<PAGE>   1
                                                            


                       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 26, 1998 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)

    550 BUSINESS CENTER DRIVE
    MOUNT PROSPECT, ILLINOIS                                      60056
 (Address of principal executive                               (Zip Code)
            offices)

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

                          SALTON/MAXIM HOUSEWARES INC.

 Former name, former address and former fiscal year, if changed since last year

Indicate by check mark whether this 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 4, 1999
6,601,752 shares of its $.01 par value Common Stock.


<PAGE>   2



                                  SALTON, INC.
                                    FORM 10-Q
                         QUARTER ENDED DECEMBER 26, 1998

                                      INDEX


<TABLE>
<CAPTION>

                                                                                       PAGE NO.
                                                                                       --------

PART I                     FINANCIAL INFORMATION

<S>         <C>            <C>                                                           <C> 
            Item 1:        Consolidated Financial Statements

                           Consolidated Balance Sheets-December 26, 1998
                           (Unaudited) and June 27, 1998                                  3

                           Consolidated Statements of Earnings (Unaudited)
                           Thirteen weeks ended
                           December 26, 1998 and
                           December 27, 1997
                           And Twenty-six weeks ended
                           December 26, 1998 and
                           December 27, 1997                                              4

                           Consolidated Statements of Cash Flows (Unaudited)
                           Twenty-six weeks ended
                           December 26, 1998 and
                           December 27, 1997                                              5

                           Notes to Consolidated Financial
                           Statements (Unaudited)                                         6

            Item 2:        Management's Discussion and
                           Analysis of Financial Condition
                           and Results of Operations                                     10

PART II                    OTHER INFORMATION

            Item 1:        Legal Proceedings                                             15

            Item 6:        Exhibits and Reports on Form 8-K                              15

Signature                                                                                17

</TABLE>


                                      -2-
<PAGE>   3



                                  SALTON, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                             (UNAUDITED)
                                                            DECEMBER 26,        JUNE 27,
ASSETS                                                          1998              1998
                                                                ----              ----

CURRENT ASSETS:
<S>                                                         <C>               <C>     
   Cash                                                     $  11,856         $    661
   Accounts receivable, net of allowances                      82,813           43,225
   Inventories                                                 81,254           76,505
   Prepaid expenses and other current assets                    3,433            2,941
   Deferred tax assets                                          4,713            4,605
                                                            ---------         --------
      TOTAL CURRENT ASSETS                                    184,069          127,937
PROPERTY, PLANT AND EQUIPMENT:
   Molds and tooling                                           17,369           16,787
   Warehouse equipment                                            522              453
   Office furniture and equipment                               5,642            5,341
                                                            ---------         --------
                                                               23,533           22,581
   Less accumulated depreciation                              (16,093)         (14,266)
                                                            ---------         --------
                                                                7,440            8,315
INTANGIBLES, NET OF ACCUMULATED AMORTIZATION                   12,626            5,145
                                                            ---------         --------
   TOTAL ASSETS                                              $204,135         $141,397
                                                            =========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                         $  18,316         $ 18,960
   Accrued expenses                                             7,882            7,235
   Income taxes payable                                         6,003            6,499
   Revolving line of credit                                                     50,475 
                                                            ---------         --------
      TOTAL CURRENT LIABILITIES                                32,201           83,169

NON-CURRENT DEFERRED TAX LIABILITY                                467              517
SENIOR SUBORDINATED DEBT                                      125,000
JUNIOR SUBORDINATED NOTE PAYABLE                                9,169                 
                                                            ---------         --------

      TOTAL LIABILITIES                                       166,837           83,686

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value; authorized, 
   2,000,000 shares; 40,000 shares issued 
   Common stock, $.01 par value; authorized, 
   20,000,000 shares; issued and outstanding,
   1999-6,575,997 shares, 1998-13,099,644 shares                  131              131
   Treasury Stock - at cost                                   (90,804)
   Additional paid-in capital                                  90,522           53,481
   Less Note Receivable - Windmere                                             (10,848)
   Retained Earnings                                           37,449           14,947
                                                            ---------         --------
      TOTAL STOCKHOLDERS' EQUITY                               37,298           57,711
                                                            ---------         --------
      TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY            $ 204,135         $141,397
                                                            =========         ========

</TABLE>

See Notes to Consolidated Financial Statements.


                                      -3-
<PAGE>   4



                                  SALTON, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)
             (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)


<TABLE>
<CAPTION>


                                                      13 WEEKS ENDED                 26 WEEKS ENDED
                                                      --------------                 --------------
                                               12/26/98           12/27/97      12/26/98        12/27/97
                                               --------           --------      --------        --------
<S>                                            <C>               <C>             <C>              <C>     
NET SALES                                      $142,684          $102,153        $247,072         $167,926
Cost of goods sold                               84,338            63,610         139,342          102,307
Distribution expenses                             4,956             3,514           8,565            5,793
                                               --------          --------        --------         --------

GROSS PROFIT                                     53,390            35,029          99,165           59,826

Selling, general and
  administrative expenses                        31,969            24,567          59,749           41,544
                                               --------          --------        --------         --------

OPERATING INCOME                                 21,421            10,462          39,416           18,282

Interest expense                                  2,411             1,699           4,810            2,962
                                               --------          --------        --------         --------

INCOME BEFORE INCOME TAXES                       19,010             8,763          34,606           15,320

Income taxes                                      7,328             3,315          12,105            5,748
                                               --------          --------        --------         --------

NET INCOME                                     $ 11,682          $  5,448        $ 22,501         $  9,572
                                               ========          ========        ========         ========



WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                         6,570,098        13,475,146       7,682,056       13,075,682


WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING              9,356,695        13,533,520      10,041,113       13,475,146


NET INCOME PER COMMON SHARE : BASIC            $   1.78          $   0.40         $  2.93          $  0.73


NET INCOME PER COMMON SHARE : DILUTED          $   1.25          $   0.40         $  2.24          $  0.71

</TABLE>




                See Notes to Consolidated Financial Statements.


                                      -4-
<PAGE>   5


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

<TABLE>
<CAPTION>

                                                                    26 WEEKS ENDED
                                                                    --------------
                                                              12/26/98          12/27/97
                                                              --------          --------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>             <C>      
   Net income:                                                  $ 22,501        $   9,572
   Adjustments to reconcile net income
      to net cash used in operating activities:
           Changes in deferred taxes                                (158)             481
           Depreciation and amortization                           2,309            1,886
           Purchase reduction of note payable
               and other noncash items                                12
      Changes in assets and liabilities:
           Accounts receivable                                   (39,588)         (32,313)
           Inventories                                            (4,749)          (6,120)
           Federal income tax refundable                                            1,105
           Prepaid expenses and other current assets                (493)            (170)
           Accounts payable                                         (644)           7,589
           Taxes payable                                            (496)
           Accrued expenses                                          647            3,658
                                                               ---------         --------
               NET CASH USED IN OPERATING ACTIVITIES             (20,659)         (14,312)
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                             (970)          (3,380)
                                                               ---------         --------
               NET CASH USED IN INVESTING ACTIVITIES                (970)          (3,380)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt                                   90,000
   Preferred stock issuance                                       40,000
   (Repayment)proceeds from revolving line of credit             (50,475)          19,246
   Purchase of treasury stock                                    (70,799)
   Costs associated with preferred stock issuance                 (2,999)
   Proceeds from subordinated notes                              125,000
   Repayment of long-term debt                                   (90,000)
   Costs associated with refinancing                              (7,943)
   Common stock issuance                                              40              142
   Repayment of subordinated debt and due to Windmere                              (3,796)
                                                               ---------         --------  
               NET CASH PROVIDED BY FINANCING ACTIVITIES          32,824           15,592
                                                               ---------         --------
NET INCREASE (DECREASE) IN CASH                                $  11,195         $ (2,100)
Cash, beginning of period                                            661            2,613
                                                               ---------         --------
Cash, end of period                                            $  11,856         $    513
                                                               =========         ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
   Interest                                                    $   4,182        $   3,058
   Income taxes                                                $  12,601        $   1,473

</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   In the quarter ended September 26,1998, the Company repurchased 6,535,072
shares of the Company's common stock from Windmere-Durable Holdings
Inc.("Windmere") for a total purchase price of $90,804,024. The purchase price
included the issuance of a six and one-half year $15,000,000 subordinated
promissory note which bears interest at 4% per annum recorded at its fair value
of $9,095,715 and the effective repayment of Windmere's promissory note to
Salton for the principal amount of $10,847,620.

See Notes to Consolidated Financial Statements.


                                      -5-
<PAGE>   6


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

1.       CONSOLIDATED FINANCIAL STATEMENTS.

         The consolidated financial statements have been prepared from the
Company'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.
1998 Annual Report to Shareholders and the 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.       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.

3.       EFFECT OF NEW ACCOUNTING STANDARDS AND STATEMENTS

         During the first quarter of fiscal 1999 the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This statement requires that the Company report the change in its net
assets during the period from non-owner sources. For the 13 weeks ended and the
26 weeks ended December 26, 1998 and December 27, 1997 components of other
comprehensive income(loss) include holding gains(losses) arising from available
for sale securities, net of tax.


                                     13 WEEKS ENDED       26 WEEKS ENDED
                                     --------------       --------------
         (DOLLARS IN THOUSANDS)    12/26/98  12/27/97  12/26/98  12/27/97
                                   --------  --------  --------  --------

         Net income                $ 11,682  $ 5,448   $ 22,501  $  9,572

         Other comprehensive
         income(loss)                         (2,126)                 847
                                   --------  -------   --------  --------

                                   $ 11,682  $ 3,322   $ 22,501  $ 10,419
                                   ========  =======   ========  ========

         In June 1997, the Financial Accounting Standards Boards issued
Statement of Financial Accounting Standards No. 131 (SFAS 131).  "Disclosures
about Segments of an Enterprise and Related Information."  This statement is
effective for fiscal years beginning after December 15, 1997, but does not need
to be applied to interim financial information in the initial year of its
application.  This statement requires public business enterprises to report
certain information about operating segments, their products and services, the
geographic areas in which they operate, and their major customers.  The Company
has not completed their assessment of the effect that this new standard will
have on its consolidated financial statements and/or disclosures.

         In February 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, No. 132 (SFAS 132), "Employer's
Disclosures about Pensions and other Post-Retirement Benefits." This statement
is effective for fiscal years beginning after December 15, 1997 and will change
disclosure requirements for Pensions and other Post-Retirement Benefits. The
Company will be required to comply with the provisions of this statement in
fiscal 1999. The effect of this new statement will be limited to the form and
content of disclosures.


                                      -6-
<PAGE>   7

          In June 1998, the Financial Accounting Standards Board issued
 Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
 Derivative Instruments and Hedging Activities." This statement is effective for
 fiscal years beginning after 6/15/99 and will change disclosure requirements
 for Derivative Instruments and Hedging Activities. The Company will be required
 to comply with the provisions of this statement in fiscal 2000. The Company has
 not assessed the effect that this new standard will have on its consolidated
 financial statements and/or disclosures.

4.       EVENTS OF THE TWENTY-SIX WEEKS ENDED DECEMBER 26, 1998.

         On July 28, 1998, Salton repurchased (the "Stock Repurchase") 6,535,072
shares of Salton common stock owned by Windmere-Durable Holdings, Inc.
("Windmere") pursuant to a Stock Agreement dated as of May 6, 1998 (the
"Windmere Stock Agreement") by and among Salton, Windmere and the executive
officers of Salton. Prior to the Stock Repurchase, Windmere owned approximately
50% of Salton's outstanding common stock. The price for the Stock Repurchase was
$12 per share in cash plus a $15.0 million subordinated promissory note (the
"Junior Subordinated Note"). The Junior Subordinated Note, which has a term of
six and one-half years and bears interest at 4.0% per annum payable annually, is
subject to offsets of 5% of the total purchase price paid by Salton for product
purchases from Windmere and its affiliates during the term of the note. During
the first half of fiscal 1999 the Company reduced this debt and interest by
approximately $659,000 for related purchases of products from Windmere. The
principal amount of the Junior Subordinated Note is also subject to cancellation
in the event Salton's supply agreement with Kmart is terminated for any reason.

         In connection with the Stock Repurchase: (i) Windmere effectively
repaid (the "Note Repayment") in full its promissory note (the "Windmere Note")
in the principal amount of approximately $10.8 million, that was issued to
Salton in July, 1996; (ii) Salton repurchased for approximately $3.3 million
Windmere's option (the "Option Repurchase") to purchase up to 458,500 shares of
Salton that was granted to Windmere in July, 1996; and (iii) Windmere and Salton
agreed to continue various commercial and other arrangements, including a fee
agreement relating to Salton's supply agreement with Kmart, subject to certain
modifications. The Stock Repurchase, the Option Repurchase and the Note
Repayment are collectively referred to herein as the "Repurchase."

         Salton entered into a credit agreement dated as of July 27, 1998 (the
"New Credit Agreement") among Salton, Lehman Brothers Inc., as arranger, and
Lehman Commercial Paper Inc., as syndication agent. The New Credit Agreement
provided for $215.0 million in senior secured credit facilities consisting of a
$90.0 million Tranche A Term Loan (the "Tranche A Term Loan"), a $75.0 million
Delayed Draw Term Loan (the "Delayed Draw Term Loan") and a $50.0 million
revolving credit facility (the "Revolving Credit Facility"). As further
explained in Note 5 "Subsequent Events" the New Credit Agreement was amended and
restated on January 7, 1999.

         On July 28, 1998, Salton issued $40.0 million of Series A Voting
Convertible Preferred Stock of the Company (the "Convertible Preferred Stock")
to affiliates of Centre Partners Management LLC ("Centre Partners"). The
Convertible Preferred Stock is generally non-dividend bearing and is convertible
into 2,352,941 shares of Salton common stock (reflecting a $17 per share
conversion price).

         The Stock Repurchase, borrowings under the New Credit Agreement and the
Convertible Preferred Stock Issuance are collectively referred to herein as the
"Recapitalization."

                                      -7-
<PAGE>   8
         On December 16, 1998 the Company issued $125,000,000 of 10-3/4% Senior
Subordinated Notes (the "Subordinated Notes") due 2005. Proceeds of the Notes
were used to repay outstanding indebtedness and for working capital and general
corporate purposes. The Notes were issued pursuant to Rule 144A under the
Securities act of 1933. On February 2, 1999 the Company registered the
Subordinated Notes for resale under the Securities Act of 1933. The Subordinated
Notes contain a number of significant covenants that, among other things,
restrict the ability of the Company 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.  In addition, under the
Subordinated Notes, the Company is required to comply with a specified financial
fixed charge coverage ratio.

5.       SUBSEQUENT EVENTS.

                  Salton amended and restated the New Credit Agreement on
January 7, 1999 (the "Amended Credit Agreement"). The Amended Credit Agreement,
among Salton, Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc.,
as syndication agent and administration agent, and a syndicate of banks,
provides for $125.0 million in a senior secured credit facility consisting of a
$45.0 million Term Loan (the "Term Loan") at an established base rate
(equivalent to the prime rate of interest) plus an applicable margin of 225
basis points or, at the Company's election, a eurodollar rate (equivalent to the
LIBOR rate) plus an applicable margin of 325 basis points maturing in
twenty-four consecutive quarterly installments commencing on March 26, 1999; and
a $80.0 million revolving credit facility (the "Revolving Credit Facility") at
an established base rate (equivalent to the prime rate of interest) plus an
applicable margin or, at the Company's election, a eurodollar rate (equivalent
to the LIBOR rate) based on a range of ratios of total debt to earnings before
interest, taxes, depreciation and amortization maturing on March 26, 2003. The
Amended Credit Facility is secured by a first lien on substantially all the
Company's assets. Credit availability is based on a formula related to trade
accounts receivable, inventories and outstanding letters of credit. The Amended
Credit Agreement contains a number of significant covenants that, among other
things, restrict the ability of the Company 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. In addition,
under the Amended Credit Agreement, the Company is required to comply with
specified financial ratios and tests, including a net average debt ratio, a net
average senior debt ratio, a consolidated fixed charge coverage ratio, and a
consolidated interest coverage ratio.

         On August 26, 1998, the Company entered into a definitive merger
agreement to acquire Toastmaster Inc. ("Toastmaster"), a Columbia, Missouri
based manufacturer and marketer of kitchen and small household electrical
appliances and time products (the "Toastmaster Acquisition"). Toastmaster
designs, manufactures, markets and services a wide array of kitchen and small
household electrical appliances and time products under the brand names of
Toastmaster(R) and Ingraham(R). The Company completed this acquisition on
January 7, 1999 and paid Toastmaster shareholders $7.00 per share in cash, for a
total purchase price of approximately $53.2 million. In addition, Toastmaster's
outstanding debt of $57.8 million with a lender was paid in connection with the
acquisition. The acquisition will be accounted for as a purchase; accordingly
the purchase price will be allocated to the underlying assets and liabilities
based on their respective estimated fair values at the date of the acquisition.
Subsequent to the acquisition date, Toastmaster, Inc., a Missouri Corporation,
became a wholly owned subsidiary of Salton, Inc. 

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



                                      -8-

<PAGE>   9

RESULTS OF OPERATIONS

         THIRTEEN WEEKS ENDED DECEMBER 26, 1998 COMPARED WITH THIRTEEN WEEKS
ENDED DECEMBER 27, 1997.

         Net sales in the quarter ended December 26, 1998 ("second quarter of
fiscal 1999") were $142.7 million, an increase of approximately $40.5 million or
39.7%, compared to net sales of $102.2 million in the quarter ended December 27,
1997("second quarter of fiscal 1998"). This increase is primarily attributable
to increased sales of the George Foreman Grills(R), White-Westinghouse(R) sales
under the Kmart program, and Farberware(R) products. Net sales of
White-Westinghouse(R) products to Kmart approximated 14.6% of net sales in the
second quarter of fiscal 1999 compared to 19.8% of net sales in the same period
in fiscal 1998.

         Gross profit in the second quarter of fiscal 1999 was $53.4 million or
37.4% of net sales as compared to $35.0 million or 34.3% in the same period in
fiscal 1998. Cost of goods sold during the second quarter of fiscal 1999
decreased to 59.1% of net sales compared to 62.3% in the same period in fiscal
1998. Distribution expenses were $5.0 million or 3.5% of net sales in the second
quarter of fiscal 1999 compared to $3.5 million or 3.4% of net sales in the same
period in fiscal 1998. Gross profit and costs of goods sold in the second
quarter of fiscal 1999 as a percentage of net sales were improved primarily due
to lower costs on certain products of the Company and due to a more favorable
mix of sales in their respective channels of distribution when compared to the
same period in fiscal 1998.

         Selling, general and administrative expenses increased to $32.0 million
or 22.4% of net sales in the second quarter of fiscal 1999 compared to $24.6
million or 24.1% of net sales for the same period in fiscal 1998. Expenditures
for television, royalty expenses, certain other media and cooperative
advertising coverages and trade show expenses were $23.5 million or 16.5% of net
sales in the second quarter of fiscal 1999 when compared to $18.5 million or
18.2% of net sales in the same period in fiscal 1998. The remaining selling,
general and administrative costs were $8.5 million or 5.9% of net sales in the
second quarter of fiscal 1999 compared to $6.1 million or 5.9% of net sales in
the same period in fiscal 1998. These increases were primarily attributable to
higher costs for additional personnel, sales commissions and various other costs
related to the higher level of sales.

         As a result of the foregoing, operating income increased by $11.0
million or 104.8%, to $21.4 million in the second quarter of fiscal 1999 from
$10.5 million in the same period in fiscal 1998. Operating income as a
percentage of net sales increased to 15.0% in the second quarter of fiscal 1999
from 10.2% in the same period of fiscal 1998.

         Net interest expense was approximately $2.4 million for the second
quarter of fiscal 1999 compared to $1.7 million for the same period in fiscal
1998. The Company's rate of interest on amounts outstanding was a weighted
average annual rate of 7.7% in the second quarter of fiscal 1999 compared to
10.0% in the same period in fiscal 1998. The average amount of debt outstanding
was $117.9 million for the second quarter of fiscal 1999 compared to $64.5
million for the same period in fiscal 1998. This increase was used to complete
the Recapitalization and to finance higher net sales and a seasonal build in
accounts receivable and inventory.

         The Company had income before income taxes of $19.0 million in the
second quarter of fiscal 1999 compared to income before income taxes of $8.8
million in the same period in fiscal 1998. The Company had income tax expense of
$7.3 million in the 


                                      -9-
<PAGE>   10

first quarter of fiscal 1999 as compared to income tax expense of $3.3 million
in the same period in fiscal 1998. Net income was $11.7 million in the second
quarter of fiscal 1999 compared to net income of $5.4 million in the same period
in fiscal 1998. Basic earnings per common share were $1.78 per share on weighted
average common shares outstanding of 6,570,098 in the second quarter of fiscal
1999 compared to basic earnings of $0.40 per share on weighted average common
shares outstanding of 13,475,146 in the same period in fiscal 1998. Diluted
earnings per common share were $1.25 per share on weighted average common shares
outstanding, including dilutive common stock equivalents, of 9,356,695 in the
second quarter of fiscal 1999 compared to earnings of $0.40 per share on
weighted average common shares outstanding, including dilutive common stock
equivalents, of 13,533,520 in the same period in fiscal 1998.

         TWENTY-SIX WEEKS ENDED DECEMBER 26, 1998 COMPARED WITH TWENTY-SIX WEEKS
ENDED DECEMBER 27, 1997.

         Net sales in the first half ended December 26, 1998 ("first half of
fiscal 1999") were $247.1 million, an increase of approximately $79.2 million or
47.1%, compared to net sales of $167.9 million in the corresponding period ended
December 27, 1997("first half of fiscal 1998"). This increase is primarily
attributable to increased sales of the George Foreman Grills(R),
White-Westinghouse(R) sales under the Kmart program, and Farberware(R) products.
Net sales of White-Westinghouse(R) products to Kmart approximated 14.5% of net
sales in the first half of fiscal 1999 compared to 18.1% of net sales in the
same period in fiscal 1998.

         Gross profit in the first half of fiscal 1999 was $99.2 million or
40.1% of net sales as compared to $59.8 million or 35.6% in the same period in
fiscal 1998. Cost of goods sold during the first half of fiscal 1999 decreased
to 56.4% of net sales compared to 60.9% in the same period in fiscal 1998.
Distribution expenses were $8.6 million or 3.5% of net sales in the first half
of fiscal 1999 compared to $5.8 million or 3.4% of net sales in the same period
in fiscal 1998. Gross profit and costs of goods sold in the second quarter of
fiscal 1999 as a percentage of net sales were improved primarily due to lower
costs on certain products of the Company and due to a more favorable mix of
sales in their respective channels of distribution when compared to the same
period in fiscal 1998.

         Selling, general and administrative expenses increased to $59.8 million
or 24.2% of net sales in the first half of fiscal 1999 compared to $41.5 million
or 24.7% of net sales for the same period in fiscal 1998. Expenditures for
television, royalty expenses, certain other media and cooperative advertising
coverages and trade show expenses were $42.5 million or 17.2% of net sales in
the first half of fiscal 1999 when compared to $29.6 million or 17.6% of net
sales in the same period in fiscal 1998. The remaining selling, general and
administrative costs were $17.3 million or 7.0% of net sales in the first half
of fiscal 1999 compared to $11.9 million or 7.1% of net sales in the same period
in fiscal 1998. These increases were primarily attributable to higher costs for
additional personnel, sales commissions and various other costs related to the
higher level of sales.

         As a result of the foregoing, operating income increased by $21.1
million or 115.6%, to $39.4 million in the first half of fiscal 1999 from $18.3
million in the same period in fiscal 1998. Operating income as a percentage of
net sales increased to 16.0% in the first half of fiscal 1999 from 10.9% in the
same period of fiscal 1998.


                                      -10-
<PAGE>   11

         Net interest expense was approximately $4.8 million for the first half
of fiscal 1999 compared to $3.0 million for the same period in fiscal 1998. The
Company's rate of interest on amounts outstanding was a weighted average annual
rate of 8.2% in the first half of fiscal 1999 compared to 9.5% in the same
period in fiscal 1998. The average amounts outstanding, including all debt, was
$108.2 million for the first half of fiscal 1999 compared to $60.3 million for
the same period in fiscal 1998. This increase was used to complete the
Recapitalization and to finance higher net sales and a seasonal build in
accounts receivable and inventory.

         The Company had income before income taxes of $34.6 million in the
first half of fiscal 1999 compared to income before income taxes of $15.3
million in the same period in fiscal 1998. The Company had income tax expense of
$12.1 million in the first half of fiscal 1999 as compared to income tax expense
of $5.7 million in the same period in fiscal 1998. Net income was $22.5 million
in the first half of fiscal 1999 compared to net income of $9.6 million in the
same period in fiscal 1998. Basic earnings per common share were $2.93 per share
on weighted average common shares outstanding of 7,682,056 in the first half of
fiscal 1999 compared to earnings of $0.73 per share on weighted average common
shares outstanding of 13,075,682 in the same period in fiscal 1998. Diluted
earnings per common share were $2.24 per share on weighted average common shares
outstanding, including dilutive common stock equivalents, of 10,041,113 in the
first half of fiscal 1999 compared to earnings of $0.71 per share on weighted
average common shares outstanding, including dilutive common stock equivalents,
of 13,475,146 in the same period in fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

         During the second quarter of fiscal 1999, the Company used net cash of
$20.7 million in operating activities and $970,000 in investing activities. This
usage was primarily for the growth in sales which resulted in investing in
higher levels of inventory and receivables, as well as an increased investment
in capital assets, primarily tooling. For the first half ended December 26, 1998
financing activities provided cash of $32.8 million primarily from the issuance
of $125.0 million of Subordinated Notes, the issuance of the Convertible
Preferred Stock of $40.0 million, offset by $70.8 million used for the Stock
Repurchase, $50.5 million repayment of the revolving line of credit, and
approximately $10.9 million in costs paid for the issuance of the Subordinated
Notes, the New Credit Facility, the Amended Credit Facility, and the issuance of
the Convertible Preferred Stock.

         On July 28, 1998, Salton entered into the New Credit Agreement. The
Company used the borrowings of $90.0 million under the Tranche A Term Loan and
the net proceeds from the Convertible Preferred Stock issuance to (i) pay the
cash portion of the purchase price for the Stock Repurchase in an amount equal
to approximately $70.8 million (this amount is net of approximately $10.8
million due and owing by Windmere to Salton under the Windmere Note, which note
was cancelled at the closing of the Stock Repurchase), (ii) refinance all
outstanding indebtedness under the Company's former credit agreement and (iii)
pay fees and expenses relating to the Recapitalization.

         On December 16, 1998 the Company issued $125,000,000 of 10-3/4% Senior
Subordinated Notes due 2005. Proceeds of the Notes were used to (i) repay the
outstanding indebtedness under the Tranche A Term Loan of $90.0 million and
$26.8 million under the New Credit Facility (ii) pay fees and expenses relating
to the issuance of the Subordinated Notes and (iii) for working capital and
general corporate purposes.


                                      -11-
<PAGE>   12

         Salton amended and restated the New Credit Agreement on January 7, 1999
(the "Amended Credit Agreement").  The Amended Credit Agreement, among Salton,
Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc., as syndication
agent and administration agent, and a syndicate of banks, provides for $125.0
million in a senior secured credit facility consisting of a $45.0 million Term
Loan (the "Term Loan") at an established base rate (equivalent to the prime rate
of interest) plus an applicable margin of 225 basis points or, at the Company's
election, a eurodollar rate (equivalent to the LIBOR rate) plus an applicable
margin of 325 basis points maturing in twenty-four consecutive quarterly
installments commencing on March 26, 1999; and a $80.0 million revolving credit
facility (the "Revolving Credit Facility") at an established base rate
(equivalent to the prime rate of interest) plus an applicable margin or, at the
Company's election, a eurodollar rate (equivalent to the LIBOR rate) based on a
range of ratios of total debt to earnings before interest, taxes, depreciation
and amortization maturing on March 26, 2003.  The Amended Credit Facility is
secured by a first lien on substantially all the Company's assets.  Credit
availability is based on a formula related to trade accounts receivable,
inventories and outstanding letters of credit.  The Amended Credit Agreement
contains a number of significant covenants that, among other things, restrict
the ability of the Company 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.

         In addition, under the Amended Credit Agreement, the Company is
required to comply with specified financial ratios and tests, including a net
average debt ratio, a net average senior debt ratio, a consolidated fixed charge
coverage ratio, and a consolidated interest coverage ratio.

         On August 26, 1998, the Company entered into a definitive merger
agreement to acquire Toastmaster Inc. ("Toastmaster"), a Columbia, Missouri
based manufacturer and marketer of kitchen and small household electrical
appliances and time products (the "Toastmaster Acquisition"). Toastmaster
designs, manufactures, markets and services a wide array of kitchen and small
household electrical appliances and time products under the brand names of
Toastmaster(R) and Ingraham(R). The Company completed this acquisition on
January 7, 1999 and paid Toastmaster shareholders $7.00 per share in cash, for a
total purchase price of approximately $53.2 million. In addition, Toastmaster's
outstanding debt of $57.8 million with a lender was paid in connection with the
acquisition. The acquisition will be accounted for as a purchase; accordingly
the purchase price will be allocated to the underlying assets and liabilities
based on their respective estimated fair values at the date of the acquisition.
Subsequent to the acquisition date, Toastmaster, Inc., a Missouri Corporation,
became a wholly owned subsidiary of Salton, Inc.

         At January 7, 1999, the Company had $125.0 million outstanding under
the Subordinated Notes and had the ability to borrow up to an additional $30.0
million under the Revolving Credit Facility. Typically, given the seasonal
nature of the Company's business, the Company's borrowings tend to be the
highest in mid-Summer to Fall.

         The Company's ability to make scheduled payments of principal of, or to
pay the interest on, or to refinance, its indebtedness, or to fund planned
capital expenditures will depend upon its future performance, which is subject
to general economic, financial, competitive and other factors that are beyond
its control. The Company's ability to fund its operating activities is also
dependent upon its rate of growth, ability to effectively manage its inventory,
the terms under which it extends credit to customers and its ability to collect
under such terms and its 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 Amended Credit Agreement and funds anticipated to be available from the
issuance of additional debt and/or equity securities, will be adequate to meet
the Company's anticipated requirements for capital expenditures, working
capital, interest payments and scheduled principal 



                                      -12-
<PAGE>   13

payments over the next 12 months. There can be no assurance, however, that the
Company's business will continue to generate sufficient cash flow from
operations in the future to service its debt and make necessary capital
expenditures after satisfying certain liabilities arising in the ordinary course
of business. If unable to do so, the Company 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 sales of assets or additional financing could be
obtained.

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 the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the Company's degree of leverage; economic
conditions and retail environment; the timely development, introduction and
customer acceptance of the Company's products; competitive products and pricing;
dependence on foreign suppliers and supply and manufacturing constraints; the
Company's relationship and contractual arrangements with key customers,
suppliers and licensors; cancellation or reduction of orders; the integration of
Toastmaster, including the failure to realize anticipated revenue enhancements
and cost savings; the risks relating to pending legal proceedings and other
factors both referenced and not referenced in the Company's 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.

YEAR 2000 ISSUES

          Many computer and other software and hardware systems currently are
 not, or will or may not be, able to read, calculate or output correctly using
 dates after 1999, and such systems will require significant modifications in
 order to be "year 2000 compliant." This issue may have a material adverse
 affect on the Company's business, financial condition and results of operations
 because its computer and other systems are integral to the Company's activities
 and because the Company will have to divert financial resources and personnel
 to address this issue.

          The Company has reviewed its computer and other hardware and software
 systems and has been upgrading those systems that it has identified as not
 being year 2000 compliant. The existing systems will be upgraded either through
 modification or, as a contingency, replacement. The Company currently
 anticipates that it will complete testing of these upgrades by the end of
 fiscal 1999.

          Although the Company is not aware of any material operational
 impediments associated with upgrading its computer and other hardware and
 software systems to be year 2000 compliant, the Company cannot make any
 assurances that the upgrade of the Company's computer systems will be completed
 on schedule or, that the upgraded systems will be free of defects. If any such
 risks materialize, the Company could experience material adverse consequences
 to its business, financial condition and results of operations.


                                      -13-
<PAGE>   14

          Year 2000 compliance may also adversely affect the Company's business,
 financial condition and results of operations indirectly by causing
 complications of, or otherwise affecting, the operations of any one or more of
 its suppliers and customers. The Company is contacting its significant
 suppliers and customers in an attempt to identify any potential year 2000
 compliance issues with them. The Company is currently unable to anticipate the
 magnitude of the operational or financial impact of year 2000 compliance issues
 with its suppliers and customers.

          The Company incurred approximately $765,000 through fiscal 1998 and
 expects to incur approximately $135,000 through fiscal 1999 to resolve and test
 the Company's year 2000 compliance issues. All expenses incurred in connection
 with year 2000 compliance will be expensed as incurred, other than acquisitions
 of new software or hardware, which will be capitalized.



                                      -14-
<PAGE>   15




                           PART II: OTHER INFORMATION

         ITEM 1: LEGAL PROCEEDINGS

         In November 1996, WCI filed suit for injunctive relief and damages
against CBS in the United States District Court for the Northern District of
Ohio alleging that CBS's grant of licenses to the Westinghouse(TM) name for use
on lighting products, fans and electrical accessories for use in the home
violates WCI's rights to the Westinghouse(TM) name to a third party and
constitutes a breach of the agreements under which CBS's predecessor sold WCI
its appliance business and licensed certain trademark rights in 1975. In
response to that suit, CBS filed a related action in December 1996 in the United
States District Court for the Western District of Pennsylvania, naming WCI,
Windmere, Salton, Newtech and certain other parties as defendants. The two
actions have now been consolidated in the Pennsylvania court. A trial date of
June 21, 1999 has been set by the court. CBS seeks an injunction prohibiting the
Company, Newtech and WCI from using the White-Westinghouse(R) name on products
not specifically enumerated in the sale documents between CBS's predecessor and
WCI, and unspecified damages and attorneys' fees. An adverse decision in the
Trademark Litigation could result in the Company and Newtech being limited in
further use of the White-Westinghouse(R) name and therefore the possible
termination or significant modification of the supply agreement between the
Company and Kmart.

         The legal costs that may be incurred in defending against this action
could be substantial. In addition, the litigation could be protracted and result
in diversion of management and other resources of the Company. WCI is currently
defending the Company in this action. There can be no assurance that WCI will
prevail in its lawsuit, or that WCI, the Company and their co-defendants will
prevail in their defense of CBS's lawsuit. In the event that a favorable outcome
for the Company is not obtained, the Company intends to vigorously pursue its
right to indemnification under indemnification provisions in the license
agreements between WCI and the Company relating to the White-Westinghouse(R)
brand name. There can be no assurance that WCI will agree on the scope of the
indemnity, or that any such indemnity payment which may become due to the
Company will be paid fully or in a timely fashion or at all. Related proceedings
have also been commenced before the Trademark Board in opposition to WCI's and
CBS's efforts to register certain uses of the Westinghouse(TM) and
White-Westinghouse(R) names. Such proceedings have been stayed pending
resolution of the Trademark Litigation in the Pennsylvania court. Even if the
Trademark Litigation is resolved in the Company's favor, it is possible that the
proceedings before the Trademark Board will continue and could have a material
adverse effect upon the Company's business, financial condition and results of
operations.

         ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

         (i)        Current Report on Form 8-K dated May 6, 1998 reporting under
               Item 5, Other Events, the Company's entering into the Windmere
               Stock Agreement.

         (ii)       Current Report on Form 8-K dated June 26, 1998 reporting
               under Item 5, Other Events, the Company's giving of written
               notice to Windmere of its intention to consumate the Stock
               Repurchase

         (iii)      Current Report on Form 8-K dated July 2, 1998 reporting
               under Item 5, Other Events, the Company's obtaining a
               commitment letter from Lehman Brothers, Inc. for a senior
               secured credit facility of up to $215 million.


                                      -15-
<PAGE>   16

         (iv)       Current Report on Form 8-K dated July 15, 1998 reporting
               under Item 5, Other Events, the Company's entering into the
               Preferred Stock Agreement.

         (v)        Current Report on Form 8-K dated July 28, 1998 reporting
               under Item 5, Other Events, the consummation of the Stock
               Repurchase.

         (vi)       Current Report on Form 8-K dated August 26, 1998 reporting
               under Item 5, Other Events, the Company's entering into a
               definitive merger agreement to acquire Toastmaster.



                                      -16-
<PAGE>   17



                                   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.



                                           SALTON, INC.

Date: February 8, 1999                     /s/WILLIAM B. RUE
                                           William B. Rue
                                           President and Chief Operating Officer
                                           (Duly Authorized Officer
                                           of the Registrant)



                                      -17-
<PAGE>   18



                                  EXHIBIT INDEX


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

    12                                      Ratio of Earnings to Fixed Charges
    27                                      Financial Data Schedule







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