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
      Variable Interest Entities" (FIN No. 46), which addresses consolidation by
      business enterprises of variable interest entities (VIEs). FIN No.46 is
      applicable immediately for VIEs created after January 31, 2003 and are
      effective for reporting periods ending after December 15, 2003, for VIEs
      created prior to February 1, 2003. In December 2003, the FASB published a
      revision to FIN 46 (FIN 46R) to clarify some of the provisions of the
      interpretation and to defer the effective date of implementation for
      certain entities. Under the guidance of FIN 46R, public companies that
      have interests in VIEs that are commonly referred to as special purpose
      entities are required to apply the provisions of FIN 46R for periods
      ending after December 15, 2003. A public company that does not have any
      interests in special purpose entities but does have a variable interest in
      a VIE created before February 1, 2003, must apply the provisions of FIN
      46R by the end of the first interim or annual reporting period ending
      after March 14, 2004. The Company adopted FIN 46 and FIN 46R during the
      year ended July 3, 2004. The adoption of FIN 46 had no impact on the
      financial condition or results of operations since the Company does not
      have investments in VIEs.

      QUARTER IN REVIEW

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

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

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

      RESULTS OF OPERATIONS

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

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

                                       19
<PAGE>

      FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004

      NET SALES AND GROSS PROFIT

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

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

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

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

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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

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

      RESTRUCTURING COSTS

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

      NET INTEREST EXPENSE

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

                                       20
<PAGE>

      INCOME TAXES

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

      LIQUIDITY AND CAPITAL RESOURCES

      CASH FLOW FROM OPERATIONS

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

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

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

      INVESTING ACTIVITIES

      In fiscal 2004, we made the final installment payment associated with the
      acquisition of the George Foreman tradename. This was the primary reason
      for the reduction of cash flow usage of $22.4 million in first quarter of
      2005 compared to first quarter of 2004.

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

      FINANCING ACTIVITIES

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

                                       21
<PAGE>

      REVOLVING CREDIT FACILITY

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

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

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

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

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

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

      SENIOR SUBORDINATED NOTES

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

                                       22
<PAGE>

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

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

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

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

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

      OTHER CREDIT FACILITIES

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

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

      FORWARD LOOKING

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

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

      We believe that future cash flow from operations based on our current
      level of operations and anticipated growth, available borrowings under our
      senior secured revolving credit facility and other sources of debt funding
      and sale or monetization of certain assets, will be adequate to meet our
      anticipated requirements for current capital expenditures, potential
      acquisitions and alliances, working capital requirements, interest and
      income tax payments and scheduled debt payments for the next twelve
      months. Our anticipated earnings and growth are subject to general
      economic, financial,

                                       23
<PAGE>

      competitive and other factors that are beyond our control. If we are
      unable to satisfy such liquidity needs, we could be required to adopt one
      or more alternatives, such as reducing or delaying capital expenditures,
      borrowing additional funds, restructuring indebtedness, selling other
      assets or operations and/or reducing expenditures for new product
      development, cutting other costs, and some or such actions would require
      the consent of our senior lenders and/or the holders of our senior
      subordinated notes. We cannot assure you that any of such actions could be
      effected, or if so, on terms favorable to us, that such actions would
      enable us to continue to satisfy our liquidity needs and/or that such
      actions would be permitted under the terms of our senior secured revolving
      credit facility or the indentures governing our senior subordinated notes.

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

      ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

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

     ITEM 4. CONTROLS AND PROCEDURES

(a)   Evaluation of disclosure controls and procedures. Based on their
      evaluation 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.

                                       24
<PAGE>

(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

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

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

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

                                       25
<PAGE>

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

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

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

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

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

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

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

                                       26
<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: November 12, 2004           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)

                                       27
<PAGE>

                                  EXHIBIT INDEX

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

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

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

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

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

                                       28