##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2008
 OR
 o
    
    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 or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)3633 Flamingo Road, Miramar, Florida
    
    33027(Address Of Principal Executive Offices)
    
    (Zip Code)
 (954) 883-1000
 (Registrants Telephone Number, Including Area Code)
 Former Name, If Changed Since Last Report:
 þ o
  Large accelerated filer
o
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
 o þ
  Number of sharesClass
    
    outstanding on May 12, 2008Common Stock, $0.01 par value
    
    731,760,206




---



##### 



SALTON, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2008 and June 30, 2007
    
    
    3Consolidated Statements of Operations for the Three Months Ended March 31,
2008 and 2007
    
    
    4Consolidated Statements of Operations for the Nine Months Ended March 31, 2008 and 2007
    
    
    5Consolidated Statement of Stockholders Equity for the Nine Months Ended March 31, 2008
    
    
    6Consolidated Statements of Cash Flows for the Nine Months Ended March 31,
2008 and 2007
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATION
    
    
    38Item 1. Legal Proceedings
    
    
    38Item 6. Exhibits
    
    
    39EX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO CertificationEX-32.2 Section 906 CFO Certification
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Salton, Inc. and Subsidiaries
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except par value data)
 March 31,2008
    
    
    June 30,(Unaudited)
    
    
    2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    14,218
    
    
    $
    6,311Accounts and other receivables, less
allowances of $2,312 at March 31, 2008 and
$2,995 at June 30, 2007
    
    
    144,486
    
    
    
    92,532Inventories
    
    
    213,335
    
    
    
    95,830Prepaid expenses and other
    
    
    27,868
    
    
    
    6,240Assets held for sale
    
    
    2,227
    
    
    
    4,660Prepaid income taxes
    
    
    1,509
    
    
    
    1,534Future income tax benefits
    
    
    5,161
    
    
    
    3,024Total current assets
    
    
    408,804
    
    
    
    210,131Property, Plant and Equipment at cost, less
accumulated depreciation of $5,780 at March 31,
2008 and $2,443 at June 30, 2007
    
    
    25,539
    
    
    
    13,453Future Income Tax Benefits, Non-Current
    
    
    11,593
    
    
    
    4,146Goodwill
    
    
    127,901
    
    
    
    59,233Intangibles, Net
    
    
    229,604
    
    
    
    53,196Deferred Merger Costs
    
    
    
    
    
    
    2,674Other Assets
    
    
    7,026
    
    
    
    1,485Total Assets
    
    $
    810,467
    
    
    $
    344,318Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    101,970
    
    
    $
    40,061Accrued expenses
    
    
    107,691
    
    
    
    48,023Short-term debt
    
    
    
    
    
    
    10,009Senior subordinated notes
    
    
    
    
    
    
    Current taxes payable
    
    
    12,032
    
    
    
    3,646Total current liabilities
    
    
    221,693
    
    
    
    101,739Long-Term Liabilities:Non-current deferred income taxes
    
    
    13,537
    
    
    
    Senior credit facilities
    
    
    103,271
    
    
    
    Series D Preferred Stock  authorized and
outstanding: 110 shares at $0.01 par value
(related party)
    
    
    114,830
    
    
    
    Term loans (approximately $112,000 related party)
    
    
    130,668
    
    
    
    Other long-term liabilities
    
    
    8,879
    
    
    
    Total Liabilities
    
    $
    592,878
    
    
    $
    101,739Commitments and Contingencies See Note 4Stockholders Equity:Common stock  authorized: 1,000,000 shares of
$0.01 par value; issued and outstanding: 732,485
shares at March 31, 2008 and 732,496 at June 30, 2007
    
    $
    7,325
    
    
    $
    7,325Treasury
stock  7,885,845 shares, at cost
    
    
    (65,793
    )
    
    
    (65,793
    )Paid-in capital
    
    
    301,321
    
    
    
    301,243Accumulated deficit
    
    
    (25,261
    )
    
    
    (1,609
    )Accumulated other comprehensive income(loss)
    
    
    (3
    )
    
    
    1,413Total stockholders equity
    
    
    217,589
    
    
    
    242,579Total Liabilities and Stockholders Equity
    
    $
    810,467
    
    
    $
    344,318
 The accompanying notes are an integral part of these financial statements.
 3




---



##### Table of Contents



Salton, Inc. and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007(In thousands, except per share data)Net sales
    
    $
    187,470
    
    
    
    100.0
    %
    
    $
    101,225
    
    
    
    100.0
    %Cost of goods sold
    
    
    129,533
    
    
    
    69.1
    
    
    
    71,926
    
    
    
    71.1Gross profit
    
    
    57,937
    
    
    
    30.9
    
    
    
    29,299
    
    
    
    28.9Selling, general and administrative expenses:Operating expenses
    
    
    61,508
    
    
    
    32.8
    
    
    
    31,510
    
    
    
    31.1Integration and transition expenses
    
    
    7,756
    
    
    
    4.1
    
    
    
    
    
    
    
    69,264
    
    
    
    36.9
    
    
    
    31,510
    
    
    
    31.1Operating loss
    
    
    (11,327
    )
    
    
    (6.0
    )
    
    
    (2,211
    )
    
    
    (2.2
    )Other expense (income):Interest expense
    
    
    13,593
    
    
    
    7.3
    
    
    
    1,095
    
    
    
    1.1Amortization of debt issuance costs
    
    
    241
    
    
    
    0.1
    
    
    
    115
    
    
    
    0.1Interest and other income, net
    
    
    (264
    )
    
    
    (0.1
    )
    
    
    (83
    )
    
    
    (0.1
    )13,570
    
    
    
    7.3
    
    
    
    1,127
    
    
    
    1.1Loss from continuing operations before
income taxes
    
    
    (24,897
    )
    
    
    (13.3
    )
    
    
    (3,338
    )
    
    
    (3.3
    )Income tax provision
    
    
    4,093
    
    
    
    2.2
    
    
    
    522
    
    
    
    0.5Loss from continuing operations
    
    
    (28,990
    )
    
    
    (15.5
    )
    
    
    (3,860
    )
    
    
    (3.8
    )Income (loss) from discontinued
operations, net of tax (Note 5)
    
    
    (84
    )
    
    
    (0.0
    )
    
    
    1,061
    
    
    
    1.0Net loss
    
    $
    (29,074
    )
    
    
    (15.5
    )%
    
    $
    (2,799
    )
    
    
    (2.8
    )%Income (loss) per common share:Loss per share from continuing
operations-basic and diluted
    
    $
    (0.04
    )
    
    
    
    
    
    $
    (0.00
    )(Loss) income per share from discontinued
operations-basic and diluted
    
    
    (0.00
    )
    
    
    
    
    
    
    (0.00
    )Loss per common share-basic and diluted
    
    $
    (0.04
    )
    
    
    
    
    
    $
    (0.00
    )
 The accompanying notes are an integral part of these financial statements.
 4




---



##### Table of Contents



Salton, Inc. and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Nine Months Ended March 31,2008
    
    
    2007(In thousands, except per share data)Net sales
    
    $
    471,789
    
    
    
    100.0
    %
    
    $
    381,212
    
    
    
    100.0
    %Cost of goods sold
    
    
    327,489
    
    
    
    69.4
    
    
    
    272,083
    
    
    
    71.4Gross profit
    
    
    144,300
    
    
    
    30.6
    
    
    
    109,129
    
    
    
    28.6Selling, general and administrative expenses:Operating expenses
    
    
    134,531
    
    
    
    28.5
    
    
    
    110,901
    
    
    
    29.1Integration and transition expenses
    
    
    9,058
    
    
    
    1.9
    
    
    
    
    
    
    
    143,589
    
    
    
    30.4
    
    
    
    110,901
    
    
    
    29.1Operating income (loss)
    
    
    711
    
    
    
    0.2
    
    
    
    (1,772
    )
    
    
    (0.5
    )Other expense (income):Interest expense
    
    
    15,086
    
    
    
    3.2
    
    
    
    7,066
    
    
    
    1.9Amortization of debt issuance costs
    
    
    1,267
    
    
    
    0.3
    
    
    
    443
    
    
    
    0.1Interest and other income, net
    
    
    (2,246
    )
    
    
    (0.5
    )
    
    
    (197
    )
    
    
    (0.1
    )14,107
    
    
    
    3.0
    
    
    
    7,312
    
    
    
    1.9Loss from continuing operations before
income taxes
    
    
    (13,396
    )
    
    
    (2.8
    )
    
    
    (9,084
    )
    
    
    (2.4
    )Income tax provision
    
    
    10,056
    
    
    
    2.1
    
    
    
    2,312
    
    
    
    0.6Loss from continuing operations
    
    
    (23,452
    )
    
    
    (4.9
    )
    
    
    (11,396
    )
    
    
    (3.0
    )Income (loss) from discontinued
operations, net of tax (Note 5)
    
    
    (200
    )
    
    
    (0.1
    )
    
    
    3,860
    
    
    
    1.0Net loss
    
    $
    (23,652
    )
    
    
    (5.0
    )%
    
    $
    (7,536
    )
    
    
    (2.0
    )%Income (loss) per common share:Loss per share from continuing
operations-basic and diluted
    
    $
    (0.03
    )
    
    
    
    
    
    $
    (0.02
    )Loss per share from discontinued
operations-basic and diluted
    
    
    (0.00
    )
    
    
    
    
    
    
    0.01Loss per common share-basic and diluted
    
    $
    (0.03
    )
    
    
    
    
    
    $
    (0.01
    )
 The accompanying notes are an integral part of these financial statements.
 5




---



##### Table of Contents



Salton, Inc. and Subsidiaries
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (Unaudited)
  AccumulatedOtherCommon
    
    
    Treasury
    
    
    Paid-in
    
    
    Accumulated
    
    
    ComprehensiveStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    TotalBalance at June 30, 2007
    
    $
    7,325
    
    
    $
    (65,793
    )
    
    $
    301,243
    
    
    $
    (1,609
    )
    
    $
    1,413
    
    
    $
    242,579Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,652
    )
    
    
    
    
    
    
    (23,652
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,416
    )
    
    
    (1,416
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,068
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Balance at March 31, 2008
    
    $
    7,325
    
    
    $
    (65,793
    )
    
    $
    301,321
    
    
    $
    (25,261
    )
    
    $
    (3
    )
    
    $
    217,589
 The accompanying notes are an integral part of this financial statement.
 6




---



##### Table of Contents



Salton, Inc. and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months EndedMarch 31,2008
    
    
    2007(In thousands)Cash flows from operating activities:Net loss
    
    $
    (23,652
    )
    
    $
    (7,536
    )Reconciliation to net cash used in operating activities:Depreciation of property, plant and equipment
    
    
    5,282
    
    
    
    5,006Gain on disposal of equipment and raw materials
    
    
    (460
    )
    
    
    Provision for doubtful accounts
    
    
    329
    
    
    
    530Amortization of intangible and other assets
    
    
    4,943
    
    
    
    1,509Non-cash interest
    
    
    6,749
    
    
    
    Product recall
    
    
    
    
    
    
    (592
    )Deferred taxes
    
    
    839
    
    
    
    (693
    )Stock-based compensation
    
    
    78
    
    
    
    257Changes in assets and liabilities, net of acquisition:Accounts and other receivables
    
    
    52,892
    
    
    
    (14,899
    )Inventories
    
    
    (36,408
    )
    
    
    (2,621
    )Prepaid expenses and other
    
    
    (8,581
    )
    
    
    (2,863
    )Accounts payable and accrued expenses
    
    
    (13,488
    )
    
    
    4,872Current income taxes
    
    
    8,850
    
    
    
    1,729Other assets and liabilities
    
    
    (1,802
    )
    
    
    498Net cash used in operating activities
    
    
    (4,430
    )
    
    
    (14,803
    )Cash flows from investing activities:Cash acquired in merger
    
    
    17,288
    
    
    
    Proceeds from sale of fixed assets
    
    
    5,554
    
    
    
    Additions to property, plant and equipment
    
    
    (816
    )
    
    
    (1,048
    )Net cash provided by (used in) investing activities
    
    
    22,026
    
    
    
    (1,048
    )Cash flows from financing activities:Proceeds from term debt
    
    
    110,000
    
    
    
    Payoff of debt
    
    
    (110,000
    )
    
    
    Payoff of senior subordinated notes
    
    
    (43,397
    )
    
    
    Net borrowings under lines of credit
    
    
    38,248
    
    
    
    13,261Payment of financing costs
    
    
    (4,790
    )
    
    
    Exercise of stock options
    
    
    
    
    
    
    1,507Net cash (used in) provided by financing activities
    
    
    (9,939
    )
    
    
    14,768Effect of exchange rate changes on cash
    
    
    249
    
    
    
    (1,339
    )Net increase (decrease) in cash and cash equivalents
    
    
    7,907
    
    
    
    (2,422
    )Cash and cash equivalents at beginning of period
    
    
    6,311
    
    
    
    6,721Cash and cash equivalents at end of period
    
    $
    14,218
    
    
    $
    4,299Supplemental Disclosures of Cash Flow Information:Cash paid during the nine-month period ended March 31:
    
    
    2008
    
    
    
    2007Interest
    
    $
    5,472
    
    
    $
    10,860Income taxes
    
    $
    6,959
    
    
    $
    2,409
 Non-cash investing and financing activities:
 The accompanying notes are an integral part of these financial statements.
 7




---



##### Table of Contents



Salton, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
 1. SUMMARY OF ACCOUNTING POLICIES
 Merger with APN Holding Company, Inc.
   Business Combinations
 
    
    The relative voting interests in the combined entity after the combination. In
this case, stockholders of APN Holdco received approximately 92% of the equity
ownership and associated voting rights in the combined entity upon completion of the
merger and related transactions.
    
    The composition of the governing body of the combined entity. In this case, the
merger agreement provided that the composition of the Board of Directors of the
surviving company would be determined by APN Holdco.
  th th
 Interim Reporting
   8




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
  Inventories
  Comprehensive Income (Loss)
  For the three months ended
    
    
    For the nine months endedMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net loss
    
    $
    (29,074
    )
    
    $
    (2,799
    )
    
    $
    (23,652
    )
    
    $
    (7,536
    )Foreign currency translation adjustment
    
    
    (2,042
    )
    
    
    (483
    )
    
    
    (1,416
    )
    
    
    704Change in market value of derivatives
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    $
    (30,885
    )
    
    $
    (3,282
    )
    
    $
    (25,068
    )
    
    $
    (6,832
    )
 Recent Accounting Pronouncements
     9




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
    2. MERGER WITH APN HOLDING COMPANY, INC.
     10




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
  1 4
       (i)
    
    a Third Amended and Restated Credit Agreement dated as of December 28, 2007
(the North American Credit Facility) by and among the financial institutions named
therein as lenders, Bank of America, N.A., as administrative agent and collateral
agent, Salton and each of Saltons subsidiaries identified on the signature pages
thereof as borrowers and each of Saltons subsidiaries identified on the signature
pages thereof as guarantors, that provides for a 5-year $200 million revolving credit
facility;(ii)
    
    a Term Loan Agreement dated as of December 28, 2007 (the Term Loan) by and
among the financial institutions named therein as lenders, Harbinger Capital Partners
Master Fund I, Ltd., as administrative agent and collateral agent, Salton and each of
Saltons subsidiaries identified on the signature pages thereof as borrowers and each
of Saltons subsidiaries identified on the signature pages thereof as guarantors, that provided for a 5-year $110 million term loan
facility (which was subsequently increased to $125 million); and
 11




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
 (iii)
    
    a Second Amended and Restated Agreement dated as of December 28, 2007 (the
European Credit Facility) by and among Burdale Financial Limited, as an arranger,
agent and security trustee, Salton Holdings Limited, Salton Europe Limited and each of
Saltons other subsidiaries identified on the signature pages thereof as borrowers,
that provides for a 5-year £40.0 million (approximately $79.4 million as of March 31,
2008) credit facility, which includes a revolving credit facility with an aggregate
notional maximum availability of £30.0 million (approximately $59.5 million as of
March 31, 2008) and two term loan facilities (one related to real property and the
other to intellectual property of the European subsidiary group) of £3.5 million and
£5.8 million (approximately $6.9 million and $11.5 million, respectively, as of March
31, 2008) .
   (In thousands)Fair value of Salton common stock (1)
    
    $
    3,919Debt repayment and accrued interest and associated fees
    
    
    258,041Fees and expenses
    
    
    10,765$
    272,725
 
 (1)
    
    The fair value of the common stock outstanding was based on the average closing
price for the period beginning two days prior to, and ending two days after, the
execution of the merger agreement on October 1, 2007.  (In thousands)Current assets
    
    $
    265,611Property, plant and equipment.
    
    
    19,343Identifiable intangible assets
    
    
    180,200Other assets
    
    
    9,438Current liabilities
    
    
    (236,961
    )Other long-term liabilities
    
    
    (33,574
    )Deferred tax liability
    
    
    (62,240
    )Valuation allowance
    
    
    62,240Goodwill
    
    
    68,668Total purchase price
    
    $
    272,725
    12




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
 AmountAccrued as ofDecember 31,
    
    
    Additional2007
    
    
    Accruals
    
    
    Amount Paid
    
    
    March 31, 2008(In thousands)Severance and related expenses
    
    $
    5,194
    
    
    $
    985
    

    
    $
    (1,213
    )
    
    $
    4,966Unfavorable lease and other
    
    
    2,798
    
    

    
    
    
    
    
    (660
    )
    
    
    2,138Total
    
    $
    7,992
    
    
    $
    985
    

    
    $
    (1,873
    )
    
    $
    7,104
  WeightedAverageInitial Value
    
    Useful Life(Dollars in thousands)License agreements
    
    $
    8,690
    
    
    9 yearsTradenames
    
    $
    171,510
    
    
    Indefinite
    
    
    create an industry leader by blending complementary assets, skills and strengths;
    
    result in a larger company with greater market presence and more diverse product
offerings;
    
    leverage complementary brand names;
    
    offer access to a broader range of product categories by providing a more
comprehensive portfolio of product offerings;
    
    provide opportunities for international expansion;
    
    have greater potential to access capital markets; and
    
    take advantage of financial synergies.
 Other Intangible Assets
  13




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
 Weighted
    
    March 31, 2008
    
    
    June 30, 2007Average
    
    Gross
    
    
    
    
    
    
    GrossAmortization
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedPeriod
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(Years)
    
    (In thousands)Licenses
    
    9
    
    $
    42,510
    
    
    $
    (4,626
    )
    
    $
    33,820
    
    
    $
    (1,523
    )Trade names
    
    Indefinite
    
    
    182,270
    
    
    
    
    
    
    
    10,760
    
    
    
    Patents
    
    12
    
    
    8,240
    
    
    
    (801
    )
    
    
    8,240
    
    
    
    (264
    )Customer relationships
    
    9
    
    
    2,310
    
    
    
    (299
    )
    
    
    2,310
    
    
    
    (147
    )$
    235,330
    
    
    $
    (5,726
    )
    
    $
    55,130
    
    
    $
    (1,934
    )
  (In thousands)2008
    
    $
    1,4172009
    
    $
    5,6672010
    
    $
    5,6672011
    
    $
    5,6672012
    
    $
    5,667Thereafter
    
    $
    23,249
 Supplemental Pro Forma Information
 st st
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Net sales
    
    $
    187,470
    
    
    $
    189,360
    
    
    $
    745,942
    
    
    $
    778,071Loss from continuing operations
    
    $
    (28,990
    )
    
    $
    (28,102
    )
    
    $
    (55,404
    )
    
    $
    (54,072
    )Net loss
    
    $
    (29,074
    )
    
    $
    (38,807
    )
    
    $
    (72,942
    )
    
    $
    (61,978
    )Loss per common share:Loss from continuing operations share 
basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    $
    (0.08
    )
    
    $
    (0.07
    )Net loss per common share 
basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.10
    )
    
    $
    (0.08
    )
  3. STOCKHOLDERS EQUITY
 Business Combinations
 14




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
   For the three months ended
    
    For the nine months endedMarch 31,
    
    March 31,
    
    March 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Weighted average basic shares
    
    
    732,490,535
    
    
    
    732,496,035
    
    
    
    732,494,202
    
    
    
    732,496,035
  For the three months ended
    
    For the nine months endedMarch 31,
    
    March 31,
    
    March 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Number of shares
    
    
    910,623
    
    
    
    1,580,166
    
    
    
    910,623
    
    
    
    1,580,166Range of exercise price
    
    $
    6.33  $37.00
    
    
    $
    5.33  $37.00
    
    
    $
    6.33  $37.00
    
    
    $
    5.33  $37.00
 4. COMMITMENTS AND CONTINGENCIES
 Litigation and Other Matters
 NACCO Litigation
   LeBlanc Litigation ®
 George Foreman Distributor Litigation. ®
 15




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
 ®
 Asbestos Matters.
 Environmental Matters.
 
    
    Kirksville, Missouri.Soil and groundwater contamination by trichloroethylene
has been identified at the former manufacturing facility in Kirksville, Missouri.
Salton has entered into a Consent Agreement with the Missouri Department of Natural
Resources (MDNR) regarding the contamination.
    
    Laurinburg, North Carolina.Soil and groundwater contamination by
trichloroethylene has been identified at the former manufacturing facility in
Laurinburg, North Carolina. A groundwater pump and treat system has operated at
the site since 1993.
    
    Macon, Missouri.Soil and groundwater contamination by trichloroethylene and
petroleum have been identified at the former manufacturing facility in Macon,
Missouri. The facility is participating in the Missouri Brownfields/Voluntary
Cleanup Program.
   Other Matters.
  Employment and Other Agreements
   16




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
  License Agreements
 ®
 
    
    Calendar Year 2008: $13,500,000
    
    Calendar Year 2009: $14,000,000
    
    Calendar Year 2010: $14,500,000
    
    Calendar Year 2011: $15,000,000
    
    Calendar Year 2012: $15,000,000
  ®
 ® ®
  Income Taxes
 Accounting for Uncertainty in Income
Taxes Accounting for Contingencies Accounting for Income Taxes
 17




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
       5. SALE OF DIVISION
  6. STOCK-BASED COMPENSATION
    WeightedAverageShares(000)
    
    Exercise PriceOutstanding at June 30, 2007
    
    
    1,006
    
    
    $
    14.91Granted
    
    
    7,120
    
    
    $
    0.22Exercised
    
    
    
    
    
    
    Expired or cancelled
    
    
    (195
    )
    
    $
    6.42Outstanding at March 31, 2008
    
    
    7,931
    
    
    $
    1.92Options exercisable at March 31, 2008
    
    
    7,931
    
    
    $
    1.92
 18




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
 7. ASSETS HELD FOR SALE
   8. PROPERTY, PLANT AND EQUIPMENT
  March 31,
    
    
    June 30,Useful Lives
    
    
    2008
    
    
    2007(In thousands)Land
    
    NA
    
    $
    6,338
    
    
    $
    Building
    
    39.5 years
    
    
    2,145
    
    
    
    Computer equipment
    
    3  7 years
    
    
    12,157
    
    
    
    11,383Equipment and other
    
    3  5 years
    
    
    8,771
    
    
    
    2,192Leasehold improvements*
    
    8  10 years
    
    
    1,908
    
    
    
    2,321Total
    
    
    
    
    
    $
    31,319
    
    
    $
    15,896Less accumulated depreciation
    
    
    
    
    
    
    5,780
    
    
    
    2,443$
    25,539
    
    
    $
    13,453
 
 *
    
    Shorter of remaining term of lease or useful life 9. PRODUCT WARRANTY OBLIGATIONS
  March 31,
    
    
    March 31,2008
    
    
    2007(In thousands)Balance, beginning of period
    
    $
    6,944
    
    
    $
    3,902Additions to accrued product warranties
    
    
    33,131
    
    
    
    24,218Reductions of accruals  payments and credits issued
    
    
    (31,359
    )
    
    
    (20,367
    )Balance, end of period
    
    $
    8,716
    
    
    $
    7,753
 19




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
 10. SENIOR SECURED CREDIT FACILITY, LETTERS OF CREDIT AND LONG-TERM DEBT
 North American Credit Facility.
  
    
    LIBOR (adjusted for any reserves), plus a specified margin (determined by
Saltons average quarterly availability and set at 2.0% on March 31, 2008), which
was 4.7% on March 31, 2008; or
    
    the Base Rate (Bank of Americas prime rate), plus a specified margin (based
Saltons average quarterly availability, and was 0.25% on March 31, 2008), which
was 5.5% on March 31, 2008.
  Term Loan.
 
    
    provided for the payment of interest by automatically having the outstanding
principal amount increase by an amount equal to the interest due (the PIK Option)
from January 31, 2008 through March 31, 2009;
    
    provided Salton the option, after March 31, 2009, to pay the interest due on
such loan either (i) in cash or (ii) by the PIK Option;
    
    increased the applicable borrowing margins by 150 basis points (the Margin
Increase) as consideration for the right to have the PIK Option;
    
    eliminated the obligation of Salton and its subsidiaries to gross up any
withholding tax payments in respect of the Margin Increase;
    
    increased the outstanding loan amount by $15 million from $110 million to $125
million to fund general corporate purposes; and
    
    provided Salton and its subsidiaries a delayed draw option to draw down up to
an additional $15 million in the next 24 months in installments of at least
$5 million to fund general corporate purposes.
  European Credit Facility.
 20




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
    Series D Preferred Stock.
 Ranking. Liquidation Junior Stock
 Liquidation Preference. Series D
Liquidation Preference
 Sale Transaction
 Dividends.
  Voting Rights.
 21




---



##### Table of Contents



Salton, Inc. and Subsidiaries
Notes to Consolidated Financial Statements  Continued
  No Conversion Rights.
 Mandatory Redemption.
 11. PENSION BENEFITS PLANS
  Domestic
    
    
    Salton Europe
    
    
    TotalMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Three Months Ended:Service cost benefits earned
during the period
    
    $
    42
    
    
    $
    42
    
    
    $
    126
    
    
    $
    126
    
    
    $
    168
    
    
    $
    168Interest cost on projected
benefit obligation
    
    
    175
    
    
    
    175
    
    
    
    526
    
    
    
    525
    
    
    
    701
    
    
    
    699Actuarial return on plan assets
    
    
    (177
    )
    
    
    (167
    )
    
    
    (532
    )
    
    
    (501
    )
    
    
    (709
    )
    
    
    (668
    )Net amortization and deferral
    
    
    42
    
    
    
    48
    
    
    
    127
    
    
    
    144
    
    
    
    170
    
    
    
    192Net pension costs
    
    $
    82
    
    
    $
    98
    
    
    $
    247
    
    
    $
    294
    
    
    $
    330
    
    
    $
    391Nine Months Ended:Service cost benefits earned
during the period
    
    $
    112
    
    
    $
    125
    
    
    $
    335
    
    
    $
    366
    
    
    $
    448
    
    
    $
    479Interest cost on projected
benefit obligation
    
    
    694
    
    
    
    631
    
    
    
    2,081
    
    
    
    1,854
    
    
    
    2,778
    
    
    
    2,424Actuarial return on plan assets
    
    
    (799
    )
    
    
    (605
    )
    
    
    (2,394
    )
    
    
    (1,778
    )
    
    
    (3,195
    )
    
    
    (2,324
    )Net amortization and deferral
    
    
    7
    
    
    
    153
    
    
    
    20
    
    
    
    450
    
    
    
    26
    
    
    
    588Net pension costs
    
    $
    14
    
    
    $
    304
    
    
    $
    42
    
    
    $
    892
    
    
    $
    57
    
    
    $
    1,167
  22




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  General
 ® ® ® ® ® ®
  Business Strategy
  Maximizing utility of our brand assets.
 Leveraging innovation and strategic marketing to drive profitability.
 Creating long-term cost and quality advantages for our customers .
 Pursuing acquisitions.
 Merger with Applica
    23




---



##### Table of Contents



1 4
   Financings
    
    
    a Third Amended and Restated Credit Agreement dated as of December 28, 2007 (the
First Lien Credit Agreement) by and among the financial institutions named
therein as lenders, Bank of America, N.A., as administrative agent and collateral
agent, Salton and each of Saltons subsidiaries identified on the signature pages
thereof as borrowers and each of Saltons subsidiaries identified on the signature
pages thereof as guarantors, that provides for a 5-year $200 million revolving
credit facility;
 24




---



##### Table of Contents




    
    a Term Loan Agreement dated as of December 28, 2007 (the Second Lien Credit
Agreement) by and among the financial institutions named therein as lenders,
Harbinger Capital Partners Master Fund I, Ltd., as administrative agent and
collateral agent, Salton and each of Saltons subsidiaries identified on the
signature pages thereof as borrowers and each of Saltons subsidiaries identified
on the signature pages thereof as guarantors, that provided for a 5-year $110
million term loan facility (which was subsequently increased to $125 million); and
    
    a Second Amended and Restated Agreement dated as of December 28, 2007 (the
European Credit Facility) by and among Burdale Financial Limited, as an arranger,
agent and security trustee, Salton Holdings Limited, Salton Europe Limited and each
of Saltons other subsidiaries identified on the signature pages thereof as
borrowers, that provides for a 5-year £40.0 million (approximately $79.4 million)
credit facility.  The facility agreement consists of a revolving credit facility
with an aggregate notional maximum availability of £30.0 million (approximately
$60 million) and two term loan facilities (one related to real property and the
other to intellectual property of the European subsidiary group) of £3.5 million
and £5.8 million (approximately $6.9 million and $11.5 million, respectively.)
 Forward Looking Statement Disclosure
   
    
    Our margins may be adversely impacted by increases in raw material prices.
    
    The costs of the products purchased by us could increase as a result of fluctuations in
the Chinese currency.
    
    The bankruptcy or financial difficulty of any major customer or fluctuations in the
financial condition of the retail industry in general could adversely affect our results of
operations.
    
    We purchase a large number of products from two suppliers. Production-related risks with
these suppliers could jeopardize our ability to realize anticipated sales and profits until
alternative supply arrangements are secured.
    
    The failure of our business strategy could seriously hurt our financial condition and
results of operations.
    
    Our international operations subject us to additional business risks and may cause our
profitability to decline due to increased costs.
    
    Harbinger Capital Partners has effective control over the outcome of actions requiring
the approval of our stockholders.
    
    Due to the merger and related ownership changes of Salton, certain tax assets consisting
primarily of net operating losses will be limited in annual use due to Section 382
limitations.
    
    If the household appliance sector of the retail industry experiences an economic
slowdown, our results of operations will suffer.
 25




---



##### Table of Contents




    
    Our ability to obtain products may be adversely impacted by changes in worldwide supply
of or demand for raw materials.
    
    We depend on third party suppliers for the manufacturing of substantially all of our
products and if we fail to develop and maintain relationships with a sufficient number of
qualified suppliers, our ability to timely and efficiently source products that meet our
standards for quality could be adversely affected.
    
    We are subject to significant international business risks that could hurt our business
and cause our results of operations to fluctuate.
    
    A deterioration in trade relations with China could lead to a substantial increase in
tariffs imposed on goods of Chinese origin, which potentially could reduce demand for and
sales of our products.
    
    Significant fluctuations in the exchange rate between the U.S. dollar and the currencies
in which our costs are denominated may reduce our sales or profits.
    
    We may not be able to realize expected benefits and synergies from future acquisitions
of businesses or product lines.
    
    If we were to lose one or more of our major customers, or suffer a major reduction of
orders from them, our financial results would suffer.
    
    Any reduction in trade credit from our suppliers could seriously harm our operations and
financial condition.
    
    The small electric household appliance industry is consolidating, which could reduce our
ability to successfully secure product placements at key customers and limit our ability to
sustain a cost competitive position in the industry.
    
    The small household appliance industry is highly competitive and we may not be able to
compete effectively, causing us to lose market share and sales.
    
    We depend on consumer spending, which fluctuates for a variety of reasons, including
seasonality, which may cause our results of operations to fluctuate.
    
    Our future success requires us to develop new and innovative products on a consistent
basis in order to increase revenues and we may not be able to do so.
    
    Long lead times, potential material price increases and customer demands may cause us to
purchase more inventory than necessary, which may lead to increased obsolescence and
adversely affect our results of operations.
    
    Our financing arrangements could subject us to various restrictions that could limit our
operating flexibility.
    
    Our leverage is substantial, which may have an adverse effect on our available cash
flow, our ability to obtain additional financing if necessary in the future, our
flexibility in reacting to competitive and technological changes and our operations.
    
    We may not be able to fund our debt service obligations through operating cash flow in
the future, which could force us to seek alternative means of funding, possibly on
unfavorable terms.
    
    Sales of our common stock by Harbinger Capital Partners could cause the trading price of
our common stock to decline.
 26




---



##### Table of Contents




    
    The market price of our common stock could decline if we fail to achieve the expected
benefits of the merger with Applica.
    
    If we are unable to renew the Black & Decker® trademark license agreement,
our business could suffer.
    
    Our actual liabilities relating to environmental matters may exceed our expectations.
    
    Product recalls or lawsuits relating to defective products could adversely impact our
results of operations.
    
    The infringement or loss of our proprietary rights could harm our business.
    
    We may be subject to litigation and infringement claims, which could cause us to incur
significant expenses or prevent us from selling our products.
    
    Compliance with governmental regulations could significantly increase our operating
costs or prevent us from selling our products.
    
    The requirements of complying with the Sarbanes-Oxley Act may strain our resources, and
our internal control over financial reporting may not be sufficient to ensure timely and
reliable external financial reports.
    
    Our stock price may continue to be volatile.
    
    Our common stock was delisted from the New York Stock Exchange and now is an
over-the-counter security quoted on The Pink Sheets Electronic Quotation Service.
    
    Companies quoted on the Pink Sheets are not subject to corporate governance requirements
in order for their shares to be quoted, and we have more limited protections against
conflicts of interest, related party transactions and similar matters.
    
    We do not anticipate paying dividends.
  27




---



##### Table of Contents



Results of Operations
  Three Months Ended March 31, 2008 Compared To Three Months Ended March 31, 2007
 Net Sales
  
    
    sales in North, South and Central America were $131.9 million;
    
    sales in Europe were $44.0 million; and
    
    sales in the remainder of the world were $11.5 million.
  
    
    sales of Black & Decker® branded products were $92.5 million;
    
    sales of Russell Hobbs® branded products were $36.5 million;
    
    sales of George Foreman® branded products were $31.2 million; and
    
    sales of other branded products were $27.2 million.
 Gross Profit
 Operating Expenses
  
    
    promotion and advertising expenses of $2.0 million attributable to new product
launches; and
    
    legal expenses of $1.7 million related to our pursuit of a patent infringement
matter on certain patents related to the LitterMaid® automatic cat litter box.
 Integration and transition expenses.
 Interest Expense
 Taxes
 28




---



##### Table of Contents



Nine Months Ended March 31, 2008 Compared To Nine Months Ended March 31, 2007
 Net Sales
  
    
    sales in North, South and Central America were $416.2 million;
    
    sales in Europe were $44.0 million; and
    
    sales in the rest of the world were $11.5 million.
  
    
    sales of Black & Decker® branded products were $357.0 million;
    
    sales of Russell Hobbs® branded products were $36.5 million;
    
    sales of George Foreman® branded products were $31.2 million; and
    
    sales of other branded products were $47.0 million.
 Gross Profit
 Operating Expenses
  
    
    promotion and advertising expenses of $3.0 million attributable to new product
launches; and
    
    legal expenses of $2.9 million related to our pursuit of a patent infringement
matter on certain patents related to the LitterMaid® automatic cat litter box.
 Integration and transition expenses.
 Interest Expense
 Interest and Other Income.
 
    
    a gain of $1.9 million from the settlement in December 2007 of an
escrow claim related to the sale of an investment by a joint venture
(the funds were received in January 2008);
 29




---



##### Table of Contents




    
    a gain of $0.5 million related to the sale in October 2007 of the land
and building housing our Mexican manufacturing facility; and
    
    due diligence fees and expenses of $0.7 million that were expensed in
the period, which were associated with alternative financing for the
merger that was ultimately not consummated.
 Taxes
 30




---



##### Table of Contents



Liquidity and Capital Resources
 Liquidity
  Operating Activities . .
 Investing Activities
 Financing Activities
 Capital Resources
  North American Credit Facility.
  
    
    LIBOR (adjusted for any reserves), plus a specified margin (determined by
Saltons average quarterly availability, which was 2.0% on March 31, 2008 and 2.5%
on May 12, 2008), which was 4.7% on March 31, 2008 and 5.0% on May 12, 2008; or
    
    the Base Rate (Bank of Americas prime rate), plus a specified margin (based
Saltons average quarterly availability, which was 0.25% on March 31, 2008 and
0.75% on May 12, 2008), which was 5.5% on March 31, 2008 and at 5.75% on May 12,
2008.
  31




---



##### Table of Contents



Harbinger Term Loan.
 
    
    provided for the payment of interest by automatically having the outstanding
principal amount increase by an amount equal to the interest due (the PIK Option)
from January 31, 2008 through March 31, 2009;
    
    provided us the option, after March 31, 2009, to pay the interest due on such
loan either (i) in cash or (ii) by the PIK Option;
    
    increased the applicable borrowing margins by 150 basis points (the Margin
Increase) as consideration for the right to have the PIK Option;
    
    eliminated our obligation to gross up any withholding tax payments in respect of
the Margin Increase;
    
    increased the outstanding loan amount by $15 million from $110 million to $125
million to fund general corporate purposes; and
    
    provided us a delayed draw option to draw down up to an additional $15 million
in the next 24 months in installments of at least $5 million to fund general
corporate purposes.
  European Credit Facility.
   32




---



##### Table of Contents



Series D Preferred Stock.
 Ranking. Liquidation Junior Stock
 Liquidation Preference. Series D
Liquidation Preference
 Sale Transaction
 Dividends.
  Voting Rights.
 No Conversion Rights.
 33




---



##### Table of Contents



Mandatory Redemption.
 Senior Subordinated Notes.
 Use of Estimates and Critical Accounting Policies
    Income Taxes
  Collectibility of Accounts Receivable
 
    
    our historical bad debt experiences;
    
    publicly available information regarding our customers and the inherent credit
risk related to them;
 34




---



##### Table of Contents




    
    information from subscription-based credit reporting companies;
    
    trade association data and reports;
    
    current economic trends; and
    
    changes in customer payment terms or payment patterns.
  Inventory
 Product Liability Claims and Litigation
  Long-Lived Assets .
 Intangible Assets .
 35




---



##### Table of Contents



Goodwill .
 Other Estimates
 Recent Accounting Pronouncement
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk Management
    Foreign Exchange Risk Management
   36




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Limitations on the Effectiveness of Controls.
 37




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 NACCO Litigation
   LeBlanc Litigation ®
 George Foreman Distributor Litigation. ® ®
 Asbestos Matters
 Environmental Matters.
 
    
    Kirksville, Missouri.Soil and groundwater contamination by trichloroethylene
has been identified at the former manufacturing facility in Kirksville, Missouri.
The Company has entered into a Consent Agreement with the Missouri Department of
Natural Resources (MDNR) regarding the contamination.
    
    Laurinburg, North Carolina.Soil and groundwater contamination by
trichloroethylene has been identified at the former manufacturing facility in
Laurinburg, North Carolina. A groundwater pump and treat system has operated at
the site since 1993.
 38




---



##### Table of Contents




    
    Macon, Missouri.Soil and groundwater contamination by trichloroethylene and
petroleum have been identified at the former manufacturing facility in Macon,
Missouri. The facility is participating in the Missouri Brownfields/Voluntary
Cleanup Program.
  Other Matters.
  
 Item 6. Exhibits.
 (a)
    
    Exhibits:31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 39




---



##### Table of Contents



SIGNATURES
  SALTON, INC.
               (Registrant)May 14, 2008
    By:
    /s/  Terry L. PolistinaTerry L. PolistinaChief Executive Officer and President May 14, 2008
    By:
    /s/ Ivan R. HabibeIvan R. HabibeVice President and Chief Financial Officer 40