<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 December 29, 2001 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of February 6, 2002,
10,986,042 shares of its $.01 par value Common Stock.
<PAGE>
                                                                        PAGE NO.
                                                                        --------
PART I                       FINANCIAL INFORMATION

          Item 1: Consolidated Financial Statements

                  Consolidated Balance Sheets - December 29, 2001
                  (Unaudited) and June 30, 2001                             3

                  Consolidated Statements of Earnings (Unaudited) Thirteen
                  weeks ended December 29, 2001 and December 30, 2000 and
                  Twenty-six weeks ended December 29, 2001 and
                  December 30, 2000                                         4

                  Consolidated Statements of Cash Flows (Unaudited)
                  Twenty-six weeks ended December 29, 2001 and
                  December 30, 2000                                         5

                  Notes to Consolidated Financial Statements (Unaudited)    6

         Item  2: Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                       16

PART II                      OTHER INFORMATION

         Item  1: Legal Proceedings                                         22

         Item  6: Exhibits and Reports on Form 8-K                          23

                  Signature                                                 24



                                       2
<PAGE>
                                  SALTON, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                (UNAUDITED)
                                                                DECEMBER 29,
(IN THOUSANDS EXCEPT SHARE DATA)                                    2001      JUNE 30, 2001
                                                                ------------  -------------
<S>                                                             <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash                                                           $  43,995      $  30,097
  Accounts receivable, net of allowances                           252,250        185,881
  Inventories                                                      239,673        192,502
  Prepaid expenses and other current assets                          9,924         10,100
  Prepaid income taxes                                                   -         14,907
  Deferred income taxes                                              4,649          4,419
                                                                 ---------      ---------
       Total current assets                                        550,491        437,906
Property Plant and Equipment:
  Land                                                               3,820          3,768
  Buildings                                                         14,375         14,169
  Molds and tooling                                                 47,346         41,715
  Warehouse equipment                                                9,026          8,939
  Office furniture and equipment                                    18,886         16,116
                                                                 ---------      ---------
                                                                    93,453         84,707
  Less accumulated depreciation                                    (42,540)       (36,983)
                                                                 ---------      ---------
NET PROPERTY, PLANT AND EQUIPMENT                                   50,913         47,724
Patents and Trademarks, net of accum amortization                  133,771        132,128
Cash in escrow for Pifco loan notes                                 17,733         17,748
Other intangibles, net of accum amort and
  Other Non-current Assets                                         106,517         87,378
                                                                 ---------      ---------
TOTAL ASSETS                                                     $ 859,425      $ 722,884
                                                                 =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Revolving line of credit and other current debt                $ 156,659      $  41,530
  Accounts payable                                                  41,692         33,450
  Accrued expenses                                                  49,185         32,908
  Foreman guarantee                                                  1,696         19,370
  Income taxes payable                                               2,749              -
                                                                 ---------      ---------
       Total current liabilities                                   251,981        127,258

Non-current Deferred Income Taxes                                    2,298          2,293
Senior subordinated notes due 2005                                 125,000        125,000
Senior subordinated notes due 2008                                 153,171        148,325
Loan notes to Pifco shareholders                                    11,903         11,271
Other notes payable                                                 72,791         97,240
                                                                 ---------      ---------
                                                                   617,144        511,387
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value; authorized, 2,000,000
    shares;40,000 shares issued
  Common stock, $.01 par value; authorized, 40,000,000
    shares; issued and outstanding, 2002-10,984,184 shares,
    2001-11,363,934 shares                                             146            144
  Treasury stock - at cost                                         (67,019)       (47,865)
  Additional paid-in capital                                        93,134         72,932
  Accumulated other comprehensive income (loss)                          9         (1,174)
  Retained earnings                                                216,011        187,460
                                                                 ---------      ---------
       Total stockholders' equity                                  242,281        211,497
                                                                 ---------      ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $ 859,425      $ 722,884
                                                                 =========      =========
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       3
<PAGE>

                                  SALTON, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                        13 WEEKS ENDED                 26 WEEKS ENDED
                                                 ----------------------------    ----------------------------
                                                 DECEMBER 29,    DECEMBER 30,    DECEMBER 29,    DECEMBER 30,
                                                     2001            2000            2001            2000
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
NET SALES                                        $   318,489     $   262,197     $   516,839     $   469,443
Cost of goods sold                                   186,279         149,896         303,426         267,884
Distribution expenses                                 18,428          14,449          31,776          24,438
                                                 -----------     -----------     -----------     -----------
GROSS PROFIT                                         113,782          97,852         181,637         177,121
Selling, general and administrative expenses          68,320          45,136         112,880          80,719
                                                 -----------     -----------     -----------     -----------
OPERATING INCOME                                      45,462          52,716          68,757          96,402
Interest expense, net                                 11,835          10,189          23,438          19,472
                                                 -----------     -----------     -----------     -----------
INCOME BEFORE INCOME TAXES                            33,627          42,527          45,319          76,930
Income tax expense                                    12,441          15,948          16,768          28,850
                                                 -----------     -----------     -----------     -----------
NET INCOME                                       $    21,186     $    26,579     $    28,551     $    48,080
                                                 ===========     ===========     ===========     ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING        10,983,074      12,116,774      11,021,401      11,856,249

WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING                  14,910,745      16,656,653      14,985,409      16,289,880

Net income per common share: Basic               $      1.93     $      2.19     $      2.59     $      4.06

Net income per common share: Diluted             $      1.42     $      1.60     $      1.91     $      2.95
</TABLE>





                 See Notes to Consolidated Financial Statements.

                                        4
<PAGE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)                                                     26 WEEKS ENDED
                                                                               --------------------------
                                                                               DECEMBER 29,  DECEMBER 30,
                                                                                   2001          2000
                                                                               ------------  ------------
<S>                                                                            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                     $ 28,551      $ 48,080
  Adjustments to reconcile net income to net cash from operating activities:
    Imputed interest on notes payable                                               2,906         3,779
    Gain on sale of investment                                                       (200)            -
    Depreciation and amortization                                                  15,062        11,809
    Loss on disposal of equipment                                                       -           315
    Equity in income of unconsolidated affiliate                                     (272)            -
    Purchase reduction of note payable and other non-cash items                         -           105
    Changes in assets and liabilities:
       Accounts receivable                                                        (66,088)      (73,849)
       Inventories                                                                (46,751)        3,530
       Prepaid expenses and other current assets                                      262          (626)
       Accounts payable                                                             8,154        (6,294)
       Taxes payable                                                               17,376       (10,743)
       Accrued expenses                                                            20,840           750
                                                                                 --------      --------
          NET CASH FROM OPERATING ACTIVITIES                                      (20,160)      (23,144)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                             (8,332)       (4,474)
  Increase in other non-current assets                                               (802)       (8,902)
  Proceeds from sale of investment                                                    501             -
  Acquisition of business                                                          (6,251)       (2,820)
  Additional payment for patents and trademarks                                   (18,029)            -
  Additions to intangibles, patents and trademarks                                (19,814)       (6,625)
                                                                                 --------      --------
          NET CASH FROM INVESTING ACTIVITIES                                      (52,727)      (22,821)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from revolving line of credit and other debt                        96,000        55,957
  Repayment of long-term debt                                                      (7,459)      (64,250)
  Proceeds from long-term debt                                                          -        75,000
  Costs associated with refinancing                                                (1,050)       (2,847)
  Common stock issued                                                                  56           131
  Purchase of treasury stock                                                       (1,125)       (5,351)
                                                                                 --------      --------
          NET CASH FROM FINANCING ACTIVITIES                                       86,422        58,640
                                                                                 --------      --------
The effect of exchange rate changes on cash                                           363           (14)
                                                                                 --------      --------
Net change in cash                                                                 13,898        12,661
Cash, beginning of period                                                          30,097         7,606
                                                                                 --------      --------
Cash, end of period                                                              $ 43,995      $ 20,267
                                                                                 ========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest                                                                       $ 19,013      $ 15,093
  Income taxes                                                                   $  2,926      $ 39,519
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In the quarter ended September 30, 2000, Salton acquired trademarks, other
intellectual property and molds of the Stiffel Company, a premier designer of
lamps and related products, for $6,500. The purchase was paid by the issuance of
200,000 shares of Salton, Inc. common stock. In addition, the Company reached an
agreement to satisfy $22,750 of payment obligations incurred in connection with
its acquisition of the "George Foreman" name by issuing 621,161 shares of
Salton, Inc. common stock, subject to certain guarantee provisions. In the
quarter ended March 31, 2001, the Company agreed to satisfy the guarantee
provisions with cash (see Note 5).

In the quarter ended December 30, 2000, the Company increased its investment in
Amalgamated Appliance Holdings Limited, a South African manufacturer and
distributor of electronics and appliances, to approximately 31% by issuing
109,000 shares of Salton, Inc. common stock.


                 See Notes to Consolidated Financial Statements.


                                        5
<PAGE>
                                  SALTON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.  CONSOLIDATED FINANCIAL STATEMENTS

    The consolidated financial statements have been prepared from Salton's
records without audit and are subject to year end adjustments. The interim
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of financial information. The interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Salton, Inc. 2001 Annual
Report on Form 10-K. The results of operations for the interim periods should
not be considered indicative of results to be expected for the full year.

2.  RECENT ACCOUNTING PRONOUNCEMENTS

    In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". The guidance in SFAS No. 141 supersedes Accounting Principles Board
Opinion No. 16, "Business Combinations," and is applicable to business
combinations initiated after June 30, 2001. Upon adoption of SFAS No. 142,
goodwill will cease to be amortized and will instead be subject to periodic
impairment reviews as set forth in the new standard. The Company is currently
evaluating the Statement's impairment provisions and has not yet determined what
effect, if any, they might have on the consolidated financial position and
results of operations of the Company.

    The Company has approximately $52.6 million in goodwill recorded in its
consolidated balance sheet as of December 29, 2001. Under the provisions of SFAS
No. 142, goodwill will cease to be amortized for fiscal years beginning after
December 15, 2001 (fiscal year 2003 for the Company.) The Company recorded $1.5
million in amortization expense related to goodwill in the first half of fiscal
2002. The Company will also assess the useful lives of its patents, trademarks
and other intangible assets for indefinite economic useful lives, which will
also cease to be amortized under SFAS No. 142. The Company has $24.4 million of
other intangibles and $133.8 million of patents and trademarks as of December
29, 2001, net of accumulated amortization. The Company recorded $.7 million and
$5.1 million of related amortization expense in the first half of fiscal 2002
for other intangibles and patents and trademarks, respectively.

3.  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.

4.  DERIVATIVE FINANCIAL INSTRUMENTS

    The Company uses derivative financial instruments, principally an interest
rate swap, to manage the interest rate risk associated with its borrowings and
to manage the Company's allocation of fixed and variable-rate debt.

    At December 29, 2001, the Company had an interest rate swap contract to pay
variable-rate interest of three-month LIBOR plus 6.13% and receive fixed-rate
interest of 12.25% on $150 million notional amount of indebtedness. As of
December 29, 2001, the Company's balance sheet included an asset of
approximately $4.7 million representing the fair value of the swap and call
feature. As the terms of the swap and call feature match those of the designated
underlying hedged debt instrument, the change in fair value of this swap and
call feature was an increase in the fair value recorded on the hedged debt, and
resulted in no net earnings impact.


                                       6

<PAGE>


5.  EVENTS OF THE TWENTY-SIX WEEKS ENDED DECEMBER 29, 2001

    Icebox LLC

    In the quarter ended September 29, 2001, the Company formed a wholly owned
subsidiary, Icebox, LLC, to design and develop next generation kitchen products
and e-commerce solutions. In the same quarter, Icebox, LLC took title to
tangible and intangible assets of Coachmaster International Corporation (CMI)
which were pledged as collateral by CMI in connection with $12.5 million of
loans made by the Company, and upon which the Company had foreclosed. Such
assets are directly related to the development of iCEBOX, a web-enabled kitchen
entertainment and communications center. The capitalized costs associated with
the iCEBOX approximate $18 million at December 29, 2001. Management believes
such costs to be recoverable based upon projected future net cash flows to be
generated through sale of the product.

    Acquisition of Intangible Assets

    In the quarter ended December 29, 2001, the Company acquired for $15
million the manufacturing, distribution, and intellectual property rights in
connection with certain food grilling products in all countries, in addition to
North America and select other locations, from a principal supplier.

    On August 7, 2001 the Company acquired the trademarks, certain rights and
patents and other intellectual property, as well as assets and molds related to
the Westclox (R), Big Ben(R), and Spartus(R) brands from the bankrupt General
Time Corporation for $9.8 million.

    Other

    On July 2, 2001, the Company took back 456,175 of the 546,075 shares issued
to George Foreman on September 7, 2000 and paid him $18 million. This payment,
which represented $20.0 million less the proceeds George Foreman received from
the sale of shares on the open market previously issued to him, terminated the
guarantee obligation with respect to the shares issued to him and satisfied the
third annual installment due under the note payable to George Foreman. As a
result of this transaction, the Company now has only two installments remaining
under the note as well as the outstanding guarantee obligation to the other
venture participants.

6.  COMPREHENSIVE INCOME

    For the thirteen and twenty-six weeks ended December 29, 2001 and December
30, 2000, components of other comprehensive income include foreign currency
translation adjustments.


<TABLE>
<CAPTION>
                                         13 Weeks Ended               26 Weeks Ended
                                     -------------------------    ----------------------
(Dollars in Thousands)               12/29/2001     12/30/2000    12/29/2001  12/30/2000
                                     -----------    ----------    ----------  ----------
<S>                                  <C>            <C>           <C>         <C>
Net Income                             $21,186        $26,579      $28,551      $48,080
Other comprehensive income (loss)         (230)             6        1,183         (449)
                                       -------        -------      -------      -------
                                       $20,956        $26,585      $29,734      $47,631
                                       =======        =======      =======      =======
</TABLE>


    Accumulated other comprehensive income (loss) is comprised of minimum
pension liability of $(523) as of December 29, 2001 and June 30, 2001, as well
as foreign currency translation adjustments of $532 and $(651) as of December
29, 2001 and June 30, 2001.

7. OPERATING SEGMENTS

    The Company consists of a single operating segment that designs, markets and
distributes housewares, including small appliances, tabletop, time and lighting
products ("Salton at Home") and personal care/wellness products. This
segmentation is appropriate because the Company makes operating decisions and
assesses performance based upon brand management, and such brand management
encompasses a wide variety of products and types of customers. Most of the
Company's products are procured through independent manufacturers, primarily in
the Far East, and are distributed through similar distribution channels.



                                       7
<PAGE>

Product Information - Net Sales


                                   13 Weeks Ended             26 Weeks Ended
                              ------------------------    ----------------------
(Dollars in Thousands)        12/29/2001    12/30/2000    12/29/2001  12/30/2000
                              ----------    ----------    ----------  ----------
Small appliances              $280,167      $234,145       $457,143    $423,729
Salton at Home                  29,759        19,689         46,034      34,436
Personal care/wellness           8,563         8,363         13,662      11,278
                              --------      --------       --------    --------
Total                         $318,489      $262,197       $516,839    $469,443
                              ========      ========       ========    ========

    Revenues by geographic area are based upon revenues generated from each
country's operations. Sales generated in Europe for the thirteen and twenty-six
weeks ended December 29, 2001 were approximately $33.7 million and $53.6
million, respectively. Sales to any one foreign geographic area did not exceed
10% of net sales for the first half of fiscal 2001. The Company had
approximately $61.6 million of long-lived assets in Europe as of December 29,
2001. Long-lived assets in any one foreign geographical area did not exceed 10%
of total long-lived assets as of December 30, 2000.

8.  LEGAL PROCEEDINGS

    In September, 1999, Linda Evans Fitness Centers, Inc. (the "Fitness
Centers"), Mark Golub and Thomas Gergley filed suit against us and our principal
Executive officers alleging that we tortiously interfered with a contract
between the Fitness Centers and Ms. Evans by hiring Ms. Evans to act as a
spokesperson for the Rejuvenique(TM) facial toning system. Before Ms. Evans was
hired by us, Ms. Evans had brought suit against the Fitness Centers seeking a
determination that her contract with the Fitness Centers had been terminated on
the basis of fraud and the failure of the Fitness Centers to make certain
payments. We settled this suit during the quarter ended December 29, 2001
without any payment to the plaintiffs.

    On January 23, 2001, we filed a lawsuit against Applica, Inc. (formerly
known as Windmere-Durable Holdings, Inc.) and its affiliate in the United States
District Court for the Northern District of Illinois. The lawsuit alleges that
Applica intentionally, willfully and maliciously breached its noncompetition
agreement with us, attempted to conceal such breach, tortuously interfered with
our business and contractual relationships and breached its duty of good faith
and fair dealing. The lawsuit seeks compensatory damages, punitive damages and
attorneys' fees and costs. As a result of Applica's actions, we have terminated
an agreement which requires us to pay Applica a fee based upon our net sales
less specified costs and expenses relating to our supply agreement with K-Mart.
The terms of the agreement between us and Applica expressly provide for such
termination upon a violation by Applica of its noncompetition provisions. In
March 2001, Applica filed an answer with the court.

    On July 2, 2001, we were served with a complaint for patent infringement
alleged by AdVantage Partners LLC in the United States District Court for the
Central District of California. In this complaint, AdVantage alleged that we and
retailers that sell our "George Foreman Jr." rotisserie grills were infringing
two of AdVantage's patents. AdVantage sought a permanent injunction against sale
of George Foreman rotisserie grills utilizing the inventions claimed by those
patents and unspecified monetary damages including a request for treble damages.
These patents relate to accessory products for rotisserie ovens including spit
rod and basket assemblies. We filed an answer and counterclaim denying the
allegations of the complaint and asserting a number of affirmative defenses and
request for declaratory relief. AdVantage had also sought preliminary injunctive
relief; however, on August 24, 2001, the court denied AdVantage's motion. On
August 28, 2001, AdVantage filed a notice of appeal to the U.S. Court of Appeals
for the Federal Circuit to review the preliminary injunction.



                                        8
<PAGE>
    On August 9, 2001, AdVantage Partners LLC filed a second complaint against
us for patent infringement in the United States District Court for the Central
District of California. In this complaint, AdVantage alleges that we have
infringed a patent assigned to AdVantage, and seeks a permanent injunction
against our sale of the "Baby George Foreman" rotisserie grill, which
purportedly utilizes an invention claimed by that patent, and unspecified
monetary damages including a request for treble damages. The patent relates to a
gear driven spit assembly for rotisserie ovens. We filed an answer and
counterclaim denying the allegations of the complaint and asserting a number of
affirmative defenses and request for declaratory relief.

9.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

    The payment obligations of the Company under the 12 1/4% 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. In the first half of fiscal 2002,
the Company formed a new wholly owned subsidiary, Salton Toastmaster Logistics
LLC, to which certain assets and operating activities were transferred from
Salton, Inc. Such assets and operating activities are included in the Guarantor
Subsidiary financial information as of July 1, 2001. The following supplemental
financial information sets forth, on a combined basis, balance sheets,
statements of earnings and statements of cash flows for the Subsidiary
Guarantors, the Company's non-guarantor subsidiaries and for Salton, Inc.


                                       9
<PAGE>
CONSOLIDATING BALANCE SHEET AS OF DECEMBER 29, 2001
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                          GUARANTOR        OTHER                                     CONSOLIDATED
                                                         SUBSIDIARIES   SUBSIDIARIES  SALTON, INC.   ELIMINATIONS       TOTALS
                                                         ------------------------------------------------------------------------
<S>                                                      <C>            <C>           <C>            <C>            <C>
                           ASSETS

Current Assets:
  Cash                                                    $   7,926    $  22,067       $  14,002       $      --        $  43,995
  Accounts receivable, net of allowances                    213,179       39,071              --              --          252,250
  Inventories                                               211,544       28,129              --              --          239,673
  Prepaid expenses and other current assets                   2,806        1,573           5,545              --            9,924
  Intercompany                                             (172,596)     (42,801)        215,397              --               --
  Deferred income taxes                                       2,299         (196)          2,546              --            4,649
                                                          -----------------------------------------------------------------------
     Total current assets                                   265,158       47,843         237,490              --          550,491
Property, Plant and Equipment,
   Net of Accumulated Depreciation                           14,219       19,771          16,923              --           50,913
Investments in Subsidiaries                                    (417)      79,408         362,449        (441,440)              --
Patents and Trademarks, Net of Accumulated Amortization      11,209           --         122,562              --          133,771
Cash in escrow for Pifco loan notes                              --       17,733              --              --           17,733
Other Intangibles, Net of Accumulated Amortization, and
  Other Non-current Assets                                   25,566       40,473          40,478              --          106,517
                                                          -----------------------------------------------------------------------
Total Assets                                              $ 315,735    $ 205,228       $ 779,902       $(441,440)       $ 859,425
                                                          =======================================================================

              LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Revolving line of credit and other current debt         $ 134,765    $      --       $  21,894       $      --        $ 156,659
  Accounts payable                                            3,713       30,237           7,742              --           41,692
  Accrued expenses                                           20,922       12,609          15,654              --           49,185
  Income taxes payable                                        3,431        6,059          (6,741)             --            2,749
  Foreman guarantee                                              --           --           1,696              --            1,696
                                                          -----------------------------------------------------------------------
     Total current liabilities                              162,831       48,905          40,245              --          251,981
Non-current Deferred Income Taxes                               474          217           1,607              --            2,298
Senior subordinated notes due 2005                               --           --         125,000              --          125,000
Senior subordinated notes due 2008                               --           --         153,171              --          153,171
Loan notes to Pifco shareholders                                 --       11,903              --              --           11,903
Other notes payable                                          42,188           --          30,603              --           72,791
                                                          -----------------------------------------------------------------------
     Total liabilities                                      205,493       61,025         350,626              --          617,144
Stockholders' Equity                                        110,242      144,203         429,276       $(441,440)         242,281
                                                          -----------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                $ 315,735    $ 205,228       $ 779,902       $(441,440)       $ 859,425
                                                          =======================================================================

</TABLE>



                                       10
<PAGE>
CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 2001
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                          GUARANTOR      OTHER                                     CONSOLIDATED
                                                         SUBSIDIARIES  SUBSIDIARIES  SALTON, INC.   ELIMINATIONS      TOTALS
                                                         ----------------------------------------------------------------------
<S>                                                      <C>           <C>           <C>            <C>             <C>
                         ASSETS
Current Assets:
  Cash                                                    $   8,242    $  15,615    $   6,240         $      --     $  30,097
  Accounts receivable, net of allowances                     39,474       30,729      115,678                --       185,881
  Inventories                                                57,034       23,906      111,562                --       192,502
  Prepaid expenses and other current assets                   3,281          460        6,359                --        10,100
  Intercompany                                              (58,561)     (42,910)     101,471                --            --
  Prepaid income taxes                                        4,940       (4,930)      14,897                --        14,907
  Deferred income taxes                                       2,299         (426)       2,546                --         4,419
                                                          -------------------------------------------------------------------
     Total current assets                                    56,709       22,444      358,753                --       437,906
Property, Plant and Equipment,
   Net of Accumulated Depreciation                           13,629       17,134       16,961                --        47,724
Investments in Subsidiaries                                    (141)          --      127,448          (127,307)           --
Patents and Trademarks, Net of Accumulated Amortization      11,169        3,702      117,257                --       132,128
Cash in escrow for Pifco loan notes                              --       17,748           --                --        17,748
Other Intangibles, Net of Accumulated Amortization, and
  Other Non-current Assets                                   14,275      118,600       37,557           (83,054)       87,378
                                                          -------------------------------------------------------------------
Total Assets                                              $  95,641    $ 179,628    $ 657,976         $(210,361)    $ 722,884
                                                          ===================================================================

          LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Revolving line of credit and other current debt         $  38,780    $      --    $   2,750         $      --     $  41,530
  Accounts payable                                            3,569       23,131        6,750                --        33,450
  Accrued expenses                                           10,345       13,299        9,264                --        32,908
  Foreman guarantee                                              --           --       19,370                --        19,370
                                                          -------------------------------------------------------------------
     Total current liabilities                               52,694       36,430       38,134                --       127,258
Non-current Deferred Income Taxes                               474          212        1,607                --         2,293
Senior subordinated notes due 2005                               --           --      125,000                --       125,000
Senior subordinated notes due 2008                               --           --      148,325                --       148,325
Loan notes to Pifco shareholders                                 --       11,271           --                --        11,271
Other notes payable                                          46,881           --       50,359                --        97,240
                                                          -------------------------------------------------------------------
     Total liabilities                                      100,049       47,913      363,425                --       511,387
Stockholders' Equity                                         (4,408)     131,715      294,551         $(210,361)      211,497
                                                          -------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                $  95,641    $ 179,628    $ 657,976         $(210,361)    $ 722,884
                                                          ===================================================================
</Table>


                                       11
<PAGE>
CONSOLIDATING STATEMENT OF EARNINGS FOR THE THIRTEEN WEEKS ENDED
DECEMBER 29, 2001
(IN THOUSANDS)

<Table>
<Caption>

                                                GUARANTOR        OTHER                                   CONSOLIDATED
                                               SUBSIDIARIES   SUBSIDIARIES  SALTON, INC.   ELIMINATIONS     TOTALS
                                               -----------------------------------------------------------------------
<S>                                            <C>             <C>          <C>            <C>           <C>
Net Sales                                      $ 510,824       $ 158,341    $ 118,090      $(468,766)      $ 318,489
Cost of Goods Sold                               425,480         136,891       91,174       (467,266)        186,279
Distribution Expenses                             23,312           1,379       (6,263)          --            18,428
                                               ---------------------------------------------------------------------
    Gross Profit                                  62,032          20,071       33,179         (1,500)        113,782
Selling, General and Administrative expenses      40,861          10,010       18,949         (1,500)         68,320
                                               ---------------------------------------------------------------------
    Operating Income                              21,171          10,061       14,230           --            45,462
Interest Expense, Net                              5,269             332        6,234           --            11,835
Equity in Earnings of Subsidiaries                   (49)           --         16,664        (16,615)           --
                                               ---------------------------------------------------------------------
    Income Before Income Taxes                    15,853           9,729       24,660        (16,615)         33,627
Income Tax Expense (Benefit)                       7,136           1,832        3,473           --            12,441
                                               ---------------------------------------------------------------------
    Net Income                                 $   8,717       $   7,897    $  21,187      $ (16,615)      $  21,186
                                               =====================================================================

</Table>

CONSOLIDATING STATEMENT OF EARNINGS FOR THE THIRTEEN WEEKS ENDED
DECEMBER 30, 2000
(IN THOUSANDS)

<Table>
<Caption>

                                                GUARANTOR        OTHER                                   CONSOLIDATED
                                               SUBSIDIARIES   SUBSIDIARIES  SALTON, INC.   ELIMINATIONS     TOTALS
                                               -----------------------------------------------------------------------
<S>                                            <C>             <C>          <C>            <C>           <C>
Net Sales                                         $ 59,785     $ 83,169       $198,865      $(79,621)        $262,197
Cost of Goods Sold                                  47,249       73,901        106,867       (78,121)         149,896
Distribution Expenses                                4,154          117         10,178          --             14,449
                                                  -------------------------------------------------------------------
    Gross Profit                                     8,382        9,151         81,820        (1,500)          97,852
Selling, General and Administrative expenses         9,163        1,936         35,537        (1,500)          45,136
                                                 --------------------------------------------------------------------
    Operating Income (Loss)                           (782)       7,215         46,283          --             52,716
Interest Expense, Net                                  (54)         269          9,974          --             10,189
Equity in Earnings of Subsidiaries                    (329)        --            5,861        (5,532)            --
                                                 --------------------------------------------------------------------
    Income (Loss) Before Income Taxes               (1,057)       6,946         42,170        (5,532)          42,527
Income Tax Expense (Benefit)                          (213)         571         15,590          --             15,948
                                                  -------------------------------------------------------------------
    Net Income (Loss)                             $   (844)    $  6,375       $ 26,580      $ (5,532)        $ 26,579
                                                  ===================================================================
</Table>



                                       12
<PAGE>
CONSOLIDATING STATEMENT OF EARNINGS FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 29, 2001
(IN THOUSANDS)

<Table>
<Caption>

                                                    GUARANTOR        OTHER                                   CONSOLIDATED
                                                   SUBSIDIARIES   SUBSIDIARIES  SALTON, INC.   ELIMINATIONS     TOTALS
                                                   -----------------------------------------------------------------------
<S>                                                <C>             <C>          <C>            <C>           <C>
Net Sales                                            $ 565,517      $ 257,543    $ 235,920     $(542,141)      $ 516,839
Cost of Goods Sold                                     461,682        224,267      156,618      (539,141)        303,426
Distribution Expenses                                   29,016          2,333          427          --            31,776
                                                     -------------------------------------------------------------------
    Gross Profit                                        74,819         30,943       78,875        (3,000)        181,637
Selling, General and Administrative expenses            51,837         15,447       48,596        (3,000)        112,880
                                                     -------------------------------------------------------------------
    Operating Income                                    22,982         15,496       30,279          --            68,757
Interest Expense, Net                                    5,245            492       17,701          --            23,438
Equity in Earnings of Subsidiaries                        (274)            --       21,875       (21,601)           --
                                                     -------------------------------------------------------------------
    Income Before Income Taxes                          17,463         15,004       34,453       (21,601)         45,319
Income Tax Expense (Benefit)                             7,948          2,918        5,902          --            16,768
                                                     -------------------------------------------------------------------
    Net Income                                       $   9,515      $  12,086    $  28,551     $ (21,601)      $  28,551
                                                     ====================================================================
</Table>






CONSOLIDATING STATEMENT OF EARNINGS FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 30, 2000
(IN THOUSANDS)

<Table>
<Caption>

                                                    GUARANTOR        OTHER                                   CONSOLIDATED
                                                   SUBSIDIARIES   SUBSIDIARIES  SALTON, INC.   ELIMINATIONS     TOTALS
                                                   -----------------------------------------------------------------------
<S>                                                <C>             <C>          <C>            <C>           <C>
Net Sales                                            $ 102,244     $ 146,815     $ 353,485      $(133,101)     $ 469,443
Cost of Goods Sold                                      81,126       126,144       190,715       (130,101)       267,884
Distribution Expenses                                    7,227           190        17,021           --           24,438
                                                     -------------------------------------------------------------------
    Gross Profit                                        13,891        20,481       145,749         (3,000)       177,121
Selling, General and Administrative expenses            16,364         3,076        64,279         (3,000)        80,719
                                                     -------------------------------------------------------------------
    Operating Income (Loss)                             (2,473)       17,405        81,470           --           96,402
Interest Expense, Net                                     (609)          301        19,780           --           19,472
Equity in Earnings of Subsidiaries                        (145)         --          13,539        (13,394)          --
                                                     -------------------------------------------------------------------
    Income (Loss) Before Income Taxes                   (2,009)       17,104        75,229        (13,394)        76,930
Income Tax Expense (Benefit)                              (474)        2,175        27,149           --           28,850
                                                     -------------------------------------------------------------------
    Net Income (Loss)                                $  (1,535)    $  14,929     $  48,080      $ (13,394)     $  48,080
                                                     ===================================================================
</Table>



                                       13
<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 29, 2001
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                               GUARANTOR        OTHER                                   CONSOLIDATED
                                                              SUBSIDIARIES   SUBSIDIARIES  SALTON, INC.   ELIMINATIONS     TOTALS
                                                              ----------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>          <C>             <C>
Cash flows from operating activities:
   Net income                                                   $   9,515      $  12,086    $  28,551     $ (21,601)     $  28,551
   Adjustments to reconcile net income to net cash
   from operating activities:
      Imputed interest on notes payable                              --              648        2,258          --            2,906
      Gain on sale of investment                                     --             (200)        --            --             (200)
      Depreciation and amortization                                 2,512          2,746        9,804          --           15,062
      Equity in net income of unconsolidated affiliate/
        consolidated subsidiaries                                     274           (272)     (21,875)       21,601           (272)
      Changes in assets and liabilities:
        Accounts receivable                                      (173,705)        (8,061)     115,678          --          (66,088)
        Inventories                                               (43,512)        (3,803)         564          --          (46,751)
        Prepaid expenses and other current assets                     562         (1,108)         808          --              262
        Intercompany                                               94,063           (140)     (93,923)         --             --
        Accounts payable                                              144          7,018          992          --            8,154
        Taxes payable                                               8,371            849        8,156          --           17,376
        Accrued expenses                                           10,850            809        9,181          --           20,840
                                                                ------------------------------------------------------------------
            NET CASH FROM OPERATING ACTIVITIES                    (90,926)        10,572       60,194          --          (20,160)
                                                                ------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                                         (681)        (4,219)      (3,432)         --           (8,332)
        Increase in other non-current assets                         --              186         (988)         --             (802)
        Proceeds from sale of investment                             --              501         --            --              501
        Acquisition of business                                      --             (951)      (5,300)         --           (6,251)
        Additional payment for patents and trademarks                --             --        (18,029)         --          (18,029)
        Additions to intangibles, patents and trademarks             --             --        (19,814)         --          (19,814)
                                                                ------------------------------------------------------------------
           NET CASH FROM INVESTING ACTIVITIES                        (681)        (4,483)     (47,563)         --          (52,727)
                                                                ------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Net proceeds of revolving line of credit                   96,000           --           --            --           96,000
        Repayment of long-term debt                                (4,709)          --         (2,750)         --           (7,459)
        Costs associated with refinancing                            --             --         (1,050)         --           (1,050)
        Common stock issued                                          --             --             56          --               56
        Treasury stock purchase                                      --             --         (1,125)         --           (1,125)
                                                                ------------------------------------------------------------------
        NET CASH FROM FINANCING ACTIVITIES                         91,291           --         (4,869)         --           86,422
                                                                ------------------------------------------------------------------
The effect of exchange rate changes on cash                          --              363         --            --              363
Cash, beginning of the period                                       8,242         15,615        6,240          --           30,097
Net Change in Cash                                                   (316)         6,452        7,762          --           13,898
                                                                ------------------------------------------------------------------
Cash, end of period                                             $   7,926      $  22,067    $  14,002     $    --        $  43,995
                                                                ==================================================================
</TABLE>



                                       14
<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 30, 2000
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               GUARANTOR       OTHER                                  CONSOLIDATED
                                                              SUBSIDIARIES  SUBSIDIARIES  SALTON, INC.  ELIMINATIONS     TOTALS
                                                              --------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                            $ (1,535)     $ 14,929      $ 48,080      $(13,394)     $ 48,080
   Adjustments to reconcile net income (loss) to net cash
   from operating activities:
      Imputed interest on note payable                                 -             -         3,779             -         3,779
      Depreciation and amortization                                2,793           390         8,626             -        11,809
      Loss on disposal of equipment                                  315             -             -             -           315
      Equity in income of unconsolidated affiliate/
        consolidated subsidiaries                                    145             -       (13,539)       13,394             0
      Purchase reduction of note payable
        and other non cash items                                       -             -           105             -           105
      Changes in assets and liabilities, net of acquisitions:
        Accounts receivable                                      (21,826)      (11,028)      (40,995)            -       (73,849)
        Inventories                                               (7,028)        3,592         6,966             -         3,530
        Prepaid expenses and other current assets                   (446)       (1,568)        1,388             -          (626)
        Intercompany                                             (57,571)        1,848        55,723             -             -
        Accounts payable                                          (1,870)        4,347        (8,771)            -        (6,294)
        Taxes payable                                               (456)       (5,848)       (4,439)            -       (10,743)
        Accrued expenses                                           2,388          (403)       (1,235)                        750
                                                              ------------------------------------------------------------------
            NET CASH FROM OPERATING ACTIVITIES                   (85,091)        6,259        55,688             -       (23,144)
                                                              ------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures                                        (528)         (514)       (3,432)            -        (4,474)
        Increase in other non-current assets                           -             -        (8,902)            -        (8,902)
        Acquisition of businesses, net of cash acquired                -             -        (2,820)            -        (2,820)
        Additions to intangibles, patents and trademarks               -             -        (6,625)            -        (6,625)
                                                              ------------------------------------------------------------------
            NET CASH FROM INVESTING ACTIVITIES                      (528)         (514)      (21,779)            -       (22,821)
                                                              ------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Net proceeds from revolving line of credit                55,957             -             -             -        55,957
        Repayment of long-term debt                              (44,250)            -       (20,000)            -       (64,250)
        Proceeds from long-term debt                              75,000             -             -             -        75,000
        Costs associated with refinancing                              -             -        (2,847)            -        (2,847)
        Common stock issued                                            -             -           131                         131
        Treasury stock purchase                                        -             -        (5,351)            -        (5,351)
                                                              ------------------------------------------------------------------
            NET CASH FROM FINANCING ACTIVITIES                    86,707             -       (28,067)            -        58,640
                                                              ------------------------------------------------------------------

The effect of exchange rate changes on cash                            -           (14)            -             -           (14)
Cash, beginning of the period                                        125           951         6,530             -         7,606
Net Change in Cash                                                 1,088         5,731         5,842             -        12,661
                                                              ------------------------------------------------------------------
Cash, end of period                                             $  1,213      $  6,682      $ 12,372      $      -      $ 20,267
                                                              ==================================================================
</TABLE>



                                       15
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

         We are a leading domestic designer, marketer and distributor of a broad
range of branded, high quality small appliances under well-recognized brand
names such as Salton(R), George Foreman(TM), Toastmaster(R), Breadman(R),
Juiceman(R), Juicelady(R), White-Westinghouse(R), Farberware(R), Melitta(R),
Welbilt(R), Aircore(R), Russell Hobbs(R), Tower(R), Haden(R) and Pifco(R). We
believe that we have the leading domestic market share in indoor grills,
toasters, juice extractors, breadmakers, waffle makers and buffet
ranges/hotplates and a significant market share in other product categories. We
outsource most of our production to independent manufacturers, primarily in the
Far East. We also design and market tabletop products, time products, lighting
products and personal care and wellness products under brand names such as Block
China(R), Atlantis(R) Crystal, Sasaki(R), Calvin Klein(R), Timex(R),
Ingraham(R), Westclox(R), Big Ben(R), Spartus(R), Stiffel(R), Ultrasonex(TM),
Relaxor(R), Carmen(R), Hi-Tech(R), Mountain Breeze(R) and Salton(R).

         We predominantly sell our products to mass merchandisers, department
stores, specialty stores and mail order catalogs. We also sell certain of our
products directly to consumers through infomercials and our Internet websites.
We market and sell our products primarily through our own sales force and a
network of independent commissioned sales representatives.

         The general slowdown in the retail sector which began during our second
fiscal quarter of 2001 has continued to have an adverse effect on our sales.
During our fourth fiscal quarter of 2001 we experienced a shift in our
customers' buying patterns from higher-priced products to lower price point
products. This continued into the second quarter of fiscal 2002 and we expect
this shift to continue into the second half of fiscal 2002. Our wide range of
products at different price points has allowed us to adapt to this shift in
buying patterns. This shift to lower priced products also lowered gross margins
as opening and mid-price point products generally have lower gross margins than
our higher price point products. Gross margins were also reduced by the
inclusion of recently acquired Salton Europe brands. Our products, and our
market leading position in so many categories, gives us a solid foundation to
actively face the difficult economic environment.

         As a result of current economic conditions and the uncertainty of the
retail markets, we anticipate revenue for the second half of fiscal 2002 to be
between $350 million to $375 million. We anticipate EPS for the second half to
range between $0.40 per diluted share to $0.70 per diluted share. Similar to the
first half of this fiscal year, we intend to be aggressive and promotional, from
a marketing standpoint, during the second half.

         On June 4, 2001, we acquired Pifco Holdings PLC, a United Kingdom based
producer and marketer of a broad range of branded kitchen and small appliances,
personal care and wellness products, cookware and battery operated products.

THIRTEEN WEEKS ENDED DECEMBER 29, 2001 COMPARED WITH THIRTEEN WEEKS ENDED
DECEMBER 30, 2000.

         Net Sales. Net sales in the quarter ended December 29, 2001 ("second
quarter of fiscal 2002") were $318.5 million, an increase of approximately $56.3
million or 21.5%, compared to net sales of $262.2 million in the quarter ended
December 30, 2000 ("second quarter of fiscal 2001"). Sales increases from the
George Foreman(TM), Toastmaster(R), Melitta(R) and newly acquired Russell
Hobbs(R), Haden(R), Aircore(R), Westclox(R), and Stiffel(R) brands more than
offset decreased sales of White-Westinghouse(R), Juiceman(R), and Relaxor(R)
product lines. Sales of White-Westinghouse(R) products to Kmart and Zellers
approximated 2% of net sales in the second quarter of fiscal 2002 compared to 5%
of net sales in the second quarter of fiscal 2001.


                                       16
<PAGE>
         Gross Profit. Gross profit in the second quarter of fiscal 2002 was
$113.8 million or 35.7% of net sales as compared to $97.9 million or 37.3% of
net sales in the same period in fiscal 2001. Cost of goods sold during the
second quarter of fiscal 2002 increased to 58.5% of net sales compared to 57.2%
in the same period in fiscal 2001. Distribution expenses were $18.4 million or
5.8% of net sales in the second quarter of fiscal 2002 compared to $14.4 million
or 5.5% of net sales in the same period in fiscal 2001. Gross profit in the
second quarter of fiscal 2002, as a percentage of net sales, decreased due to a
change in product mix to lower price point items and the inclusion of recently
acquired Salton Europe brands.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 21.4% of net sales or $68.3 million in the
second quarter of fiscal 2002 compared to 17.2% of net sales or $45.1 million
for the same period in fiscal 2001. Expenditures for television, royalty
expenses, certain other media and cooperative advertising and trade show
expenses were 11.6% of net sales or $37.0 million in the second quarter of
fiscal 2002 when compared to 9.0% of net sales or $23.5 million in the same
period in fiscal 2001. The increase in these expenses from the prior year is
primarily related to increased cooperative advertising to support the marketing
of our products as well as, increased television advertising. The remaining
selling, general and administrative costs increased to 9.8% of net sales or
$31.3 million in the second quarter of fiscal 2002 compared to 8.2% of net sales
or $21.6 million in the second quarter of fiscal 2001. The increase in these
expenses is from amortization expense related to the acquisition of various
intangibles and trade names during the past year, expenses of the newly acquired
Salton Europe and additional administrative expenses required to support the
activities of the Company.

         Operating Income. As a result of the foregoing, operating income
decreased by $7.2 million or 13.7%, to $45.5 million in the second quarter of
fiscal 2002 from $52.7 million in the same period in fiscal 2001. Operating
income as a percentage of net sales decreased to 14.3% in the second quarter of
fiscal 2002 from 20.1% in the same period of fiscal 2001.

         Net Interest Expense. Net interest expense was approximately $11.8
million for the second quarter of fiscal 2002 compared to $10.2 million in the
second quarter of fiscal 2001. In the second quarter of fiscal 2002, interest
expense includes imputed interest of approximately $.8 million related to the
note payable associated with the George Foreman name acquisition and $.7 million
related to the loan notes issued to Pifco shareholders. In the second quarter of
fiscal 2001, interest expense includes imputed interest of approximately $.9
million related to the note payable associated with the George Foreman name
acquisition. Our rate of interest on amounts outstanding under the revolver,
term loan and senior subordinated debt was a weighted average annual rate of
7.9% in the second quarter of fiscal 2002 compared to 9.7% in the same period in
fiscal 2001. The decrease in our weighted average annual interest rate is
primarily due to lower interest rates and a higher proportion of variable rate
debt. The average amount of all debt outstanding was $545.1 million for the
second quarter of fiscal 2002 compared to $382.4 million for the same period in
fiscal 2001. This increase was used to finance the working capital needed to
support the growth of the business, as well as pay for acquisitions including
Salton Europe (formerly Pifco Holdings, PLC).

         Income Tax Expense. Tax expense was $12.4 million in the second quarter
of fiscal 2002 as compared to tax expense of $15.9 million in the same period in
fiscal 2001.

         Net income. Net income decreased 20.3% to $21.2 million in the second
quarter of fiscal 2002, compared to $26.6 million in the second quarter of
fiscal 2001.

         Earnings per Share. Basic earnings per common share were $1.93 per
share on weighted average common shares outstanding of 10,983,074 in the second
quarter of fiscal 2002 compared to earnings of $2.19 per share on weighted
average common shares outstanding of 12,116,774 in the same period in fiscal
2001. Diluted earnings per common share were $1.42 per share on weighted average
common shares outstanding, including dilutive common stock equivalents, of
14,910,745 in the second quarter of fiscal 2002 compared to earnings of $1.60
per share on weighted average common shares outstanding, including dilutive
common stock equivalents, of 16,656,653 in the same period in fiscal 2001.


                                       17
<PAGE>

TWENTY-SIX WEEKS ENDED DECEMBER 29, 2001 COMPARED WITH TWENTY-SIX WEEKS ENDED
DECEMBER 30, 2000.

         Net Sales. Net sales in the twenty-six weeks ended December 29, 2001
("first half of fiscal 2002") were $516.8 million, an increase of approximately
$47.4 million or 10.1%, compared to net sales of $469.4 million in the
twenty-six weeks ended December 30, 2000 ("first half of fiscal 2001"). Sales
increases from the newly acquired Russell Hobbs(R), Haden(R), Aircore(R),
Stiffel(R), Westclox(R), and Pifco(R) as well as increases in George
Foreman(TM), Melitta(R) and Toastmaster(R) brands more than offset decreased
sales of White-Westinghouse(R) and Juiceman(R) product lines. Sales of
White-Westinghouse(R) products to Kmart and Zellers approximated 2% of net sales
in the first half of fiscal 2002 compared to 6% of net sales in the first half
of fiscal 2001.

         Gross Profit. Gross profit in the first half of fiscal 2002 was $181.6
million or 35.1% of net sales as compared to $177.1 million or 37.7% in the same
period in fiscal 2001. Cost of goods sold during the first half of fiscal 2002
increased to 58.7% of net sales compared to 57.1% in the same period in fiscal
2001. Distribution expenses were $31.8 million or 6.2% of net sales in the first
half of fiscal 2002 compared to $24.4 million or 5.2% of net sales in the same
period in fiscal 2001. Gross profit in the first half of fiscal 2002 as a
percentage of net sales decreased primarily due to a change in product mix to
lower price point items and the inclusion of recently acquired Salton Europe
brands. In addition, the Company incurred higher distribution costs when
compared to the same period in fiscal 2001 due to increased costs associated
with additional warehouse facilities.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 21.8% of net sales or $112.9 million in the
first half of fiscal 2002 compared to 17.2% of net sales or $80.7 million for
the same period in fiscal 2001. Expenditures for television, royalty expenses,
certain other media and cooperative advertising and trade show expenses were
11.3% of net sales or $58.5 million in the first half of fiscal 2002 when
compared to 9.2% of net sales or $43.2 million in the same period in fiscal
2001. The increase in these expenses from the prior year is primarily related to
increased cooperative advertising to support the marketing of our products as
well as, increased television advertising. The remaining selling, general and
administrative costs increased to 10.5% of net sales or $54.4 million in the
first half of fiscal 2002 compared to 8.0% of net sales or $37.5 million in the
first half of fiscal 2001. The increase in these expenses is from amortization
expense related to the acquisition of various intangibles and trade names during
the past year, expenses of the newly acquired Salton Europe and additional
administrative expenses required to support the activities of the Company.

         Operating Income. As a result of the foregoing, operating income
decreased by $27.6 million or 28.6%, to $68.8 million in the first half of
fiscal 2002 from $96.4 million in the same period in fiscal 2001. Operating
income as a percentage of net sales decreased to 13.3% in the first half of
fiscal 2002 from 20.5% in the same period of fiscal 2001.

         Net Interest Expense. Net interest expense was approximately $23.4
million for the first half of fiscal 2002 compared to $19.5 million in the first
half of fiscal 2001. In the first half of fiscal 2002, interest expense includes
imputed interest of approximately $1.7 million related to the note payable
associated with the George Foreman name acquisition and $1.2 million related to
the loan notes issued to Pifco shareholders. In the first half of fiscal 2001,
interest expense includes imputed interest of approximately $3.4 million related
to the note payable associated with the George Foreman name acquisition. Our
rate of interest on amounts outstanding under the revolver, term loan and senior
subordinated debt was a weighted average annual rate of 8.5% in the first half
of fiscal 2002 compared to 9.9% in fiscal 2001. The decrease in our weighted
average annual interest rate is primarily due to lower interest rates and a
higher proportion of variable rate debt. The average amount of all debt
outstanding was $521.7 million for the first half of fiscal 2002 compared to
$361.9 million for the same period in fiscal 2001. This increase was used to
finance the working capital needed to support the growth of the business, as
well as pay for acquisitions including Salton Europe (formerly Pifco Holdings,
PLC).


                                       18
<PAGE>

         Income Tax Expense. Tax expense was $16.8 million in the first half of
fiscal 2002 as compared to tax expense of $28.9 million in fiscal 2001.

         Net income. Net income decreased 40.5% to $28.6 million in the first
half of fiscal 2002, compared to $48.1 million in the first half of fiscal 2001.

         Earnings per Share. Basic earnings per common share were $2.59 per
share on weighted average common shares outstanding of 11,021,401 in the first
half of fiscal 2002 compared to earnings of $4.06 per share on weighted average
common shares outstanding of 11,856,249 in the same period in fiscal 2001.
Diluted earnings per common share were $1.91 per share on weighted average
common shares outstanding, including dilutive common stock equivalents, of
14,985,409 in the first half of fiscal 2002 compared to earnings of $2.95 per
share on weighted average common shares outstanding, including dilutive common
stock equivalents, of 16,289,880 in the same period in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

         During the first half of fiscal 2002, we used net cash of $20.2 million
in operating activities and $52.7 million in investing activities. The cash used
in operating activities was primarily related to seasonal increases in accounts
receivables and inventories. The cash used in investing activities was primarily
related to the payment to George Foreman in connection with the guarantee
obligation related to stock issued in lieu of the third payment under the note
payable due to him; the purchase of the Westclox, Big Ben and Spartus brands;
the purchase of manufacturing, distribution and intellectual property rights of
certain food grilling products; and additional payments to shareholders and
expenses related to the Pifco acquisition. The above was financed primarily by
increases under the revolving line of credit and a portion of the proceeds from
the $150 million 12 1/4% senior subordinated notes due 2008. In October 2001, we
amended the Third Amended and Restated Credit Agreement ("Credit Agreement") to
revise certain financial covenants.

         At December 29, 2001, we had debt outstanding of $176.9 million under
the Credit Agreement and had the ability to borrow up to an additional $43.2
million under the revolving credit facility. Typically, given the seasonal
nature of our business, borrowings tend to be the highest in mid-fall and early
winter. We also had $125 million of 10 3/4% senior subordinated notes due 2005
and $153.2 million of 12 1/4% senior subordinated notes due 2008.

         On July 2, 2001, we took back 456,175 of the 546,075 shares issued to
George Foreman on September 7, 2000 and paid him $18 million. This payment,
which represented $20.0 million less the proceeds George Foreman received from
the sale of shares on the open market previously issued to him, terminated the
guarantee obligation with respect to the shares issued to him and satisfied the
third annual installment due under the note payable to George Foreman. As a
result of this transaction, we now have only two installments remaining under
the note as well as the outstanding guarantee obligation to the other venture
participants.

         Our principal uses of liquidity are to satisfy debt service
requirements, pay royalties and other fees under our license and other
agreements, finance capital expenditures and possible acquisitions and fund
working capital. We expect that ongoing requirements for debt service, royalty
payments, capital expenditures, potential acquisitions and working capital will
be funded by internally generated cash flow from product sales and borrowings
under the Credit Agreement. Future product sales are dependent upon such factors
as economic conditions and the overall retail environment; the timely
development, introduction and customer acceptance of our products; and
competitive products and pricing among, other factors (see Forward Looking
Statements for a complete listing of such factors). Adverse changes in such
factors could impact future cash flows from our product sales, thereby limiting
internally generated cash flows and requiring a review for possible impairment
of assets recorded in connection with our products. We anticipate capital
expenditures of approximately $16 million and $18 million for fiscal years 2002
and 2003, respectively. We have incurred approximately $8.3 million for capital
expenditures during the first half of fiscal 2002.

         The Credit Agreement and the indentures governing our senior
subordinated notes contain 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 that will
otherwise restrict corporate and business activities. These agreements do allow,
under certain circumstances, for the Company to repurchase or redeem capital
stock and/or pay dividends up to $50.0 million and make acquisitions for up to


                                       19
<PAGE>
$40.0 million in cash. In addition, under the Credit Agreement, we are required
to comply with specified financial ratios and tests, including a minimum net
worth test, a fixed charge coverage ratio, an interest coverage ratio and a
leverage ratio.

         Our ability to make scheduled principal and interest payments on, or to
refinance, our indebtedness, or to fund planned capital expenditures will depend
upon our future performance, which is subject to general economic, financial,
competitive and other factors that are beyond our control. Our ability to fund
operating activities is also dependent upon our rate of growth, ability to
effectively manage our inventory, the terms under which we extend credit to
customers and our ability to collect under such terms and our ability to access
external sources of financing. Based upon the current level of operations and
anticipated growth, management believes that future cash flow from operations,
together with available borrowings under the Credit Agreement, other sources of
debt fundings and issuance of additional equity securities, will be adequate to
meet our anticipated requirements for capital expenditures, potential
acquisitions, royalty payments, working capital, interest payments and scheduled
principal payments over the next 12 months. There can be no assurance, however,
that our business will continue to generate sufficient cash flow from operations
in the future to service our debt and make necessary capital expenditures after
satisfying certain liabilities arising in the ordinary course of business. If
unable to do so, we may be required to refinance all or a portion of its
existing debt, to sell assets or to obtain additional financing. There can be no
assurance that any such refinancing would be available or that any such sale of
assets or additional financing could be obtained.

SEASONALITY

         Our business is highly seasonal, with operating results varying from
quarter to quarter. We have historically experienced higher sales during the
months of August through November primarily due to increased demand by customers
for our products attributable to holiday sales. This seasonality has also
resulted in additional interest expense during this period due to an increased
need to borrow funds to maintain sufficient working capital to finance product
purchases and customer receivables for the seasonal period.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". The guidance in SFAS No. 141 supersedes Accounting Principles Board
Opinion No. 16, "Business Combinations," and is applicable to business
combinations initiated after June 30, 2001. Upon adoption of SFAS No. 142,
goodwill will cease to be amortized and will instead be subject to periodic
impairment reviews as set forth in the new standard. We are currently evaluating
the Statement's impairment provisions and have not yet determined what effect,
if any, they might have on our consolidated financial position and results of
operations.

         We have approximately $52.6 million in goodwill recorded in our
consolidated balance sheet as of December 29, 2001. Under the provisions of SFAS
No. 142, goodwill will cease to be amortized for fiscal years beginning after
December 15, 2001 (fiscal year 2003 for us). We recorded $1.5 million in
amortization expense related to goodwill in the first half of fiscal 2002. We
will also assess the useful lives of our patents, trademarks and other
intangible assets for indefinite economic useful lives, which will also cease to
be amortized under SFAS No. 142. We have $24.4 million of other intangibles and
$133.8 million of patents and trademarks as of December 29, 2001, net of
accumulated amortization. We recorded $.7 million and $5.1 million of related
amortization expense in the first half of fiscal 2002 for other intangibles and
patents and trademarks, respectively. We intend to adopt SFAS No. 142 for the
2003 fiscal year.

FORWARD LOOKING STATEMENTS

         Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements, or industry results, to be materially
different from any future results,


                                       20
<PAGE>

performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: our degree of
leverage; economic conditions and retail environment; the timely development,
introduction and customer acceptance of our products; competitive products and
pricing; dependence on foreign suppliers and supply and manufacturing
constraints; our relationship and contractual arrangements with key customers,
suppliers and licensors; cancellation or reduction of orders; the availability
and success of future acquisitions; international business activities; the risks
relating to pending legal proceedings; the risks related to intellectual
property rights; the risks relating to regulatory matters and other factors both
referenced and not referenced in our filings with the Securities and Exchange
Commission. When used in this Quarterly Report on Form 10-Q, the words
"estimate," "project," "anticipated," "expect," "intend," "believe," and similar
expressions are intended to identify forward-looking statements.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE

         The results of operations for the periods discussed have not been
significantly 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.




                                       21
<PAGE>

                           PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

         In September, 1999, Linda Evans Fitness Centers, Inc. (the "Fitness
Centers"), Mark Golub and Thomas Gergley filed suit against us and our principal
executive officers alleging that we tortiously interfered with a contract
between the Fitness Centers and Ms. Evans by hiring Ms. Evans to act as a
spokesperson for the Rejuvenique(TM) facial toning system. Before Ms. Evans was
hired by us, Ms. Evans had brought suit against the Fitness Centers seeking a
determination that her contract with the Fitness Centers had been terminated on
the basis of fraud and the failure of the Fitness Centers to make certain
payments. We settled this suit during the quarter ended December 29, 2001
without any payment to the plaintiffs.

         On January 23, 2001, we filed a lawsuit against Applica, Inc. (formerly
known as Windmere-Durable Holdings, Inc.) and its affiliate in the United States
District Court for the Northern District of Illinois. The lawsuit alleges that
Applica intentionally, willfully and maliciously breached its noncompetition
agreement with us, attempted to conceal such breach, tortuously interfered with
our business and contractual relationships and breached its duty of good faith
and fair dealing. The lawsuit seeks compensatory damages, punitive damages and
attorneys' fees and costs. As a result of Applica's actions, we have terminated
an agreement which requires us to pay Applica a fee based upon our net sales
less specified costs and expenses relating to our supply agreement with K-Mart.
The terms of the agreement between us and Applica expressly provide for such
termination upon a violation by Applica of its noncompetition provisions. In
March 2001, Applica filed an answer with the court.

         On July 2, 2001, we were served with a complaint for patent
infringement alleged by AdVantage Partners LLC in the United States District
Court for the Central District of California. In this complaint, AdVantage
alleged that we and retailers that sell our "George Foreman Jr." rotisserie
grills were infringing two of AdVantage's patents. AdVantage sought a permanent
injunction against sale of George Foreman rotisserie grills utilizing the
inventions claimed by those patents and unspecified monetary damages including a
request for treble damages. These patents relate to accessory products for
rotisserie ovens including spit rod and basket assemblies. We filed an answer
and counterclaim denying the allegations of the complaint and asserting a number
of affirmative defenses and request for declaratory relief. AdVantage had also
sought preliminary injunctive relief; however, on August 24, 2001, the court
denied AdVantage's motion. On August 28, 2001, AdVantage filed a notice of
appeal to the U.S. Court of Appeals for the Federal Circuit to review the
preliminary injunction.

         On August 9, 2001, AdVantage Partners LLC filed a second complaint
against us for patent infringement in the United States District Court for the
Central District of California. In this complaint, AdVantage alleges that we
have infringed a patent assigned to AdVantage, and seeks a permanent injunction
against our sale of the "Baby George Foreman" rotisserie grill, which
purportedly utilizes an invention claimed by that patent, and unspecified
monetary damages including a request for treble damages. The patent relates to a
gear driven spit assembly for rotisserie ovens. We filed an answer and
counterclaim denying the allegations of the complaint and asserting a number of
affirmative defenses and request for declaratory relief.


ENVIRONMENTAL

         We are participating in environmental remediation activities at four
sites which we own or operate. As of December 29, 2001, we have accrued
approximately $150,000 for the anticipated costs of investigation, remediation
and/or operation and maintenance costs at these sites. Although such costs could
exceed that amount, we believe that any such excess will not have a material
adverse effect on our financial condition or annual results of operations.


                                       22
<PAGE>

OTHER

         We are a party to various other actions and proceedings incident to our
normal business operations. We believe that the outcome of such litigation will
not have a material adverse effect on our financial condition or annual results
of operations. We also have product liability and general liability insurance
policies in amounts we believe are reasonable given our current level of
business.

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

         None

(b) Reports on Form 8-K

         A current report on Form 8-K was filed on November 8, 2001 reporting,
under Item 5 Other Events, the Company's announcement of its fiscal 2002 first
quarter earnings results.






                                       23
<PAGE>

                                   SIGNATURES

         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:  February 12, 2002           SALTON, INC.

                                   /s/ JOHN E. THOMPSON
                                   John E. Thompson
                                   Chief Financial Officer and
                                   Senior Vice-President
                                   (Duly Authorized Officer of the Registrant)





                                       24
<PAGE>

                                  EXHIBIT INDEX


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

     12                    Computation of Ratio of Earnings to Fixed Charges





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