Salton Inc · 10-K · For 6/29/02

Filed On 9/27/02 12:12pm ET   ·   SEC File 1-14857   ·   Accession Number 950137-2-4991

Annual Report   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         82    515K 
 2: EX-3.1      Amended and Restated Certificate of Incorporation     36    101K 
 3: EX-10.38    License Agreement                                     16     77K 
 4: EX-18.1     Letter Re: Change in Accounting Principle              1      7K 
 5: EX-21.1     Subsidiaries of the Company                            1      4K 
 6: EX-23.1     Consent of Deloitte & Touche Llp                       1      5K 

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K 

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES         
EXCHANGE ACT OF 1934                                                

For The Fiscal Year Ended June 29, 2002                             

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)

                                                                [Download Table]
                                                                         
                DELAWARE                            36-3777824           
    (State or other jurisdiction of       (I.R.S. Employer Identification
     Incorporation or Organization)                   Number)            
            1955 FIELD COURT                           60045             
         LAKE FOREST, ILLINOIS                      (Zip Code)           
(Address of Principal Executive Offices)                                 

(847) 803-4600
(Registrant's Telephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE               

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  COMMON STOCK $.01  
                                                   PAR VALUE
                              (Title of Class)

[X] YES                                                                         
[ ] NO  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.       

        The aggregate market value of the Common Stock held by non-affiliates of
     the Registrant as of September 19, 2002 was approximately $80,000,000
        computed on the basis of the last reported sale price per share $8.35 of
     such stock on the NYSE. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.      

[ ]     Indicate by check mark if disclosure of delinquent filers pursuant to   
   Item 405 of Regulation S-K is not contained herein, and will not be
        contained, to the best of registrant's knowledge, in definitive proxy or
    information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.                   

The number of shares of the Registrant's Common Stock outstanding as of         
September 19, 2002 was 10,993,077                                               

DOCUMENTS INCORPORATED BY REFERENCE                                             

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PART OF FORM 10-K                        DOCUMENT INCORPORATED BY REFERENCE                        
---------------------------------------------------------------------------------------------------
Part III (Items 10, 11, 12 and 13)       Portions of the Registrant's Definitive Proxy Statement to
                                         be used in connection with its 2002 Annual Meeting of     
                                         Stockholders.                                             

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SALTON, INC.

FORM 10-K 
FOR THE FISCAL YEAR ENDED JUNE 29, 2002 

INDEX 

                                                                [Download Table]

                                                                         PAGE
                                                                             
                                   PART I                                    

ITEM 1.   Business                                                         3 

ITEM 2.   Properties                                                      20 

ITEM 3.   Legal Proceedings                                               21 

ITEM 4.   Submission of Matters to a Vote of Security Holders             22 

                                   PART II                                   

ITEM 5.   Market for Registrant's Common Stock and Related Stockholder       
          Matters                                                         23 

ITEM 6.   Selected Financial Data                                         24 

ITEM 7.   Management's Discussion and Analysis of Financial Conditions       
          and Results of Operation                                        25 

ITEM 7A.  Quantitative and Qualitative Disclosures about Market Risk      37 

ITEM 8.   Consolidated Financial Statements and Supplementary Data        38 

ITEM 9.   Changes in and Disagreements with Accountants on Accounting        
          and Financial Disclosures                                       74 

                                  PART III                                   

ITEM 10.  Directors and Executive Officers of the Registrant              75 

ITEM 11.  Executive Compensation                                          75 

ITEM 12.  Security Ownership of Certain Beneficial Owners and                
          Management                                                      75 

ITEM 13.  Certain Relationships and Related Transactions                  76 

                                   PART IV                                   

ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on Form       
          8-K                                                             76 

SIGNATURES                                                                77 

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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 

    This annual report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the 
Securities Exchange Act of 1934, including without limitation the statements    
under "Risk Factors," and "Management's Discussion and Analysis of Financial    
Condition and Results of Operations." The words "believes," "anticipates,"      
"plans," "expects," "intends," "estimates" and similar expressions are intended 
to identify forward-looking statements. These 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, 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 the 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;                                          

- International business activities;                                            

- Availability and success of future acquisitions;                              

- The risks relating to legal proceedings;                                      

- The risks relating to intellectual property matters;                          

- The risks relating to regulatory matters; and                                 

- Other risks detailed from time to time in our Commission filings.             

    All forward looking statements included in this annual report on Form 10-K
are based on information available to us on the date of this annual report. We  
undertake no obligation to publicly update or revise any forward-looking        
statement, whether as a result of new information, future events or otherwise.  
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the   
cautionary statements contained throughout this annual report on Form 10-K.     

ITEM 1. Business                                                                

As used in this annual report on Form 10-K, "we," "our," "us," "the   
Company" and "Salton" refer to Salton and our subsidiaries, unless the context  
otherwise requires.                                                             

GENERAL                                                                         

 We are a leading 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), Russell Hobbs(R), Juiceman(R),   
Farberware(R), Melitta(R), White-Westinghouse(R), Kenmore(R), Breadman(R),      
Haden(R), Maxim(R) and Westinghouse(R). We believe that we have the leading     
domestic market share in indoor grills, toasters, juice extractors, breadmakers,
griddles, waffle makers and buffet ranges/hotplates and a significant market    
share in other product categories. We also design and market tabletop products, 
time products, lighting products and personal care and wellness products under  
brand names such as Ingraham(R), Block China(R), Stiffel(R), Westclox(R),       
Rejuvenique(R), Carmen(R), Pifco(R), Ultrasonex(TM), Relaxor(R) and Calvin      
Klein(R). We believe that our strong market position results from our well-known
brand names, the breadth, quality and innovation of our product offerings, our  
strong relationships with retailers and our focused outsourcing strategy.       

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We develop and introduce a wide selection of new products and enhance 
existing products to satisfy the various tastes, preferences and budgets of     
consumers and to service the needs of a broad range of retailers. Our product   
categories include:                                                             

                                                        [Enlarge/Download Table]

PRODUCT CATEGORY                                  SAMPLE PRODUCTS                                         
----------------------------------------------------------------------------------------------------------
                                                                                                          
SMALL APPLIANCES                                                                                          
Kitchen Electrics                                 Motor driven appliances     Heating appliances          
                                                  Beverage appliances         Cookware                    
Home Appliances                                   Heaters                     Floor care                  
                                                  Fans                        Steam cleaners              
                                                  Humidifiers                 Outdoor grills              
                                                  Air cleaners                Web-enabled TV              
                                                  Garment care                Novelty lighting            
SALTON AT HOME                                                                                            
Tabletop Products                                 Dinnerware                  Frames                      
                                                  Flatware                    Glassware                   
                                                  Fountains                   Serve/Giftware              
Time Products                                     Alarm clocks                Decorative tabletop clocks  
                                                  Decorative wall clocks      Safe home                   
Lighting Products                                 Floor lamps                 Table lamps                 
                                                  Other lamps                 Lighting accessories        
PERSONAL CARE AND                                                                                         
WELLNESS PRODUCTS                                 Health equipment            Bath/shower                 
                                                  Hair care                   Aroma therapy               
                                                  Grooming                    Sound/light therapy         
                                                  Dental                      Calming pools               
                                                  Beauty                      Shower radios               
                                                  Massage                     Fitness and recreation      

We currently market and sell our products primarily in North America  
through an internal sales force and a network of independent commissioned sales 
representatives. We predominantly sell our products to mass merchandisers,      
department stores, specialty stores and mail order catalogs. Our customers      
include many premier domestic retailers, including Wal-Mart, Target Corporation,
Sears, Kmart, Federated Department Stores, J.C. Penney Company, Argos Limited,  
Kohl's Department Stores, May Company Department Stores, Bed, Bath & Beyond,    
Lowe's and Linens 'n Things. We also sell certain of our products directly to   
consumers through paid half-hour television programs referred to as             
"infomercials" and through our Internet website.                                

We outsource most of our production to more than 25 independent       
manufacturers, located primarily in the Far East, and we believe that we are the
largest purchaser of electric small appliances from unaffiliated parties in the 
Far East. We employ both internal and independent inspection agents to ensure   
that products meet our rigorous quality standards.                              

THE INDUSTRY                                                                    

Based on data compiled from the National Housewares Manufacturers     
Association, the household industry categories in which we currently compete    
were approximately a $19 billion retail business in the United States in 2000.  
Historically, this industry has been characterized as mature, fragmented and    
highly competitive. However, it has been consolidating recently in response to  
the merger activity and changes within the retail industry. We expect that      
retailers will continue to consolidate their vendor base by dealing primarily   
with a smaller number of suppliers that can offer a broad array of innovative,  
differentiated and quality products and comprehensive levels of customer        

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service. We believe that with our broad array of innovative and quality product 
offerings, high level of customer service and strong brand name recognition, we 
are well positioned to benefit from this environment.                           

COMPETITIVE STRENGTHS                                                           

We believe that the following competitive strengths contribute to our 
position as a leading domestic designer and marketer in the small household     
appliance industry and serve as a foundation for our business strategy:         

 Market Leadership.  We believe that we have the leading domestic market
share in indoor grills, toasters, juice extractors, bread makers, griddles,     
waffle makers and buffet ranges/hotplates and a significant market share in     
other product categories. We believe that our leading market share in these     
product lines provides us with a competitive advantage in terms of demand from  
major retailers and enhanced brand awareness. Through internal and joint product
development and acquisitions of businesses and product lines, we have enhanced  
our position as a leading supplier in the U.S. housewares industry.             

    Strong Brand Names.  We have built a portfolio of strong brand names which
we use to gain retail shelf space and introduce new products. The Salton(R)     
brand name has been in continuous use since 1947, the Ingraham(R) brand name    
since 1831 and the Toastmaster(R) brand name since 1926. These names are widely 
recognized in the housewares industry. Since the introduction of the first      
George Foreman(TM) product in 1995, we have established the George Foreman(TM)  
name as a significant product brand, representing approximately 47% of our sales
in the fiscal year ended June 29, 2002. In addition, we have licensed the right 
to use the White-Westinghouse(R) brand name for certain small household         
electrical appliances, such as toasters, coffee makers, espresso/cappuccino     
makers and bread makers, and distribute certain products under the Farberware(R)
brand name. In April 2002 we obtained the exclusive right to use the            
Westinghouse(R) brand name and its trademarks for kitchen electrics, fans and   
heaters, personal care, tabletop air cleaners and humidifiers, clocks and       
vacuums. We believe that White-Westinghouse(R), Farberware(R) and               
Westinghouse(R) are time-honored traditions throughout the world for certain    
home appliances and benefit from strong consumer recognition. We also market    
products under other owned and licensed brand names, such as Russell Hobbs(R),  
Juiceman(R), Melitta(R), Breadman(R), Haden(R), Maxim(R), Ingraham(R), Block    
China(R), Stiffel(R), Westclox(R), Calvin Klein(R), Hi-Tech(R), Timex(R) Timers,
Rejuvenique(R), Carmen(R), Pifco(R), Ultrasonex(TM), Relaxor(R) and under       
private-label brand names such as Kenmore(R) (Sears) and Cook's Essentials(R)   
(QVC).                                                                          

 Innovation In Product Design And Packaging.  We have a reputation among
retailers and consumers for innovative product design and packaging. We design  
our products in both contemporary and traditional styles and with a wide variety
of functional and aesthetic features. We work closely with both retailers and   
suppliers to identify consumer needs and preferences and to develop new products
to satisfy consumer demand. Our product innovations have included the first     
triple function (espresso, cappuccino and latte) coffee maker in the United     
States, George Foreman(TM) Grills, Toastmaster(R) ovens with removable liners,  
the Icebox(TM) product line of kitchen entertainment centers and the Wet        
Tunes(TM) shower radios. During fiscal 2002, we introduced 2,635 new stock      
keeping units, or SKUs. Several of our products, including the Breadman(R) Plus,
the Breadman(R) Ultimate, the Salton(R) Pro Steam iron and the George           
Foreman(TM) Lean Mean Fat Reducing Grilling machine, have been selected by      
various consumer organizations and magazines as top rated or best buys.         

   We also package our products to increase their appeal to consumers and to
stand out among other brands on retailers' shelves. We believe that the         
distinctive packaging, designed to answer customers' questions concerning our   
products, has resulted in increased retail shelf space and greater sales.       

Broad Range Of Products.  We currently sell over 10,028 SKUs across   
multiple housewares categories using our portfolio of more than 66 owned and    
licensed brand names. Our products meet the needs of a broad range of retailers 
and satisfy the different tastes, preferences and budgets of consumers. Our     
diverse product offerings enable us to help retailers differentiate themselves  
because we can offer them exclusive rights for designated periods of time to    
sell certain of our products. We believe that as the retail industry continues  
to consolidate, our ability to serve retailers with an extensive array of       
product lines under a portfolio of strong brand names will continue to become   
increasingly important for maintaining shelf space and for introducing new      
products into the retail market.                                                

     Established Relationships With Diverse Customer Base.  We have been able to
establish strong relationships with our retail customers based on our frequent  
product innovation, high level of customer service, breadth of product          

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offerings, reputation for quality products and established brand names. In      
addition, we have been able to secure long-term supply agreements with certain  
customers such as Kmart and Zellers. We have also expanded our distribution of  
private-label products with certain major retailers under brand names such as   
Kenmore(R) (Sears) and Cook's Essentials(R) (QVC). The broad distribution of    
products through the mass merchant, department store and specialty retailer     
channels, together with sales made through infomercials and the Internet,       
provides us with access to a diversified group of customers and multiple        
channels of distribution.                                                       

    Focused Outsourcing Strategy.  Our strong relationships with our suppliers
provide us with a low-cost, comparable quality alternative to domestic          
manufacturing. We believe that we are the largest purchaser of small electric   
appliances from unaffiliated parties in the Far East. We source products from   
more than 25 different suppliers and believe that we are the largest customer of
many of our suppliers. We work closely with our suppliers to develop new        
products and improvements to existing products to satisfy changing consumer     
preferences. Our outsourcing strategy provides us with low-cost manufacturing   
capabilities and allows us to bring new products to the market quickly and      
respond rapidly to changes in consumer tastes and preferences.                  

Experienced Management Team With Significant Equity Ownership.  Our   
management team has a wide range of experience in the development and marketing 
of housewares. This management team, consisting of Leonhard Dreimann, Chief     
Executive Officer, David C. Sabin, Chairman, William B. Rue, President and Chief
Operating Officer, David Mulder, Executive Vice President and Chief             
Administrative Officer, and John E. Thompson, Senior Vice President and Chief   
Financial Officer, has an average of more than 20 years of industry experience. 
Since our inception, management has successfully integrated over 14 acquisitions
of companies and/or product lines.                                              

BUSINESS STRATEGY                                                               

    Our primary business objective is to increase net sales, profitability and
cash flow by continuing to execute the following key elements of our business   
strategy:                                                                       

- Introduce New Products And Product Line Extensions.  We plan to manage our    
existing and new brands through strong product development initiatives,     
 including introducing new products, modifying existing products and extending
  existing product lines. Our product managers strive to develop and acquire new
products and product line extensions, which offer added value to consumers  
  through enhanced functionality and improved aesthetics. During fiscal 2002, we
  introduced 326 new SKUs in the small appliance category, 2,189 new SKUs in the
Salton At Home products category and 120 new SKUs in the personal care and  
wellness products category. For example, we recently introduced:            

- the George Foreman(TM) Lean, Mean Contact Roasting Machine, a countertop      
  appliance capable of roasting whole chickens, beef and pork roasts, vegetables
and other foods;                                                            

- the Phillipe Starck personal care product line under the Starck(R) brand name;

- the ICEBOX(TM) FlipScreen 2002, the latest addition to the Icebox(TM) product 
 line consisting of kitchen entertainment centers offering one-touch access to
cable TV, FM radio, broadband Internet and e-mail, DVDs, audio CDs and      
security video monitoring;                                                  

- Additionally, we plan to begin shipments in calendar 2003 of the following    
products we introduced late in fiscal 2002;                                 

    + Westinghouse(R) wireless, upright vacuum cleaners, which vacuum cleaners
are bagless and eliminate the need for cord while vacuuming;      

+ Westinghouse(R) corded upright vacuum cleaners that feature bagless 
technology and HEPA filtration; and                               

   + Westinghouse(R) new line of smart, networked home appliances, including
   the gateway device, bread makers, convection ovens and coffee makers.

Increase Sales To New And Existing Customers.  We believe that retail 
merchants will continue to consolidate their vendor bases and focus on a smaller
number of suppliers that can (1) provide a broad array of differentiated,       
quality products, (2) efficiently and consistently fulfill logistical           
requirements and volume demands and (3) provide comprehensive product and       
marketing support. We believe that we can increase sales to our existing        
customers by                                                                    

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continuing to introduce new products and new product categories. While we       
currently sell to a diversified base of premier retail customers, we believe    
that we can further penetrate additional channels of distribution such as       
grocery stores and e-commerce outlets.                                          

    Pursue Licensing Agreements And Strategic Alliances.  We have entered into
licensing agreements and strategic alliances in order to further differentiate  
our products and to accelerate our growth. For example, we supply products to   
Kmart, Zellers and Sears, which they sell under the White-Westinghouse(R), and  
Kenmore(R) brand names, respectively. We also have a joint marketing alliance   
with Kellogg USA. We recently entered into a worldwide agreement with designer, 
inventor and architect Phillipe Starck to design a series of kitchen appliances,
which will include a Phillipe Starck designed George Foreman(TM) grill. In      
addition, we have licensing rights to market certain products under the         
Farberware(R), Melitta(R), Sasaki(R), Timex(R) Timers, Looney Tunes(TM) and     
Calvin Klein(R) brands.                                                         

Continue Developing Alternative Distribution Channels.  We expect to  
continue selling products through infomercials and our Internet website. These  
alternative distribution channels increase our product sales and provide us with
direct contact with consumers, assist us in creating and building brand and     
product awareness and stimulate traditional retail channel demand. We currently 
use these alternative channels to sell certain of our products, primarily George
Foreman(TM) Grills, Juiceman(R) and Juicelady(R) fresh juice machines and the   
Rejuvenique(R) facial toning system, as well as electric woks, pizza makers,    
George Foreman(TM) Rotisserie Ovens, Ultrasonex(TM) line of electrically        
operated toothbrushes and related products, and George Foreman(TM) Portable     
Outdoor Grills. We plan on developing additional new products, which will also  
be sold on infomercials.                                                        

 Pursue Strategic Acquisitions.  We anticipate that the fragmented small
household appliance, clock, tabletop, and home lighting industries will provide 
significant growth opportunities through strategic acquisitions. We will focus  
our acquisition strategy on businesses or brands which (1) offer expansion into 
related or existing categories, (2) can be marketed through our existing        
distribution channels or (3) provide a platform for growth into new distribution
channels including expanding our international sales of products. Our recent    
acquisitions include:                                                           

- the Look For Group, a small household appliance distributor located in France;

- the Westclox(R), Big Ben(R) and Spartus(R) trademarks, molds, intellectual    
property, rights and patents related to these brands;                       

- Pifco Holdings PLC, a United Kingdom producer and marketer of a broad range of
branded small electric household appliances, personal care appliances,      
electrical hardware, cookware and battery operated products;                

- the Relaxor(R) brand and certain inventory, including personal massagers and  
other personal care and wellness items;                                     

- certain assets and intellectual property of The Stiffel Company, a designer of
lamps and related products; and                                             

- Sonex International Corporation, a designer and distributor of electric       
toothbrushes, which employ ultra high frequency sonic waves for cleaning.   

     Expand International Presence.  We intend to expand our international sales
by developing international distribution channels for certain of our products   
and by pursuing acquisitions of complementary businesses.                       

 In fiscal 2003 we expect to expand out European distribution to include
sales in Ireland and the Netherlands, as well as Spain and Italy, through       
certain exclusive distributorship agreements.                                   

In February 2002 we acquired Look For, a small household appliance    
distributor located in France, to enhance our European distribution system. In  
June 2001, we acquired Pifco Holdings PLC, a United Kingdom producer and        
marketer of a broad range of branded kitchen and small appliances, personal care
and wellness products, cookware and battery operated products. We renamed Pifco 
in fiscal 2002 to Salton Europe. We believe that Salton Europe's strong product 
lines and European distribution channels will enable us to expand our           
international distribution channels and cross-market our products in Europe.    

  In March 1999 we entered into a five-year supply agreement with Zellers,
the leading national chain of discount department stores in Canada, to supply a 
broad range of small appliances under the White-Westinghouse(R) brand name. We  
also market George Foreman(TM) Grills through QVC Germany and the Rejuvenique(R)
facial mask and cosmetics through QVC Marco Polo Housewares in the United       
Kingdom. In addition, we have a 31% ownership                                   

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interest in Amalgamated Appliance Holdings Limited, a public company located in 
South Africa, which manufactures and distributes appliances and electrical      
accessories. We market certain of our products in South Africa through          
Amalgamated Appliance Holdings Limited. We also market our products in Australia
and New Zealand through our subsidiaries formed in fiscal 2000.                 

PRODUCTS                                                                        

  Our portfolio of strong brand names enables us to service the needs of a
broad range of retailers and satisfy the different tastes, preferences and      
budgets of consumers. Our products include full-featured and upscale models or  
designs as well as those which are marketed to budget conscious consumers. Our  
product categories include:                                                     

                                                        [Enlarge/Download Table]

                PRODUCT CATEGORY                  SAMPLE PRODUCTS                                         
----------------------------------------------------------------------------------------------------------
                                                                                                          
SMALL APPLIANCES                                                                                          
Kitchen Electrics                                 Motor driven appliances     Heating appliances          
                                                  Beverage appliances         Cookware                    

Home Appliances                                   Heaters                     Floor care                  
                                                  Fans                        Steam cleaners              
                                                  Humidifiers                 Outdoor grills              
                                                  Air cleaners                Web-enabled TV              
                                                  Garment care                Novelty lighting            
SALTON AT HOME                                                                                            
Tabletop Products                                 Dinnerware                  Frames                      
                                                  Flatware                    Glassware                   
                                                  Fountains                   Serve/Giftware              
Time Products                                     Alarm clocks                Decorative tabletop clocks  
                                                  Decorative wall clocks      Safe home                   

Lighting Products                                 Floor lamps                 Table lamps                 
                                                  Other lamps                 Lighting accessories        
PERSONAL CARE AND WELLNESS PRODUCTS               Health equipment            Bath/shower                 
                                                  Hair care                   Aroma therapy               
                                                  Grooming                    Sound/light therapy         
                                                  Dental                      Calming pools               
                                                  Beauty                      Shower radios               
                                                  Massage                     Fitness and recreation      

The following table sets forth the approximate amounts and percentages of our   
net sales by product category during the periods shown.                         

                                                        [Enlarge/Download Table]

                                       JUNE 29, 2002(1)        JUNE 30, 2001(1)          JULY 1, 2000       
------------------------------------------------------------   ---------------------   ---------------------
                                                   % OF                    % OF                    % OF     
FISCAL YEAR ENDED                      NET SALES   TOTAL       NET SALES   TOTAL       NET SALES   TOTAL    
------------------------------------------------------------   ---------------------   ---------------------
                                                                                                            
Small Appliances                       $807,799     87.6%      $714,125     90.2%      $742,774     88.7%   
Salton At Home                           85,957      9.3         59,793      7.5         60,709      7.3    
Personal Care and Wellness Products      28,723      3.1         18,196      2.3         33,819      4.0    
============================================================================================================
                                       $922,479    100.0%      $792,114    100.0%      $837,302    100.0%   

(1) For fiscal 2001, the table includes the sales of Salton Europe from June 1, 
    2001 through June 30, 2001. For fiscal 2002, the table includes the sales of
Salton Europe from July 1, 2001 through June 29, 2002.                  

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APPLIANCES                                                                      

We design and market an extensive line of small appliances under the  
Salton(R), George Foreman(TM), Toastmaster(R), Russell Hobbs(R), Juiceman(R),   
Farberware(R), Melitta(R), White-Westinghouse(R), Kenmore(R), Breadman(R),      
Haden(R), Maxim(R), Westinghouse(R) and other brand names. At the end of fiscal 
2002, we marketed approximately 2,548 SKUs under our brand names in this        
category. Growth within this product category has historically been driven      
primarily by the introduction of new or enhanced products and the development of
the George Foreman(TM), White-Westinghouse(R), Farberware(R) and other product  
lines. For example, our line of George Foreman(TM) products, which began as a   
single grill in 1995, included 173 SKUs as of June 29, 2002.                    

Our appliances product category includes:                             

- kitchen electrics products including thermal grills, toasters, bread makers,  
waffle makers, tea kettles, espresso/cappuccino/drip coffee makers, waffle  
makers, juicers, can openers, blenders, mixers, and electric knives; and    

- home appliances including heaters, fans, vacuums, steam cleaners, irons,      
steamers;                                                                   

We enhanced our appliance offerings in January 1999 by acquiring      
Toastmaster Inc. Toastmaster markets and distributes a wide array of appliances 
under the Toastmaster(R) brand name.                                            

     We further enhanced our appliance offerings in June 2001 by acquiring Pifco
Holdings, PLC, now renamed Salton Europe. In addition to appliance offerings,   
Salton Europe also markets products under the Salton At Home and Personal Care  
and Wellness categories.                                                        

SALTON AT HOME                                                                  

    We design and market an extensive line of tabletop products, time products
and lighting products. At the end of fiscal 2002, we marketed approximately     
6,807 SKUs under our brand names in this category. Tabletop products include    
crystal products offered under the Block China(R), Atlantis(R), Sasaki(R),      
Jonal(R) and other brand names, fine china and basic dinnerware in various      
designs and patterns under the Block China(R), Calvin Klein(R), Sasaki(R) and   
other brand names, and ceramic products under the Block(R) brand name.          

We began offering tabletop products in fiscal 1997. We enhanced our   
tabletop product offerings on April 5, 1999 by acquiring certain assets of      
Sasaki, Inc., a designer of high-quality tabletop products and accessories for  
the home. The Sasaki(R) product lines which we acquired include dinnerware,     
barware, flatware and crystal giftware designed by well-known tabletop          
designers.                                                                      

In the fourth quarter of fiscal 2000, we entered into an exclusive    
licensing agreement for the manufacture and distribution of tabletop and        
giftware items under the Calvin Klein(R) tabletop label.                        

Our time products are comprised of electric and analog alarm clocks,  
electric and quartz wall clocks with plastic, wood and/or metal cases, imported 
key-wound clocks and L.E.D. digital clocks. We market our time products under   
the Ingraham(R), Westclox(R), Big Ben(R), Spartus(R), and other brand names. We 
also market household (electromechanical and electronic) timers under both the  
Ingraham(R) and Timex(R) brand names, which are used for, among other purposes, 
switching electric lights and other appliances on and off at pre-determined     
times.                                                                          

We began offering table lamps, floor lamps, other lamps and lighting  
accessories after our acquisition in August 2001 of the trademarks, other       
intellectual property assets and molds of The Stiffel Company, a designer of    
lamps and related products. We offer our lighting products under the Decor by   
Stiffel(TM), Expressions by Stiffel(TM), Reflections by Stiffel(TM), Studio by  
Stiffel(TM), Stiffel(R) and other brand names.                                  

PERSONAL CARE AND WELLNESS PRODUCTS                                             

   We design and market a broad range of personal care and wellness products
under brand names such as Wet Tunes(TM), Salton(R), White-Westinghouse(R),      
Rejuvenique(R), Ultrasonex(TM), Starck(R), Relaxor(R), Carmen(R) and others. At 
the end of fiscal 2002, we marketed approximately 673 SKUs in the personal care 
and wellness products category.                                                 

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    Our personal and beauty care appliances marketed under the Salton(R) brand
name include hair dryers, curling irons and brushes, make-up mirrors, massagers,
manicure systems and shower radios. Our Wet Tunes(TM) series of shower radios   
are sold under the Salton(R) brand name and feature AM/FM radio with waterproof 
mylar speakers and wall mount brackets. Our personal and beauty care appliances 
also include the Rejuvenique(R) system, which we began marketing through        
infomercials in early 1999.                                                     

   We enhanced our personal and beauty care appliances offerings on July 19,
2000 through our acquisition of Sonex International Corporation, a designer and 
distributor of electrically operated toothbrushes which employ ultra high       
frequency sonic waves for cleaning, flossers and related products.              

  On September 21, 2000, we further enhanced this product category through
our acquisition of the Relaxor(R) business and certain inventory, including     
personal massagers, aromatherapy products, indoor calming pools, magnetic       
therapy products and other personal care items, from JB Research, Inc.          

   We also have a "gifts" program designed for department stores. Under this
program, we provide department stores with practical, special occasion and small
gift products. Our gifts programs include the mini tool, calcutape, travel smoke
alarm, emergency auto flasher and the 7-piece gardening kits.                   

NEW PRODUCT DEVELOPMENT                                                         

    We believe that the enhancement and extension of our existing products and
the development of new products are necessary for our continued success and     
growth. We design the style, features and functionality of our products to meet 
customer requirements for quality, performance, product mix and pricing. We work
closely with both retailers and suppliers to identify consumer needs and        
preferences and to generate new product ideas. We evaluate new ideas and seek to
develop and acquire new products and improve existing products to satisfy       
industry requirements and changing consumer preferences.                        

During fiscal 2002, we introduced 326 new SKUs in the small appliance 
category, 2,189 new SKUs in the Salton At Home products category, and 120 new   
SKUs in the personal care and wellness products category.                       

MARKETING AND DISTRIBUTION                                                      

  We currently market and sell our products primarily in North America and
Europe through an internal sales force and a network of independent commissioned
sales representatives. We predominantly sell our products to mass merchandisers,
department stores, specialty stores and mail order catalogs. Our customers      
include many premier domestic and international retailers, including Wal-Mart,  
Target Corporation, Sears, Kmart, Federated Department Stores, J.C. Penney      
Company, Argos Limited, Kohl's Department Stores, May Company Department Stores,
Bed, Bath & Beyond, Lowe's and Linens 'n Things.                                

  In addition to directing our marketing efforts toward retailers, we sell
certain of our products, primarily George Foreman(TM) Grills, Juiceman(R) and   
Juicelady(R) fresh juice machines and the Rejuvenique(R) facial toning system,  
as well as electric woks, pizza makers, George Foreman(TM) Rotisserie Ovens,    
Ultrasonex(TM) line of electrically operated toothbrushes and related products  
and George Foreman(TM) Portable Outdoor Grills, directly to consumers through   
infomercials and our Internet website. We provide promotional support for our   
products with the aid of national television, radio and print advertising,      
cooperative advertising with retailers, and in-store displays and product       
demonstrations. We believe that these promotional activities are important to   
strengthening our brand name recognition.                                       

   We rely on our management's ability to determine the existence and extent
of available markets for our products. Our management has an extensive marketing
and sales background and devotes a significant portion of its time to           
marketing-related activities. We market our products primarily through our own  
sales force and independent sales representatives. Our representatives are      
located throughout the United States and Canada and are paid a commission based 
upon sales in their respective territories. Our sales representative agreements 
are generally terminable by either party upon 30 days' notice.                  

     We direct our marketing efforts toward retailers and believe that obtaining
favorable product placement at the retail level is an important factor in our   
business, especially when introducing new products. In an effort to provide     

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our retail customers with the highest level of customer service, we have an     
advanced electronic data interchange system to receive customer orders and      
transmit shipping and invoice information electronically. Our management uses   
this system to monitor point-of-sale information at certain accounts. We        
maintain an Internet site, which enables our retail customers to access on-line 
shipment information.                                                           

 We emphasize the design and packaging of our products to increase their
appeal to consumers and to stand out among other brands on retailers' shelves.  
We believe that distinctive packaging, designed to answer consumers' questions  
concerning our products, has resulted in increased shelf space and greater      
sales. In addition, we have a consumer relations department with over 50 persons
to answer consumer questions about our products.                                

   Our total net sales to our five largest customers during fiscal 2002 were
approximately 43% of net sales, with Wal-Mart representing approximately 14% of 
our net sales and Target Corporation representing approximately 12% of our net  
sales. Our total net sales to our five largest customers during fiscal 2001 were
approximately 47% of net sales, with Wal-Mart representing approximately 12% of 
our net sales and Kmart representing approximately 11% of our net sales.        

     In 1997, we entered into a seven-year supply agreement with Kmart, which is
currently in Chapter 11 bankruptcy, for Kmart to purchase, distribute, market   
and sell a broad range of small appliances under the White-Westinghouse(R) brand
name. Kmart is the exclusive United States mass merchant to market these        
White-Westinghouse(R) products. The supply agreement provides Kmart sole        
distribution rights to the White-Westinghouse(R) brand name for the mass        
merchandiser market, but allows distribution through other retail channels under
certain conditions. Sales of White-Westinghouse products to Kmart approximated  
0.9% and 3.8% of our total net sales for fiscal years 2002 and 2001,            
respectively.                                                                   

  The supply agreement with Kmart provides for minimum purchases by Kmart,
which increase through the term of the supply agreement, and for the payment of 
penalties for shortfalls. If the aggregate United States retail sales for any   
specified category decrease by more than 10% in any year from that sold in the  
prior year, Kmart has the right to reduce the minimum purchase requirements for 
that category to an amount not less than 80% of the minimum for that period.    
Kmart, currently in Chapter 11 bankruptcy proceedings, has not reaffirmed its   
rights under the contract on a post petition basis. We are currently in         
negotiations with Kmart to resolve both pre- and post-petition issues under this
contract.                                                                       

 In 1999, we entered into a five-year supply agreement with Zellers, the
leading national chain of discount department stores in Canada, to supply a     
broad range of small appliances under the White-Westinghouse(R) brand name. We  
also have expanded our distribution of private-label products with certain major
retailers under brand names such as Kenmore(R) (Sears) and Cook's Essentials(R) 
(QVC).                                                                          

SOURCES OF SUPPLY                                                               

Most of our products are manufactured to our specifications by over 25
unaffiliated manufacturers located primarily in Far East locations, such as Hong
Kong, the People's Republic of China and Taiwan, and in Europe. Many of these   
suppliers are ISO 9000 and ISO 9002 certified. We believe that we maintain good 
business relationships with our overseas manufacturers.                         

We do not maintain long-term purchase contracts with manufacturers and
operate principally on a purchase order basis. We believe that we are not       
currently dependent on any single manufacturer for any of our products. However,
one supplier located in China, accounted for approximately 32.5% of our product 
purchases during fiscal 2002 and for approximately 35.2% of our product         
purchases in fiscal 2001. We believe that the loss of any one manufacturer would
not have a long-term material adverse effect on our business because other      
manufacturers with which we do business would be able to increase production to 
fulfill our requirements. However, the loss of a supplier could, in the short   
term, adversely affect our business until alternative supply arrangements are   
secured.                                                                        

     Our purchase orders are generally made in United States dollars in order to
maintain continuity in our pricing structure and to limit exposure to currency  
fluctuations. Salton Europe currently uses foreign exchange contracts to hedge  
anticipated foreign currency transactions, primarily U.S. dollar inventory      
purchases. The contracts generally mature within one year and are designed to   
limit exposure to exchange rate fluctuations, primarily the British Pound       
Sterling against United States dollars. Our policy is to maintain an inventory  
base to service the seasonal demands of                                         

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our customers. In certain instances, we place firm commitments for products from
six to twelve months in advance of receipt of firm orders from customers.       

     Quality assurance is particularly important to us and our product shipments
are required to satisfy quality control tests established by our internal       
product design and engineering department. We employ both internal and          
independent agents to perform quality control inspections at the manufacturers' 
factories during the manufacturing process and prior to acceptance of goods.    

     Salton Hong Kong, Ltd. (Salton Hong Kong), our wholly owned subsidiary, has
been granted status in Hong Kong and the People's Republic of China as a        
manufacturing company. Salton Hong Kong has developed a key relationship with   
one of its suppliers whereby the supplier produces certain products for us using
materials purchased by Salton Hong Kong and certain assets provided by Salton   
Hong Kong. The purpose of this relationship is to secure for us a long-term     
supply relationship at favorable pricing.                                       

COMPETITION                                                                     

 Our industry is mature and highly fragmented. Competition is based upon
price, access to retail shelf space, product features and enhancements, brand   
names, new product introductions and marketing support and distribution         
approaches.                                                                     

  In the sale of small appliances, we compete with, among others, Applica,
Inc., Braun, Delonghi, Hamilton Beach/Proctor Silex, Holmes/Rival, Krups,       
National Presto, Rowenta and Sunbeam. In the sale of Salton At Home products, we
compete with, among others, Baccarat Crystal, Lenox, Mikasa, Miller Rogaska,    
Villeroy Boch, Waterford Crystal, Wedgewood, Westwood Lighting, Robert Abbey,   
Advance Corp. and M.Z. Berger. In the sale of personal care and wellness        
products, we compete with, among others, Andis, Conair Corporation, Helen of    
Troy and Sunbeam. We believe that our success is dependent on our ability to    
offer a broad range of existing products and to continually introduce new       
products and enhancements of existing products, which have substantial consumer 
appeal, based upon price, design, performance and features. We also believe that
our brand names are important to our ability to compete effectively and give us 
the capability to provide consumers with appealing, well priced products to meet
competition.                                                                    

EMPLOYEES                                                                       

    As of June 29, 2002, we employed approximately 1400 persons. Approximately
90 employees, who work at our Elizabeth, New Jersey facility and approximately  
70 employees at our Salton Europe, Wolverhampton, England facility, were covered
by collective bargaining agreements. The Elizabeth, New Jersey agreement expires
on February 28, 2005 and the Wolverhampton, England agreement is ongoing and has
no expiration date. We generally consider our relationship with our employees to
be satisfactory and have never experienced a work stoppage.                     

REGULATION                                                                      

    We are subject to federal, state and local regulations concerning consumer
products safety. Foreign jurisdictions also have regulatory authorities         
overseeing the safety of consumer products. In general, we have not experienced 
difficulty complying with such regulations and compliance has not had an adverse
effect on our business. Most of our products are listed by Underwriters         
Laboratory, Inc.                                                                

BACKLOG                                                                         

   Our backlog consists of commitments to order and orders for our products,
which are typically subject to change and cancellation until shipment. Customer 
order patterns vary from year to year, largely because of annual differences in 
consumer acceptance of product lines, product availability, marketing           
strategies, inventory levels of retailers and differences in overall economic   
conditions. As a result, comparisons of backlog as of any date in a given year  
with backlog at the same date in a prior year are not necessarily indicative of 
sales for that entire given year. As of June 29, 2002, we had a backlog of      
approximately $298.2 million compared to approximately $346.8 million as of June
30, 2001. We do not believe that backlog is necessarily indicative of our future
results of operations or prospects.                                             

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TRADEMARKS, PATENTS AND LICENSING ARRANGEMENTS                                  

     We hold numerous patents and trademarks registered in the United States and
foreign countries for various products and processes. We have registered certain
of our trademarks with the United States Patent and Trademark Office. We        
consider these trademarks to be of considerable value and of material importance
to our business.                                                                

 During 1996, we entered into license agreements with White Consolidated
Industries, Inc. for use of the White-Westinghouse(R) trademark for small       
kitchen appliances, personal care products, fans, heaters, air cleaners and     
humidifiers. The license agreements grant us the exclusive right and license to 
use the White-Westinghouse(R) trademark in the United States and Canada in      
exchange for certain license fees and royalties. The license agreements also    
contain minimum sales requirements that, if not satisfied, may result in the    
termination of the agreements. Each of these license agreements is also         
terminable on or after the fifth anniversary of the agreement upon one-year's   
notice or upon a breach by us.                                                  

  In fiscal 1997, we obtained the exclusive, worldwide right to distribute
Farberware(R) small electric appliances. Farberware(R) is a time-honored trade  
name in the cookware and small electric appliance industry.                     

    In fiscal 1999, we obtained the exclusive right to manufacture, market and
distribute throughout the United States small electrical coffee preparation     
products, including drip coffee makers, percolators, espresso machines, coffee  
grinders, and coffee mills, under the Melitta(R) brand name. We also entered    
into a license agreement with Aesthetics, Inc. in fiscal 1999. The license      
covers the manufacturing, marketing and distributing of the Rejuvenique(R)      
facial product lines. Also in fiscal 1999, we entered into an exclusive         
worldwide licensing agreement with UltraVection International to market ovens   
using UltraVection(TM)'s patented technology.                                   

On December 9, 1999, we acquired from George Foreman and other venture
participants the right to use in perpetuity and worldwide the name George       
Foreman(TM), including pictures and the likeness of George Foreman, in          
connection with the marketing and sale of food preparation and non-alcoholic    
drink preparation and serving appliances. This transaction terminated as of July
1, 1999 our obligation to pay royalties based on the sale of George Foreman(TM) 
products. The aggregate purchase price was $113.75 million in cash, a note      
payable in five annual installments of $22.75 million commencing on the closing 
date, and 779,191 shares of our common stock.                                   

  On September 7, 2000, we entered into agreements with George Foreman and
other venture participants pursuant to which we satisfied $22.75 million of     
payment obligations we incurred in connection with our acquisition of the       
"George Foreman" name by issuing 621,161 shares of our common stock to George   
Foreman and other venture participants. Under the terms of the transaction we   
guaranteed under certain circumstances the value of these 621,161 shares. We    
registered for resale the shares of common stock issued in connection with the  
transaction.                                                                    

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 million less the proceeds George Foreman received from the
sale of shares on the open market previously issued to him, terminated our      
guarantee obligation with respect to the shares issued to him and satisfied the 
third annual installment due under the note payable to George Foreman. Upon     
completion of this transaction, we had only two installments of $22.75 million  
remaining under the note as well as our outstanding guarantee obligation to the 
other venture participants. In the first quarter of fiscal 2003, we paid the    
first of the remaining installments under the note.                             

In the fourth quarter of fiscal 2000, we entered into an exclusive    
licensing agreement for the manufacture and distribution of tabletop and        
giftware items under the Calvin Klein(R) Tabletop label.                        

   On July 20, 2000, we entered into a joint marketing alliance with Kellogg
USA. We have both agreed as part of this alliance to launch print and broadcast 
advertising, joint trade and on-line consumer promotions and couponing and to   
collaborate with Kellogg on creating Pop-Tarts(R) and Eggo(R) branded toasters. 

On September 8, 2000, we entered into a worldwide exclusive licensing 
agreement to market and distribute the "spin fryer" home appliance. This product
continues in development and we expect to introduce the first version in January
2003.                                                                           

On January 12, 2001, Appliance Co. of America LLC appointed us as its 
exclusive distributor in North America of Welbilt(R) small kitchen electric     
appliances. In connection with the distribution agreement, we agreed to offer   
China                                                                           

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Resources Electrical Appliance (Zuhai Co.) Ltd., one of our suppliers located in
the Far East and the parent company of Appliance Co. of America LLC, orders to  
manufacture an aggregate of at least $200 million of small kitchen electric     
appliances by the end of 2006 (with minimum offered orders of $25 million per   
year). If we offer China Resources an order but fail to reach an agreement on   
delivery, payment and other terms, our offered order counts against the minimum 
offered orders requirement if we place the order with a third party on terms    
which are more favorable to us, in our sole discretion, than those offered by   
China Resources to us. In the third quarter of fiscal 2002 we elected to        
discontinue use of the Welbilt(R) name after disappointing results in the first 
year. We continue to purchase other products from China Resources to fulfill our
obligation.                                                                     

  On August 7, 2001 we acquired all of the trademarks, molds, intellectual
property, rights and patents related to the Westclox(R), Big Ben(R) and         
Spartus(R) brands for $9.8 million.                                             

  On April 22, 2002, we entered into an exclusive licensing agreement with
Westinghouse Electric Corporation to use its marquis Westinghouse(R) brand name,
Circle W trademark, and the brand awareness statement "You can be sure . . . if 
it's a Westinghouse(R)" on the following product categories: kitchen electrics, 
fans and heaters, personal care, table top air cleaners and humidifiers, clocks 
and vacuums. The agreement, which covers North America, South America, Africa,  
Europe, Asia and Australia-New Zealand, has a term ending on March 31, 2008.    
Upon completion of the six-year term, the agreement is renewable for additional 
five year terms. We are subject to pay minimum royalty payments to Westinghouse 
beginning in the third year of the agreement.                                   

     We have other licensing arrangements with various other companies to market
products bearing the trademark or likeness of the subject matter of the license.
These licenses include the right to market various products under Sasaki(R),    
Timex(R) for timers, Hershey Kiss(R), Looney Tunes(TM) and Starck(R). We believe
that these other license arrangements help to demonstrate our creativity and    
versatility in product design and the enhancement of existing products.         

  In general, our joint venture and licensing arrangements place marketing
obligations on us and require us to pay fees and royalties based upon net sales 
or profits. Typically, each of these agreements may be terminated within 30 to  
180 days if we do not satisfy minimum sales obligations or breach the agreement.

WARRANTIES                                                                      

   Our products are generally sold with a limited one-to-three year warranty
from the date of purchase. A limited number of products are sold with a lifetime
warranty. In the case of defects in material or workmanship, we agree to replace
or repair the defective product without charge.                                 

RISK FACTORS

     Prospective investors should carefully consider the following risk factors,
together with the other information contained in this annual report on Form     
10-K, in evaluating us and our business before purchasing our securities. In    
particular, prospective investors should note that this annual report on Form   
10-K contains forward-looking statements within the meaning of Section 27A of   
the Securities Act and Section 21E of the Exchange Act and that actual results  
could differ materially from those contemplated by such statements. See "Special
Note Regarding Forward-Looking Statements." The factors listed below represent  
certain important factors which we believe could cause such results to differ.  
These factors are not intended to represent a complete list of the general or   
specific risks that may affect us. It should be recognized that other risks may 
be significant, presently or in the future, and the risks set forth below may   
affect us to a greater extent than indicated.                                   

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND    
PREVENT US FROM FULFILLING OUR PAYMENT OBLIGATIONS.                             

   We have a significant amount of indebtedness relative to our equity size.
As of June 29, 2002, we had total consolidated indebtedness of $460.1 million,  
including $148.6 million of 12 1/4% senior subordinated notes due 2008 and      
$125.0 million of 10 3/4% senior subordinated notes due 2005, excluding $8.1    
million related to the fair value of a monetized fixed to floating interest rate
swap on the notes due 2008 and $18.2 million for the loan notes to Pifco        
shareholders that are fully cash collateralized, and total stockholders' equity 
of $245.0 million. We also had additional                                       

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availability under our revolving credit facility of $62.2 million. We may incur 
additional indebtedness in the future, including through additional borrowings  
under our amended and restated credit agreement, subject to the satisfaction of 
certain financial tests.                                                        

  Our ability to service our debt obligations, including the notes, and to
fund planned capital expenditures will depend upon our future operating         
performance, which will be affected by prevailing economic conditions in the    
markets we serve and financial, business and other factors, certain of which are
beyond our control. We cannot assure you that our business will generate        
sufficient cash flow from operations or that future borrowings will be available
under our amended and restated credit agreement in an amount sufficient to      
enable us to service our indebtedness, including the notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of the principal of  
the notes on or prior to maturity. We cannot assure you that we will be able to 
effect any refinancing on commercially reasonable terms or at all.              

    Our high level of debt could have important consequences for you, such as:

   - our debt level makes us more vulnerable to general adverse economic and
industry conditions;                                              

   - our ability to obtain additional financing for acquisitions, or to fund
     future working capital, capital expenditures or other general corporate
requirements may be limited;                                      

- we will need to use a substantial portion of our cash flow from     
operations for the payment of principal of, and interest on, our  
   indebtedness, which will reduce the amount of money available to fund
working capital, capital expenditures or other general corporate  
purposes;                                                         

    - our flexibility in planning for, or reacting to, changes in our business
and the industry in which we compete may be limited; and          

 - our debt level may place us at a competitive disadvantage to our less
leveraged competitors.                                            

OUR DEBT INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS THAT COULD ADVERSELY AFFECT  
OUR BUSINESS BY LIMITING OUR FLEXIBILITY.                                       

    Our amended and restated credit agreement and the indentures governing the
12 1/4% senior subordinated notes and the 10 3/4% senior subordinated notes     
impose restrictions that affect, among other things, our ability to incur debt, 
pay dividends, sell assets, create liens, make capital expenditures and         
investments, merge or consolidate, enter into transactions with affiliates, and 
otherwise enter into certain transactions outside the ordinary course of        
business. Our amended and restated credit agreement also requires us to maintain
specified financial ratios, including a minimum fixed charge coverage ratio and 
a maximum leverage ratio, and meet certain financial tests. Our ability to      
continue to comply with these covenants and restrictions may be affected by     
events beyond our control. A breach of any of these covenants or restrictions   
would result in an event of default under our amended and restated credit       
agreement and the indentures. Upon the occurrence of a breach, the lenders under
our amended and restated credit agreement could elect to declare all amounts    
borrowed thereunder, together with accrued interest, to be due and payable,     
foreclose on the assets securing our amended and restated credit agreement      
and/or cease to provide additional revolving loans or letters of credit, which  
could have a material adverse effect on us. A failure to comply with the        
restrictions in the indentures could result in an event of default under the    
indentures.                                                                     

IF WE WERE TO LOSE ONE OR MORE OF OUR MAJOR CUSTOMERS, OUR FINANCIAL RESULTS    
WOULD SUFFER.                                                                   

  Our success depends on our sales to our significant customers. Our total
net sales to our five largest customers during fiscal 2002 were approximately   
43% of net sales, with Wal-Mart representing approximately 14% of our net sales 
and Target Corporation representing approximately 12% of our net sales. Our     
total net sales to our five largest customers during fiscal 2001 were           
approximately 47% of net sales, with Wal-Mart representing approximately 12% of 
our net sales and Kmart representing approximately 11% of our net sales. Except 
for our supply agreements with Kmart and Zellers, we do not have long-term      
agreements with our major customers, and purchases are generally made through   
the use of individual purchase orders. A significant reduction in purchases by  
any of these major customers or a general economic downturn in retail sales     
could have a material adverse effect on our business, financial condition and   
results of operations.                                                          

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IF WE EXPERIENCE A WORK STOPPAGE AT OUR MAJOR PORTS OF ENTRY CAUSED BY A DOCK   
STRIKE OUR ABILITY                                                              
TO SERVICE OUR CUSTOMERS MAY BE AFFECTED.                                       

We purchase almost all of our product from foreign suppliers. These   
products are shipped to us on ocean vessels, which land at various ports. A work
stoppage at any or all of these ports could have a material adverse impact on   
our ability to obtain and deliver products to our warehouses or our customers.  

IF WE DO NOT DEVELOP AND INTRODUCE NEW PRODUCTS, OUR ABILITY TO GROW OUR        
BUSINESS WILL BE LIMITED.                                                       

    We believe that our future success will depend in part upon our ability to
continue to introduce innovative designs in our existing products and to        
develop, manufacture and market new products. We may not successfully introduce,
market and manufacture any new products or product innovations or develop and   
introduce, in a timely manner, innovations to our existing products, which      
satisfy customer needs or achieve market acceptance. Our failure to develop     
products and introduce them successfully and in a timely manner would harm our  
ability to grow our business.                                                   

WE DEPEND HEAVILY ON OUR FOREIGN SUPPLIERS, WHICH SUBJECTS US TO THE RISKS OF   
DOING BUSINESS ABROAD.                                                          

   We depend upon unaffiliated foreign companies for the manufacture of most
of our products. One supplier located in China, accounted for approximately     
32.5% of our product purchases during fiscal 2002 and accounted for             
approximately 35.2% of our product purchases in fiscal 2001. We believe that the
loss of any one supplier would not have a long term material adverse effect on  
our business because other suppliers with which we do business would be able to 
increase production to fulfill our requirements however, the loss of a supplier 
could, in the short term, adversely effect our business until alternative supply
arrangements are secured.                                                       

Our arrangements with our suppliers are subject to the risks of doing business  
abroad, including:                                                              

- import duties;                                                                

- trade restrictions;                                                           

- production delays due to unavailability of parts or components;               

- increase in transportation costs and transportation delays;                   

- work stoppages;                                                               

- foreign currency fluctuations; and                                            

- political and economic instability.                                           

THE SMALL HOUSEHOLD APPLIANCE INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY NOT BE  
ABLE TO COMPETE EFFECTIVELY.                                                    

We believe that competition is based upon several factors, including:           

- price;                                                                        

- access to retail shelf space;                                                 

- product features and enhancements;                                            

- brand names;                                                                  

- new product introductions; and                                                

- marketing support and distribution approaches.                                

 We compete with established companies, some of which have substantially
greater facilities, personnel, financial and other resources than we have.      
Significant new competitors or increased competition from existing competitors  
may adversely affect our business, financial condition and results of           
operations.                                                                     

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IF THE RETAIL INDUSTRY CONTINUES TO EXPERIENCE AN ECONOMIC SLOWDOWN, OUR        
FINANCIAL RESULTS WILL BE ADVERSELY AFFECTED.                                   

    We sell our products to consumers through major retail channels, primarily
mass merchandisers, department stores, specialty stores and mail order catalogs.
As a result, our business and financial results can fluctuate with the financial
condition of our retail customers and the retail industry. The current general  
slowdown in the retail sector has adversely impacted our net sales of products, 
our operating margins and our net income. The risks of terrorist attacks and    
potential hostilities could prolong or worsen the current economic downturn. If 
such conditions continue or worsen, it could have a material adverse effect on  
our business, financial condition and results of operations.                    

   The current general slowdown in the retail sector has resulted in, and we
expect it to continue to result in, additional pricing and marketing support    
pressures on us.                                                                

     Certain of our retail customers, including Kmart, have filed for bankruptcy
protection in recent years. Kmart represented 6% and 11% of total net sales in  
fiscal 2002 and 2001, respectively. We continually monitor and evaluate the     
credit status of our customers and attempt to adjust sales terms as appropriate.
Despite these efforts, a bankruptcy filing by, or other adverse change in the   
financial condition of, a significant customer could adversely affect our       
financial results.                                                              

ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE AND MAY DISRUPT OUR BUSINESS.        

   We continue to seek opportunities to acquire businesses and product lines
that fit within our acquisition strategy, including the expansion of our        
international sales through the acquisition of complementary businesses. We may 
not successfully identify acceptable acquisition candidates or integrate any    
acquired operations. For instance, we cannot assure you that the anticipated    
benefits of our recent acquisitions of Look For, a distributor located in       
France, the Westclox(R), Big Ben(R) and Spartus(R) brands and Pifco Holdings PLC
(renamed Salton Europe) will be realized. Opportunities for growth through      
acquisitions, future operating results and the success of acquisitions may be   
subject to the effects of, and changes in, U.S. and foreign trade and monetary  
policies, laws and regulations, political and economic developments, inflation  
rate and tax laws.                                                              

 Our acquisitions of additional businesses and product lines may require
additional capital and the consent of our lenders and may have a significant    
impact on our business, financial condition and results of operations. We may   
finance acquisitions with internally generated funds, bank borrowings, public   
offerings or private placements of debt or equity securities, or through a      
combination of these sources. This may have the effect of increasing our debt   
and reducing our cash available for other purposes.                             

Acquisitions may also require substantial attention from, and place   
substantial additional demands upon, our senior management. This may divert     
senior management's attention away from our existing businesses, making it more 
difficult to manage effectively. In addition, unanticipated events or           
liabilities relating to these acquisitions or the failure to retain key         
personnel could have a material adverse effect on our business, results of      
operations and financial condition.                                             

EXPANDING OUR INTERNATIONAL SALES WILL SUBJECT US TO ADDITIONAL BUSINESS RISKS  
AND MAY CAUSE OUR PROFITABILITY TO DECLINE DUE TO INCREASED COSTS.              

     We intend to pursue growth opportunities internationally. Our international
sales accounted for less than 20% of our total net sales for fiscal 2002. Our   
pursuit of international growth opportunities may require significant           
investments for an extended period before returns on these investments, if any, 
are realized. International operations are subject to a number of other risks   
and potential costs, including:                                                 

- the risk that because our brand names may not be locally recognized, we must  
 spend significant amounts of time and money to build a brand identity without
certainty that we will be successful;                                       

- unexpected changes in regulatory requirements;                                

- inadequate protection of intellectual property in foreign countries;          

- foreign currency fluctuations;                                                

- transportation costs;                                                         

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- adverse tax consequences; and                                                 

- political and economic instability.                                           

We cannot assure you that we will not incur significant costs in addressing     
these potential risks.                                                          

IF WE HAVE TO EXPEND SIGNIFICANT AMOUNTS TO REMEDIATE ENVIRONMENTAL LIABILITIES,
OUR FINANCIAL RESULTS WILL SUFFER.                                              

     Prior to January 2001, we manufactured certain of our products at our owned
plants in Laurinburg, North Carolina, Macon, Missouri, Boonville, Missouri,     
Moberly, Missouri and Kirksville, Missouri. Our previous manufacturing of       
products at these sites, which have been converted to warehouse and distribution
facilities, exposes us to potential liabilities for environmental damage that   
these facilities may have caused or may cause nearby landowners. During the     
ordinary course of our operations, we have received, and we expect that we may  
in the future receive, citations or notices from governmental authorities       
asserting that our facilities are not in compliance with, or require            
investigation or remediation under, applicable environmental statutes and       
regulations. Any citations or notices could have a material adverse effect on   
our business, results of operations and financial condition.                    

THE SEASONAL NATURE OF OUR BUSINESS COULD ADVERSELY IMPACT OUR OPERATIONS.      

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 for us 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. Lower sales 
than expected by us during this period, a lack of availability of product, a    
general economic downturn in retail sales or the inability to service additional
interest expense due to increased borrowings could have a material adverse      
effect on our business, financial condition and results of operations.          

LONG LEAD TIMES AND CUSTOMER DEMANDS MAY CAUSE US TO PURCHASE MORE INVENTORY    
THAN NECESSARY.                                                                 

    Manufacturing lead times and a strong concentration of our sales occurring
during the September through December time period require that we purchase      
products and thereby increase inventories based on anticipated sales and        
forecasts provided by our customers and our sales personnel. In an extended     
general economic slowdown we cannot assure you that our customers will order    
these inventories as anticipated.                                               

PRODUCT RECALLS OR LAWSUITS RELATING TO DEFECTIVE PRODUCTS COULD ADVERSELY      
IMPACT OUR FINANCIAL RESULTS.                                                   

 We face exposure to product recalls and product liability claims in the
event that our products are alleged to have manufacturing or safety defects or  
to have resulted in injury or other adverse effects. We cannot assure you that  
we will be able to maintain our product liability insurance on acceptable terms,
if at all, or that product liability claims will not exceed the amount of our   
insurance coverage. As a result, we cannot assure you that product recalls and  
product liability claims will not adversely affect our business.                

THE INFRINGEMENT OR LOSS OF OUR PROPRIETARY RIGHTS COULD HAVE AN ADVERSE EFFECT 
ON OUR BUSINESS.                                                                

We regard our copyrights, trademarks, service marks and similar       
intellectual property as important to our success. We rely on copyright and     
trademark laws in the United States and other jurisdictions to protect our      
proprietary rights. We seek to register our trademarks in the United States and 
elsewhere. These registrations could be challenged by others or invalidated     
through administrative process or litigation. If any of these rights were       
infringed or invalidated, our business could be materially adversely affected.  

     We license various trademarks and trade names from third parties for use on
our products. These licenses generally place marketing obligations on us and    
require us to pay fees and royalties based on net sales or profits. Typically,  
each license may be terminated if we fail to satisfy minimum sales obligations  
or if we breach the license. The termination of these licensing arrangements    
could adversely affect our business, financial condition and results of         
operations.                                                                     

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WE MAY BE SUBJECT TO LITIGATION AND INFRINGEMENT CLAIMS, WHICH COULD CAUSE US TO
INCUR SIGNIFICANT EXPENSES OR PREVENT US FROM SELLING OUR PRODUCTS.             

 We cannot assure you that others will not claim that our proprietary or
licensed products are infringing their intellectual property rights or that we  
do not in fact infringe those intellectual property rights. If someone claimed  
that our proprietary or licensed products infringed their intellectual property 
rights, any resulting litigation could be costly and time consuming and would   
divert the attention of management and key personnel from other business issues.
We also may be subject to significant damages or an injunction against use of   
our proprietary or licensed products. A successful claim of patent or other     
intellectual property infringement against us could harm our financial          
condition.                                                                      

COMPLIANCE WITH GOVERNMENTAL REGULATIONS COULD SIGNIFICANTLY INCREASE OUR       
OPERATING COSTS OR PREVENT US FROM SELLING OUR PRODUCTS.                        

Most federal, state and local authorities require certification by    
Underwriters Laboratory, Inc., an independent, not-for-profit corporation       
engaged in the testing of products for compliance with certain public safety    
standards, or other safety regulation certification prior to marketing          
electrical appliances. Foreign jurisdictions also have regulatory authorities   
overseeing the safety of consumer products. Our products, or additional         
electrical appliances which may be developed by us, may not meet the            
specifications required by these authorities. A determination that we are not in
compliance with these rules and regulations could result in the imposition of   
fines or an award of damages to private litigants.                              

IF WE DO NOT ATTRACT AND RETAIN SKILLED PERSONNEL, OUR ABILITY TO GROW AND      
DEVELOP OUR BUSINESS WILL SUFFER.                                               

Our continued success will depend significantly on the efforts and    
abilities of David C. Sabin, Chairman; Leonhard Dreimann, Chief Executive       
Officer; William B. Rue, President and Chief Operating Officer and David Mulder,
Executive Vice President and Chief Administrative Officer. The loss of the      
services of one or more of these individuals could have a material adverse      
effect on our business. In addition, as our business develops and expands, we   
believe that our future success will depend greatly on our ability to attract   
and retain highly qualified and skilled personnel. We do not have, and do not   
intend to obtain, key-man life insurance on our executive officers.             

THE INTERESTS OF OUR SIGNIFICANT STOCKHOLDER MAY CONFLICT WITH YOUR INTERESTS.  

   As of June 29, 2002, Centre Partners Management LLC and entities directly
or indirectly controlled by Centre Partners beneficially owned in the aggregate 
approximately 27% of our common stock. Centre Partners is able to exercise      
significant influence with respect to the election of directors or major        
corporate transactions such as a merger or sale of all or substantially all of  
our assets. Centre Partners generally has the right to designate two directors  
as long as it and its affiliates own at least 12.5% of the total voting power of
our outstanding common stock and one director as long as it and its affiliates  
own at least 7.5% of the total voting power of our outstanding common stock. The
interests of Centre Partners may conflict with your interests in certain        
circumstances.                                                                  

TAKEOVER DEFENSE PROVISIONS WHICH WE HAVE IMPLEMENTED MAY ADVERSELY AFFECT THE  
MARKET PRICE OF OUR COMMON STOCK.                                               

Various provisions of Delaware corporation law and of our corporate   
governance documents may inhibit changes in control not approved by our board of
directors and may have the effect of depriving stockholders of an opportunity to
receive a premium over the prevailing market price of our common stock in the   
event of an attempted hostile takeover or may deter takeover attempts by third  
parties. In addition, the existence of these provisions may adversely affect the
market price of our common stock. These provisions include:                     

- a classified board of directors;                                              

- a prohibition on stockholder action through written consents;                 

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- a requirement that special meetings of stockholders be called only by the     
board of directors;                                                         

- availability of "blank check" preferred stock.                                

ITEM 2.  Properties                                                             

A summary of our leased properties is as follows:                     

                                                        [Enlarge/Download Table]

                                                                                        AREA                      
LOCATION                               DESCRIPTION                                 (SQ. FT.)      LEASE EXPIRATION
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
Compton, CA                            Warehouse                                     414,967     December 31, 2003
Rancho Dominguez, CA                   Warehouse                                     340,672       August 31, 2003
Mira Loma, CA                          Warehouse and distribution facility           216,300      October 31, 2007
Elizabeth, NJ                          Warehouse                                     220,000      October 31, 2004
Harrison, NJ                           Warehouse and sales office                    146,555          May 31, 2007
Cheraw, SC                             Warehouse                                     127,070    September 30, 2003
Lake Forest, IL                        Corporate offices and showrooms                58,680    September 30, 2011
Gurnee, IL                             Retail outlet and warehouse                    34,649     November 30, 2006
Kenilworth, NJ                         Marketing and sales office                     12,309    September 30, 2007
New York, NY                           Sales office                                    6,959       August 31, 2004
New York, NY                           Sales office                                    6,802       August 31, 2004
Kenosha,WI                             Retail outlet                                   6,000     December 31, 2002
Prince William, VA                     Retail outlet                                   4,386     December 31, 2004
Westend, NJ                            Retail outlet                                   2,400          May 31, 2004
Mississsagua, Ontario                  Sales office                                    2,158        April 30, 2004
Mississsagua, Ontario                  Sales office                                    1,647         July 31, 2005
Troy, MI                               Sales office                                    1,435          May 31, 2004
Eden Prairie, MN                       Sales office                                    1,262        April 30, 2005
Laurinburg, NC                         Showroom                                        1,000        Month to month

    We own all of the facilities listed below, which we acquired in connection
with the acquisition of Pifco Holdings PLC in June 2001 and Toastmaster in      
January 1999. These facilities have been pledged as collateral to secure payment
of our senior debt obligations. The following table sets forth the location and 
approximate square footage of each of our significant owned facilities.         

                                                                [Download Table]

                                                                        AREA
LOCATION                DESCRIPTION                                (SQ. FT.)
----------------------------------------------------------------------------
                                                                            
Wolverhampton, England  Manufacturing and warehouse                  323,306
Laurinburg, NC          Sales and warehouse facility                 223,000
Macon, MO               Warehouse and service center                 171,000
Boonville, MO           Warehouse and service center                 169,000
Manchester, England     Administrative offices and warehouse         168,178
Moberly, MO             Warehouse                                    134,000
Staffordshire, England  Warehouse                                    122,938
Kirksville, MO          Warehouse                                    114,000
Columbia, MO            Warehouse                                    107,000
Columbia, MO            Warehouse                                     65,000
Columbia, MO            Administrative offices                        62,000
Boonville, MO           Warehouse                                     58,000
Manchester, England     Factory Store                                  2,578

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    We believe that our facilities generally are suitable and adequate for our
current level of operations and provide sufficient capacity for our foreseeable 
needs without the need for material capital expenditures.                       

 In addition to the facilities mentioned above, we acquired 6.3 acres of
vacant land located in Manchester, England as part of our acquisition of Pifco  
Holdings PLC in June 2001.                                                      

ITEM 3. Legal Proceedings                                                       

GENERAL                                                                         

 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 alleged that  
Applica intentionally, willfully and maliciously breached its noncompetition    
agreement with us, attempted to conceal the breach, tortuously interfered with  
our business and contractual relationships and breached its duty of good faith  
and fair dealing. We reached a settlement agreement with Applica, effective as  
of June 21, 2002, which resulted in the following:                              

- The cancellation of the obligations on our balance sheet with respect to the  
promissory note which we issued to Applica in 1998, which note has a face   
value of $15.0 million and a carrying value prior to the settlement of      
approximately $10.8 million and an accounts payable balance of $1.3 million;

- The termination of our obligation to pay Applica a fee based upon our net     
sales of White-Westinghouse(R) products to Kmart;                           

- The agreement by Applica to be responsible for the payment of any losses or   
settlements relating to claims made by a former sales representative of     
Salton;                                                                     

- The grant by a subsidiary of Applica to Salton of a royalty-free license to   
use certain technology relating to electric toasters;                       

- The payment by Salton to Applica of $1.8 million on or before December 31,    
2002 and $2.0 million on or before June 30, 2004; and                       

- A mutual release by the parties.                                              

  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(TM) rotisserie grills utilizing the inventions claimed by     
those patents and unspecified monetary damages including a request for treble   
damages.                                                                        

    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 alleged that we have       
infringed a patent assigned to AdVantage, and sought 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.                                 

   In the first quarter of fiscal 2003, we settled the aforementioned patent
infringement litigations as well as those suits involving some of our retail    
customers. The resolution provides us with the right to distribute and sell     
certain rotisserie products, including our current versions of the George Jr.   
and Baby George Rotisseries, and retailers the right to resell those products,  
without fear of future patent litigation. The resolution also preserves to      
Popeil Inventions Inc. the exclusive license in countertop rotisseries to the   
rotisserie patents developed by Ron Popeil.                                     

On May 6, 2002, Philips Oral Healthcare, Inc. ("Philips") filed suit  
against us in the federal court of the Western District of Washington. In its   
Complaint, Philips challenges various advertising claims made by us about the   
Ultrasonex(TM) electric toothbrush. Philips alleges causes of action for false  
advertising and seeks to enjoin us from using various claims in its advertising 
of the product.                                                                 

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     On August 28, 2002, the Court entered an order granting Philips' motion for
preliminary injunction. As a result of this order, we are preliminarily enjoined
from airing two commercials or developing new advertising for the Ultrasonex(TM)
using one of the specific advertising claims at issue. The preliminary order    
does not enjoin the sale of the toothbrush or require that we modify the        
product's packaging in any way. Under the current scheduling order, a trial on  
the merits is scheduled for October 2003.                                       

On September 5, 2002, we entered into an agreement with the Attorney  
Generals of New York and Illinois governing our future conduct with retailer    
relating to our indoor electric grills. We expect all, or nearly all, other     
states will join this agreement. This agreement provides for us to make a       
payment of $1.2 million upon final approval of the agreement and two additional 
payments of $3.5 million each on March 1, 2003 and 2004, respectively. All of   
our payments are contingent on states representing at least 80% of the national 
population entering into the settlement agreement.                              

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

ENVIRONMENTAL                                                                   

     We are participating in environmental remediation activities at four sites,
which we own or operate. As of June 29, 2002, we have accrued approximately $0.2
million for the anticipated costs of investigation, remediation and/or operation
and maintenance costs at these sites. Although the costs could exceed that      
amount, we believe that any excess will not have a material adverse effect on   
our financial condition or results of operations.                               

ITEM 4.  Submission Of Matters To Vote Of Security Holders                      

(a) Not applicable                                                              

(b) Not applicable                                                              

(c) Not applicable                                                              

(d) Not applicable                                                              

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PART II 

ITEM 5.  Market For Registrant's Common Equity And Related Stockholder Matters  

 The registrant's common stock has traded on the New York Stock Exchange
under the symbol "SFP" since February 26, 1999. From October 1991 until February
25, 1999, our common stock traded on the Nasdaq National Market under the symbol
"SALT". The following table sets forth, for the periods indicated, the high and 
low sales prices for the common stock as reported on the New York Stock Exchange
adjusted for the three-for-two stock split effected on July 28, 1999.           

                                                                [Download Table]

                                                                HIGH      LOW
-----------------------------------------------------------------------------
                                                                             
FISCAL 2002                                                                  
    First Quarter                                             $19.35   $ 8.24
    Second Quarter                                            $20.20   $ 7.96
    Third Quarter                                             $23.60   $16.76
    Fourth Quarter                                            $20.66   $12.16

FISCAL 2001                                                                  
    First Quarter                                             $41.50   $28.63
    Second Quarter                                            $33.38   $16.56
    Third Quarter                                             $23.00   $14.96
    Fourth Quarter                                            $21.80   $12.85

FISCAL 2000                                                                  
    First Quarter                                             $50.00   $21.69
    Second Quarter                                            $39.44   $24.25
    Third Quarter                                             $60.88   $27.69
    Fourth Quarter                                            $49.81   $26.88

 We have not paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion of our operations and for general corporate    
purposes, including future acquisitions. We are also prohibited from declaring  
or paying cash dividends on our capital stock under our terms of our credit     
agreement and senior subordinated notes. As of September 20, 2002 there were    
approximately 337 holders of record of our common stock.                        

PREFERRED STOCK                                                                 

   We have 40,000 outstanding shares of the convertible preferred stock. The
convertible preferred stock is non-dividend bearing except if we breach, in any 
material respect, any of our material obligations in the preferred stock        
agreement or the certificate of incorporation relating to the convertible       
preferred stock, the holders of convertible preferred stock are entitled to     
receive quarterly cash dividends on each share of convertible preferred stock   
from the date of such breach until it is cured at a rate per annum equal to 12  
1/2% of the Liquidation Preference (as defined below). The payment of dividends 
is limited by the terms of our credit agreement.                                

     Each holder of the convertible preferred stock is generally entitled to one
vote for each share of Salton common stock which such holder could receive upon 
the conversion of the convertible preferred stock. Each share of convertible    
preferred stock is convertible at any time into that number of shares of Salton 
common stock obtained by dividing $1,000 by the Conversion Price in effect at   
the time of conversion. The "Conversion Price" is equal to $11.33, subject to   
certain anti-dilution adjustments.                                              

    In the event of a Change of Control (as defined), each holder of shares of
convertible preferred stock has the right to require us to redeem such shares at
a redemption price equal to the Liquidation Preference plus an amount equivalent
to interest accrued thereon at a rate of 7% per annum compounded annually on    
each anniversary date of July 28, 1998 for the period from July 28, 1998 through
the earlier of the date of such redemption or July 28, 2003.                    

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  In the event of a liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of the Convertible Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution 
to its stockholders an amount in cash equal to $1,000 per share, plus the amount
of any accrued and unpaid dividends thereon (the "Liquidation Preference"),     
before any distribution is made to the holders of any Salton common stock or any
other of our capital stock ranking junior as to liquidation rights to the       
convertible preferred stock.                                                    

  We may optionally convert in whole or in part, the convertible preferred
stock at any time on and after July 15, 2003 at a cash price per share of 100%  
of the then effective Liquidation Preference per share, if the daily closing    
price per share of our common stock for a specified 20 consecutive trading day  
period is greater than or equal to 200% of the then current Conversion Price. On
September 15, 2008, we will be required to exchange all outstanding shares of   
convertible preferred stock at a price equal to the Liquidation Performance per 
share, payable at the Company's option in cash or shares of Salton common stock.

As of September 20, 2002 there were 40,000 shares of the convertible  
preferred stock outstanding, held by 7 shareholders of record. There is no      
established market for the convertible preferred stock.                         

ITEM 6.  Selected Financial Data                                                

   The following selected historical financial data as of and for the fiscal
years ended June 29, 2002, June 30, 2001, July 1, 2000, June 26, 1999 and June  
27, 1998 have been derived from, and should be read in conjunction with, our    
audited consolidated financial statements, including the notes thereto. All of  
the following information is qualified in its entirety by, and should be read in
conjunction with our audited consolidated financial statements, including the   
notes thereto.                                                                  

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                                                        [Enlarge/Download Table]

FISCAL YEARS ENDED                                                                                       
                                                    JUNE 29,   JUNE 30,   JULY 1,    JUNE 26,   JUNE 27, 
                                                      2002       2001       2000       1999       1998   
-------------------------------------------------------------------------------------------------------- 
                                                                                                         
STATEMENT OF EARNINGS                                                                                    
Net sales                                           $922,479   $792,114   $837,302   $506,116   $305,599 
Cost of goods sold                                   544,147    474,256    467,250    285,526    179,376 
Distribution expenses                                 60,831     49,395     37,639     21,621     12,327 
-------------------------------------------------------------------------------------------------------- 
  Gross profit                                       317,501    268,463    332,413    198,969    113,896 
Selling, general, and administrative expenses        223,577    156,885    156,749    129,588     84,216 
Legal settlements, net                                 2,580         --         --         --         -- 
-------------------------------------------------------------------------------------------------------- 
  Operating income                                    91,344    111,578    175,664     69,381     29,680 
Interest expense, net                                (44,431)   (37,732)   (28,761)   (15,518)    (5,333)
Fair market value adjustment on derivatives           (2,372)        --         --         --         -- 
Cost associated with refinancing                          --         --         --         --     (1,133)
Realized gain on sale of marketable securities            --         --         --         --      8,972 
-------------------------------------------------------------------------------------------------------- 
  Income before income taxes                          44,541     73,846    146,903     53,863     32,186 
Income tax expense                                    14,394     27,692     55,087     19,320     12,205 
-------------------------------------------------------------------------------------------------------- 
Net income                                          $ 30,147   $ 46,154   $ 91,816   $ 34,543   $ 19,981 
======================================================================================================== 
Weighted average common shares outstanding            11,005     11,750     11,221     10,760     19,594 
Net income per share:                                                                                    
  Basic                                             $   2.74   $   3.93   $   8.18   $   3.21   $   1.02 
Weighted average common shares and common                                                                
  Equivalent shares outstanding                       15,042     16,065     15,526     14,562     20,259 
Net income per share:                                                                                    
  Diluted                                           $   2.00   $   2.87   $   5.91   $   2.37   $   0.99 

BALANCE SHEET DATA (at period end)                                                                       
Working capital                                     $278,407   $310,648   $197,671   $165,936   $ 44,768 
Total assets                                         825,568    722,884    564,276    328,316    141,397 
Total debt(1)                                        460,066    402,713    327,220    214,558     50,475 
Stockholders' equity                                 245,036    211,497    173,808     50,739     57,710 

---------------                                                                 
(1) Excluding $18.2 million in fiscal 2002 and $11.3 million in fiscal 2001     
related to the loan notes to Pifco shareholders which were fully cash   
   collateralized and excluding $8.1 million in fiscal 2002 and $(0.5) million
 in fiscal 2001 related to the fair value of a monetized fixed to floating
interest rate swap on the notes due 2008.                               

ITEM 7.  Management's Discussion And Analysis Of Financial Condition And Results
of Operations                                                                   

This Management's Discussion and Analysis of Financial Condition and  
Results of Operations may be deemed to include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and       
Section 21E of the Securities Exchange Act of 1934, as amended, that involve    
risk and uncertainty. Although we believe that our expectations are based on    
reasonable assumptions, we can give no assurance that our expectations will be  
achieved. The important factors that could cause actual results to differ       
materially from those in the forward-looking statements herein (the "Cautionary 
Statements") include, without limitation: our degree of leverage; economic      
conditions and the 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; international business          
activities; the risks relating to legal proceedings, the risks relating to      
intellectual property rights; the risks relating to regulatory matters, as well 
as other risks referenced from time to time in our filings with the commission. 
All subsequent written and oral forward-looking statements attributable to us,  
or persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements. We do not                                                

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undertake any obligation to release publicly any revisions to such              
forward-looking statements to reflect events or circumstances after the date    
hereof or to reflect the occurrence of unanticipated events.                    

OVERVIEW                                                                        

 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), Westinghouse(R),              
Farberware(R), Melitta(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, bread makers, griddles, 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) timers,     
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 website. We
market and sell our products primarily in the United States and Europe 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,   
operating profit and net income. We continue to experience a shift in our       
customers' buying patterns from higher-priced products to lower price point     
promotional products. Although this was somewhat abated in the fourth quarter of
fiscal 2002 we are unsure of the longer term pattern of purchases of our        
customers. 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. Also, we have had
to spend additional promotion and advertising dollars to maintain our market    
presence. Our products, and our market leading position in so many categories,  
gives us a solid foundation to actively face the difficult economic environment.

The results for the fiscal year 2002 include pre-tax charges of $2.6  
million related to three legal settlements discussed below, $5.3 million in     
reserve increases related to certain trade and royalty receivables, and $6.8    
million associated with exiting certain product lines. These lines include      
cookware and large outdoor gas grills. The results for fiscal 2001 include      
pre-tax charges of $8.2 million related to inventory losses, $5.1 million in    
LIFO charges, and $2.0 million related to the bankruptcy of Ames Department     
Stores.                                                                         

     As a result of complaints from a few retailers concerning our allocation in
1998 and 1999 of certain George Foreman(TM) grills, we have entered into an     
agreement with the Attorney Generals of New York and Illinois governing our     
future conduct with retailers relating to our indoor electric grills. We expect 
all, or nearly all, of the other states to join in this agreement.              

     Although we believe that we acted in compliance with longstanding antitrust
principles, we entered into this agreement to resolve this matter without the   
distractions and costs of a lengthy investigation and likely litigation.        

    The agreement with the Attorney Generals provides for us to make a payment
of $1.2 million upon final approval of the agreement and two additional payments
of $3.5 million each on March 1, 2003 and 2004, respectively. All of these      
payments are contingent on States representing at least 80% of the national     
population entering into the settlement agreement.                              

  We also entered into a settlement agreement with Applica, Inc. to settle
all outstanding claims against each other. The principal features of the        
settlement are:                                                                 

- The cancellation of the obligations on our balance sheet with respect to the  
promissory note which we issued to Applica in 1998, which note has a face   
value of $15.0 million and a carrying value prior to the settlement of      
approximately $10.8 million and an accounts payable balance of $1.3 million;

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- The termination of our obligation to pay Applica a fee based upon our net     
sales of White-Westinghouse(R) products to Kmart;                           

- The agreement by Applica to be responsible for the payment of any losses or   
settlements relating to claims made by a former sales representative of     
Salton;                                                                     

- The grant by a subsidiary of Applica to Salton of a royalty-free license to   
use certain technology relating to electric toasters;                       

- The payment by Salton to Applica of $1.8 million on or before December 31,    
2002 and $2.0 million on or before June 30, 2004; and                       

- A mutual release by the parties.                                              

    We also settled the litigation brought by AdVantage Partners, the licensee
of Popeil Inventions. AdVantage Partners claimed that our Foreman(TM) rotisserie
ovens infringed certain patents held by AdVantage. The settlement we entered    
into entitles Salton and all of our retail customers to sell the rotisserie     
ovens without fear of future litigation and effectively grants to us the right  
to use all of the patents on rotisserie ovens held by AdVantage Partners.       

    In April 2002, we announced we had signed an exclusive licensing agreement
with Westinghouse Electric Corporation to use its Westinghouse(R) brand name,   
Circle W trademark, and the brand awareness statement "You can be sure . . . if 
it's Westinghouse(R)" on certain product categories in North America, South     
America, Africa, Europe, Asia, and Australia-New Zealand.                       

The agreement commenced immediately and will last six years, ending on
March 31, 2008. Upon completion of the six-year term, the agreement will be     
renewable for an additional five 5-year terms. Under the agreement, no initial  
capital investment is required from Salton. We are subject to minimum royalty   
payments to Westinghouse beginning in the third year of the agreement. The terms
of the agreement give Salton the exclusive right to use the Westinghouse brand  
name and its trademarks on the following product categories: kitchen electrics, 
fans and heaters, personal care, table top air cleaners and humidifiers, clocks,
and vacuums.                                                                    

     We intend to launch a new line of Westinghouse(R) branded innovative vacuum
cleaners. The launch includes a series of innovative, technologically advanced  
vacuums under the Westinghouse(R) brand and will feature a wireless upright     
vacuum cleaner. This product will be bagless, eliminate the need for a cord     
while vacuuming, and provide comparable suction power to a corded vacuum        
cleaner. We also plan to introduce two corded upright vacuum cleaners that      
feature bagless technology and HEPA filtration.                                 

Additionally, we announced the introduction of a new line of smart,   
networked home appliances, under the Westinghouse(R) brand, that will interface 
with the internet via a information center called a gateway device designed by  
Salton and powered by Microsoft Windows CE .NET. The new line of products will  
include the gateway device, breadmakers, convection ovens, and coffee makers,   
among other planned future products. Initial shipments of these products are    
expected to occur in calendar year 2003.                                        

  In March 2002, we announced the acquisition by Salton Europe of the Look
For Group in France. Look For is a distributor of small electric appliances in  
mainland Europe, primarily France, under the brand names Suntai(R), Orgalys(R)  
and Orva(R) brands. Look For also distributes Russell Hobbs(R) for Salton Europe
in its existing markets. For the year ended December 31, 2001, Look For recorded
annual sales of approximately US$10 million.                                    

     In March 2002, we announced the appointment of David M. Mulder to the newly
created position of Executive Vice President and Chief Administrative Officer.  
Mr. Mulder is responsible for overseeing corporate finance, U.S. operations,    
U.S. information technology and U.S. human resources.                           

     In August 2001, we announced the acquisition of the Westclox(R), Big Ben(R)
and Spartus(R) brands from the bankrupt General Time Corporation, until recently
the largest producer and marketer of alarm, wall and occasional clocks in North 
America. Under the terms of the acquisition, we agreed to purchase all of the   
trademarks, molds, intellectual property, rights and patents related to these   
select brands for $9.8 million. In addition, we agreed to purchase certain      
inventory related to these brands held in the U.S., Europe and Canada.          

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In August 2001, we appointed Martin Burns to oversee the operations of
Salton Europe (formerly Pifco Holdings PLC). Martin most recently served as     
Managing Director of Morphy Richards at the Glen Dimplex Group, a manufacturer  
of electrical heating and small kitchen appliances in the United Kingdom.       

     On July 9, 2001, we announced the appointment of Dr. Bruce J. Walker to our
Board of Directors, increasing the board to eight members. Dr. Walker currently 
serves as Dean and Professor of Marketing at the College of Business at the     
University of Missouri-Columbia.                                                

 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. Our
operating results for fiscal 2001 include the operating results of Pifco from   
June 1, 2001 through June 30, 2001. In fiscal 2002 we renamed Pifco Holdings PLC
to Salton Europe Ltd.                                                           

 On January 7, 1999, we acquired Toastmaster, a Columbia, Missouri based
marketer of kitchen and small appliances and time products. Through Toastmaster,
we design, market and service a wide array of kitchen and small appliances and  
time products under the brand names Toastmaster(R) and Ingraham(R). Our         
operating results for fiscal 1999 include the operating results of Toastmaster  
from our acquisition date of January 7, 1999.                                   

CRITICAL ACCOUNTING POLICIES AND ESTIMATES                                      

   Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, which require us to make    
estimates and judgments that significantly affect the reported amounts of       
assets, liabilities, revenues and expenses and related disclosure of contingent 
assets and liabilities. We regularly evaluate these estimates, including those  
related to our allowance for doubtful accounts, inventory reserves and          
intangible assets. We base these estimates on historical experience and on      
assumptions that are believed by management to be reasonable under the          
circumstances. Actual results may differ from these estimates, which may impact 
the carrying value of assets and liabilities.                                   

The following critical accounting policies affect the most significant
estimates used in the preparation of our consolidated financial statements:     

     Allowance for Doubtful Accounts.  We record allowances for estimated losses
resulting from the inability of our customers to make required payments. We     
assess the credit worthiness of our customers based on multiple sources of      
information and analyze such factors as our historical bad debt experiences,    
publicly available information regarding our customers and the inherent credit  
risk related to them, information from subscription based credit reporting      
companies, trade association data and reports, current economic trends and      
changes in customer payment terms or payment patterns. This assessment requires 
significant judgment. If the financial condition of our customers were to       
worsen, additional write-offs may be required, resulting in write-offs that are 
not included in the allowance for doubtful accounts at June 29, 2002.           

  Inventory Valuation.  Our inventories are generally determined using the
last-in, first-out (LIFO) cost method. We value our inventory at the lower of   
cost or market, and regularly review the book value of discontinued product     
lines and stock keeping units (SKUs) to determine if these items are properly   
valued. If market value is less than cost, we write down the related inventory  
to the lower of market or net realizable value. We regularly evaluate the       
composition of our inventory to determine slow-moving and obsolete inventories  
to determine if additional write-offs are required. Changes in consumer         
purchasing patterns, however, could result in the need for additional           
write-offs.                                                                     

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

Intangible Assets.  We record intangible assets when we acquire other 
companies. The cost of acquisition is allocated to the assets and liabilities   
acquired, including identifiable intangible assets, with the remaining amount   
being classified as goodwill. Under current accounting guidelines that became   
effective on July 1, 2001, goodwill arising from transactions occurring after   
July 1, 2001 and any existing goodwill as of February 1, 2002 are not           

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amortized to expense but rather periodically assessed for impairment. Intangible
assets that have an indefinite life are also periodically assessed for          
impairment.                                                                     

  The allocation of the acquisition cost to intangible assets and goodwill
therefore has a significant impact on our future operating results. The         
allocation process requires the extensive use of estimates and assumptions,     
including estimates of future cash flows expected to be generated by the        
acquired assets. Independent valuation consultants are employed by us to assist 
in determining if and when intangible assets might be impaired. Further, when   
impairment indicators are identified with respect to previously recorded        
intangible assets, the values of the assets are determined using discounted     
future cash flow techniques, which are based on estimated future operating      
results. Significant management judgment is required in the forecasting of      
future operating results which are used in the preparation of projected         
discounted cash flows and should different conditions prevail, material write   
downs of net intangible assets and/or goodwill could occur.                     

In fiscal 2003, Statement of Financial Accounting Standards No. 142,  
Goodwill and Other Intangible Assets became effective and, as a result, we will 
cease to amortize approximately $30 million of goodwill as well as, $180.3      
million of intangible assets with indefinite lives. In lieu of amortization, we 
are required to perform at least an initial impairment review of goodwill and   
other intangible assets with indefinite lives in fiscal 2003 and an annual      
impairment review thereafter. We periodically review the estimated remaining    
useful lives of our intangible assets. A reduction in our estimate of remaining 
useful lives, if any, could result in increased amortization expense in future  
periods.                                                                        

RESULTS OF OPERATIONS                                                           

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

                                                        [Enlarge/Download Table]

                FISCAL YEARS ENDED                  JUNE 29, 2002    JUNE 30, 2001    JULY 1, 2000 
-------------------------------------------------------------------------------------------------- 
                                                                                                   
Net sales                                                   100.0%           100.0%          100.0%
Cost of goods sold                                           59.0             59.9            55.8 
Distribution expenses                                         6.6              6.2             4.5 
-------------------------------------------------------------------------------------------------- 
  Gross profit                                               34.4             33.9            39.7 
Selling, general and administrative expenses                 24.2             19.8            18.7 
Legal expenses, net                                           0.3              0.0             0.0 
-------------------------------------------------------------------------------------------------- 
Operating income                                              9.9%            14.1%           21.0%
================================================================================================== 

YEAR ENDED JUNE 29, 2002 COMPARED TO YEAR ENDED JUNE 30, 2001                   

   Net Sales.  Net sales in the fifty-two weeks ended June 29, 2002 ("fiscal
2002") were $922.5 million; an increase of approximately $130.4 million or      
16.5%, compared to net sales of $792.1 million in the fifty-two weeks ended June
30, 2001 ("fiscal 2001"). This increase is primarily attributable to increased  
sales of products under the George Foreman(TM), Stiffel(R), Toastmaster(R),     
Aircore(R), Farberware(R), Melitta(R) and other brands. These increases in sales
were partially offset by decreases in sales of products under the               
White-Westinghouse(R) product line, primarily sold to Kmart, as well as         
reductions primarily in sales of Juiceman(R), Salton(R), Maxim(R) and Magic     
Chef(R) brands. Sales of new product lines, primarily under the Westclox(R),    
Spartus(R), Big Ben(R) and Look For brands and the addition of a full year of   
sales of product and brand names acquired in connection with Salton Europe, also
helped offset the sales decreases. Much of the sales increases occurred in the  
second and fourth quarters of fiscal 2002 with particularly strong sales of     
products under the George Foreman(TM), Toastmaster(R), Stiffel(R) and           
Farberware(R) brands, as well as strong sales of products and brand names       
acquired in connection with Salton Europe and Westclox(R). The fourth quarter of
fiscal 2001 only included one month of results from Salton Europe. Net sales of 
the White-Westinghouse(R) brand to Kmart approximated 0.9% of net sales in      
fiscal 2002 compared to 3.8% of net sales in fiscal 2001.                       

   Gross Profit.  Gross profit in fiscal 2002 was $317.5 million or 34.4% of
net sales as compared to $268.5 million or 33.9% of net sales in fiscal 2001.   
Cost of goods sold during fiscal 2002 decreased to 59.0% of net sales compared  
to 59.9% in fiscal 2001. Gross profit increased slightly, primarily from an     
improvement in sales of higher priced items with higher gross margins,          
particularly George Foreman(TM) products, Russell Hobbs(R) products and         

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Rejuvenique(R) products and a reduction in sales of White-Westinghouse(R)       
products which generally have lower gross margins, partially offset by an       
increase in distribution expenses, $5.3 million for reserve increases related to
certain trade and royalty receivables and $5.3 million associated with the      
exiting of certain product lines. Gross profit for fiscal 2001 was reduced by   
$8.1 million related to inventory losses, $5.1 million in LIFO charges and $2.0 
million related to trade receivables. Distribution expenses increased, as a     
percentage of sales, due to higher costs of operating our warehouses and        
increased outside warehouse space added during the year. Plans are in place to  
consolidate U.S. west coast warehousing into a leased facility, to be built late
in fiscal 2003. Additionally we incurred a full year of expenses in fiscal 2002 
related to the operation of Salton Europe. The increase was partially offset by 
a reduction in freight costs from changing certain customers from prepaid       
freight to collect freight during the year.                                     

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses increased to 24.2% of net sales or $223.6 million in    
fiscal 2002 compared to 19.8% of net sales or $156.9 million for fiscal 2001.   
Selling, general and administrative expenses include a full year of Salton      
Europe or $29.5 million compared to one month of Salton Europe or $1.3 million  
in fiscal 2001.                                                                 

Expenditures for television, royalty expense, certain other media and 
cooperative advertising and trade show expenses were 10.8% of net sales or $99.7
million in fiscal 2002 compared to 8.9% of net sales or $70.2 million in fiscal 
2001. This increase was primarily from increased spending on cooperative        
advertising, direct advertising, royalty expenses and trade show expenses,      
partially offset by decreased spending on infomercial advertising. These        
expenditures were driven primarily to penetrate new brands into the European    
market, and to increase sales in a promotionally driven domestic market. The    
remaining selling, general and administrative costs increased to $123.9 million 
or 13.4% of net sales in fiscal 2002 compared to $86.6 million or 10.9% of net  
sales in fiscal 2001. This was primarily attributable to increased salaries,    
amortization on goodwill and other intangibles, increased legal and other       
professional expenses related to legal matters and a domestic corporate         
restructuring for improved reporting purposes, rent, travel, product development
costs to support our sales activities, and increases in certain other           
administrative expenses to support the activities of the company. The increases 
in salaries, product development and other administrative expense were primarily
related to the integration of new or acquired product lines and businesses, and 
infrastructure and systems improvements. These expenses are primarily           
anticipated to benefit future periods.                                          

     Legal Settlements, Net.  We recorded a $2.6 million expense for three legal
settlements. The settlement with Applica, the settlement with AdVantage partners
and the settlement with the Attorney Generals were all recorded in the fourth   
quarter of fiscal 2002.                                                         

     Operating Income.  As a result of the foregoing, operating income decreased
by $20.3 million to $91.3 million in fiscal 2002 from $111.6 million in fiscal  
2001.                                                                           

  Fair Market Value Adjustment on Derivatives.  Salton Europe entered into
foreign exchange contracts to hedge anticipated foreign currency transactions,  
primarily U.S. dollar inventory purchases. The contracts generally mature within
one year and are designed to limit exposure to exchange rate fluctuations. We   
recognized a pre-tax charge for a decrease in the fair market value of the      
derivatives of $2.4 million, or $1.5 million net of tax, from foreign exchange  
contracts that did not qualify as cash flow hedges for accounting purposes in   
accordance with U.S. GAAP. Unrealized pre-tax losses of $1.0 million or $0.6    
million net of tax, from foreign exchange contracts that qualified as cash flow 
hedges were included as a separate component of accumulated other comprehensive 
income. The fair market value adjustment occurred primarily in the fourth       
quarter as the dollar weakened against the pound sterling.                      

  Net Interest Expense.  Net interest expense was $44.4 million for fiscal
2002 compared to $37.7 million in fiscal 2001. The increase is primarily        
attributable to interest expense of $10.5 million related to the $150.0 million 
senior subordinated debt offering completed in April, 2001, interest expense of 
$1.4 related to the accretion of the Pifco loan notes and a reduction in        
interest income of $1.0 million for funds kept on deposit during fiscal 2002,   
partially offset by a reduction of interest paid of $4.8 million on reduced     
borrowings under our revolver and term debt and lower rates during fiscal 2002. 
Our rate of interest on amounts outstanding under the revolver, term loan and   
senior subordinated debt was a weighted average annual rate of 8.24% in fiscal  
2002 compared to 9.8% in fiscal 2001. The average amount of all debt outstanding
was $485.2 million for fiscal 2002 compared to $369.8 million for fiscal 2001.  
These increases contributed to higher interest expense and the increased        
borrowings were used to provide working capital necessary to support the        
business and make acquisitions.                                                 

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     Income Tax Expense.  Salton had tax expense of $14.4 million in fiscal 2002
as compared to tax expense of $27.7 million in fiscal 2001. The overall tax rate
for fiscal 2002 was 32.3% of pretax income compared to 37.5% in fiscal 2001.    
This reduction was primarily due to certain initiatives implemented in fiscal   
2002 that reduced our state taxes and by the impact of certain legal            
settlements, which were not taxable. We expect the tax rate to be approximately 
35.0% in the future.                                                            

     Net Income.  Net income decreased to $30.1 million in fiscal 2002, compared
to $46.2 million in fiscal 2001.                                                

   Earnings Per Share.  Basic earnings per common share were $2.74 per share
on weighted average common shares outstanding of 11,005,238 in fiscal 2002      
compared to earnings of $3.93 per share on weighted average common shares       
outstanding of 11,750,206 in fiscal 2001. Diluted earnings per common share were
$2.00 per share on weighted average common shares outstanding, including        
dilutive common stock equivalents, of 15,041,710 in fiscal 2002 compared to     
earnings of $2.87 per share on weighted average common shares outstanding,      
including dilutive common stock equivalents, of 16,065,036 in fiscal 2001. The  
reduction in share counts at the end of fiscal 2002 compared to the end of      
fiscal 2001 is primarily due to the repurchase of 456,175 shares related to the 
George Foreman guarantee and a decrease in the number of shares related to      
employee stock options, primarily from the dilutive effect of the current price 
of our common stock. All share counts reflect a 3-for-2 split of our common     
stock effective July 28, 1999, for stockholders of record at the close of       
business on July 14, 1999.                                                      

YEAR ENDED JUNE 30, 2001 COMPARED TO YEAR ENDED JULY 1, 2000                    

   Net Sales.  Net sales in the fifty-two weeks ended June 30, 2001 ("fiscal
2001") were $792.1 million, a decrease of approximately $45.2 million or 5.4%,  
compared to net sales of $837.3 million in the fifty-three weeks ended July 1,  
2000 ("fiscal 2000"). This decrease is primarily attributable to reduced sales  
of products under the White-Westinghouse(R) product line, primarily sold to     
Kmart, and reduced sales of products under the Rejuvenique(R) brand, which was  
subject to a warning letter from the FDA during the period. We were additionally
impacted by reduced sales of products under the brands of Juiceman(R),          
Farberware(R), Breadman(R), Magic Chef(R) and Ingraham(R). These decreases in   
sales were partially offset by an increase in sales of products under the       
Melitta(R) brand, Toastmaster(R) brand, the George Foreman(TM) brand and the    
Kenmore(R) brand. Sales of new product lines, primarily under the Relaxor(R),   
Ultrasonex(TM), Aircore(R), Welbilt(R) and Stiffel(R) brands and the addition of
one month's results of newly acquired Pifco Holdings PLC, also helped offset the
sales decreases. Net sales of the White-Westinghouse(R) brand to Kmart          
approximated 3.8% of net sales in fiscal 2001 compared to 7.3% of net sales in  
fiscal 2000.                                                                    

   Gross Profit.  Gross profit in fiscal 2001 was $268.5 million or 33.9% of
net sales as compared to $332.4 million or 39.7% of net sales in fiscal 2000.   
Cost of goods sold during fiscal 2001 increased to 59.9% of net sales compared  
to 55.8% in fiscal 2000. Gross profit decreased primarily from a reduction in   
sales of higher priced items with higher gross margins, particularly large and  
extra large size George Foreman(TM) indoor grills, Rejuvenique(R), Juiceman(R)  
and Juicelady(R) brand products. We also had increased sales of products with   
lower gross margins, primarily Toastmaster(R) brand products. Distribution      
expenses were $49.4 million or 6.2% of net sales in fiscal 2001 compared to     
$37.6 million or 4.5% of net sales in fiscal 2000. Distribution expenses        
increased, as a percentage of sales, due to higher costs for shipping to        
customers, primarily due to higher fuel costs and an increase in sales to       
customers purchasing on prepaid freight terms that ordered in smaller quantities
on a more frequent basis, thereby increasing our freight costs. Additionally we 
incurred a full year of expenses in fiscal 2001 related to the addition of two  
warehouses during fiscal 2000 and two former manufacturing facilities were      
converted to distribution centers and are now carried in distribution costs.    

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses increased to 19.8% of net sales or $156.9 million in    
fiscal 2001 compared to 18.7% of net sales or $156.7 million for fiscal 2000.   
Expenditures for television, royalty expense, certain other media and           
cooperative advertising and trade show expenses were 8.9% of net sales or $70.2 
million in fiscal 2001 compared to 9.6% of net sales or $80.5 million in fiscal 
2000. This reduction was primarily from less spending on infomercials, as well  
as lower royalties on White-Westinghouse(R) products, partially offset by       
increased spending on cooperative and direct advertising. The remaining selling,
general and administrative costs increased to $86.6 million or 10.9% of net     
sales in fiscal 2001 compared to $76.2 million or 9.1% of net sales in fiscal   
2000. This was primarily attributable to increased salaries, rent, travel and   
product development costs to support our sales activities, increased legal      
expenses and settlement costs, primarily related to                             

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Rejuvenique(R) and the FDA, patent infringement claims and other corporate      
activities and increases in certain other administrative expenses to support the
activities of the company.                                                      

     Operating Income.  As a result of the foregoing, operating income decreased
by $64.1 million or 36.5%, to $111.6 million in fiscal 2001 from $175.7 million 
in fiscal 2000. Operating income as a percentage of net sales decreased to 14.1%
in fiscal 2001 from 21.0% in fiscal 2000.                                       

  Net Interest Expense.  Net interest expense was $37.7 million for fiscal
2001 compared to $28.8 million in fiscal 2000. The increase is primarily        
attributable to interest paid of $5.1 million on increased borrowings under our 
revolver and term debt, interest of $3.0 million related to the $150.0 million  
senior subordinated debt offering completed in April, 2001 and a reduction in   
interest income of $1.8 million for funds kept on deposit during fiscal 2000.   
Our rate of interest on amounts outstanding under the revolver, term loan and   
senior subordinated debt was a weighted average annual rate of 9.8% in fiscal   
2001 compared to 10.0% in fiscal 2000. The average amount of all debt           
outstanding was $369.8 million for fiscal 2001 compared to $279.5 million for   
fiscal 2000. These increases contributed to higher interest expense and the     
increased borrowings were used to make acquisitions and provide working capital 
necessary to support the business.                                              

     Income Tax Expense.  Salton had tax expense of $27.7 million in fiscal 2001
as compared to tax expense of $55.1 million in fiscal 2000.                     

  Net Income.  Net income decreased 49.7% to $46.2 million in fiscal 2001,
compared to $91.8 million in fiscal 2000.                                       

   Earnings Per Share.  Basic earnings per common share were $3.93 per share
on weighted average common shares outstanding of 11,750,206 in fiscal 2001      
compared to earnings of $8.18 per share on weighted average common shares       
outstanding of 11,221,379 in fiscal 2000. Diluted earnings per common share were
$2.87 per share on weighted average common shares outstanding, including        
dilutive common stock equivalents, of 16,065,036 in fiscal 2001 compared to     
earnings of $5.91 per share on weighted average common shares outstanding,      
including dilutive common stock equivalents, of 15,525,991 in fiscal 2000. All  
share counts reflect a 3-for-2 split of our common stock effective July 28,     
1999, for stockholders of record at the close of business on July 14, 1999. The 
average stock price is used in determining the common stock equivalents to be   
included in the calculation of the diluted earnings per share amounts.          

LIQUIDITY AND CAPITAL RESOURCES                                                 

During fiscal 2002, we provided net cash of $5.3 million in operating 
activities and used net cash of $62.8 million in investing activities. The cash 
provided from operating activities resulted primarily from net income, non cash 
expenses for depreciation, amortization and imputed interest on notes that carry
lower than market interest charges, an increase in accrued expenses and a       
decrease in prepaid income taxes. These sources of cash were partially offset by
an increase in accounts receivable, an increase in inventories, and a reduction 
in accounts payable. The increase in accounts receivable was primarily from     
strong sales in the fourth quarter of fiscal 2002 and a continued reduction of  
sales of White-Westinghouse(R) brand products, generally sold to K-Mart on 10   
day sales terms which were replaced by sales made to customers on generally 30  
day to 90 day normal sales terms. Kmart filed for bankruptcy protection in      
fiscal 2002. The increase in inventories was primarily from an increase in      
Salton Europe to better service our customers and to support the large sales    
growth there, an increase in U.S. based inventories as retailers require us to  
hold more inventory to satisfy their order patterns and an increase in inventory
due to the threat of a longshoreman's strike in California where over 90% of our
inventories are received. Income tax payments were lower as estimated payments  
made in the prior year were recovered in the current year, as well as lower     
taxes payable on lower income in the current year and the reduction in the      
overall tax rate. Cash used in investing activities included additions to       
intangibles, patents and trademarks, capital expenditures and acquisitions of   
businesses. The additions to intangibles, patents and trademarks included the   
additional payment on the George Foreman transaction related to the repurchase  
of our common stock, the purchase of the Westclox(R), Big Ben(R) and Spartus(R) 
brand names and the purchase of manufacturing, distribution and intellectual    
property rights of certain food grilling products. Capital expenditures are     
primarily for tooling for new products, leasehold improvements and furniture,   
fixtures, office equipment, computer hardware and software to operate the       
business. Financing activities provided net cash of $59.5 million.              

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At June 29, 2002, we had debt outstanding of $460.1 million, including
$148.6 million of 12 1/4% senior subordinated notes due 2008, (excluding $8.1   
million related to the fair value of a monetized fixed to floating interest rate
swap on the notes due 2008), $125.0 million of 10 3/4% senior subordinated notes
due 2005, $95.0 million outstanding under our amended and restated credit       
agreement (exclusive of unused commitments of up to $62.2 million under the     
revolving credit facility), $46.9 million related to the term note outstanding  
under our amended and restated credit agreement, $43.9 million related to       
amounts still due under the George Foreman agreement and excluding $18.2 million
related to the loan notes issued in the Pifco Holdings PLC acquisition. The loan
notes are cash collateralized at a bank in the United Kingdom. At June 29, 2002,
we had the ability to borrow up to an additional $62.2 million under our        
revolving credit facility. Typically, given the seasonal nature of our business,
our borrowings tend to be the highest in mid-fall and early winter.             

In the quarter ended December 25, 1999, we acquired, effective July 1,
1999, the right to use in perpetuity and worldwide the name George Foreman(TM)  
in connection with the marketing and sale of food preparation and non-alcoholic 
drink preparation and serving appliances. The aggregate purchase price payable  
to George Foreman and other venture participants was $137.5 million, of which   
$22.75 million was paid in cash and the remainder was paid through the issuance 
by us of 779,191 shares of our common stock and a $91.0 million non-interest    
bearing subordinated promissory note. We paid the first installment in cash to  
George Foreman during fiscal 2001, as well as issued stock to the other venture 
participants as described in the following paragraph. The note, as of June 29,  
2002, has a face amount of $45.5 million, and is recorded at its present value  
of $43.9 million. The effect of the George Foreman transaction was an           
elimination of substantial royalty expense.                                     

On September 7, 2000 we announced that we had reached an agreement to 
satisfy payment obligations of $22.75 million under the note by issuing 621,161 
shares of our common stock to George Foreman and other venture participants. We 
agreed, under certain circumstances, to guarantee the value of these shares. We 
registered for resale the shares of common stock issued to George Foreman and   
the other venture participants.                                                 

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 million less the proceeds George Foreman received from the
sale of shares on the open market previously issued to him, terminated our      
guarantee obligation with respect to the shares issued to him and satisfied the 
third annual installment due under the note payable to George Foreman. Upon     
completion of this transaction we had only two installments remaining under the 
note, as well as our outstanding guarantee obligation to the other venture      
participants. In the first quarter of fiscal 2003, we paid one of the two       
remaining installments under the note.                                          

    During the fiscal quarter ended December 25, 1999, we amended and restated
our credit agreement among us, Lehman Brothers Inc., as arranger, Lehman        
Commercial Paper Inc., as administrative agent, and a syndicate of banks. We    
increased our existing revolving credit facility from $80.0 million to $115.0   
million. The amended and restated credit agreement provided for $160.0 million  
in a senior secured credit facility consisting of a $45.0 million term loan at  
an established base rate (equivalent to the prime rate of interest) plus an     
applicable margin of 225 basis points or, at our 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 $115.0 million revolving credit facility at an established base 
rate (equivalent to the prime rate of interest) plus an applicable margin or, at
our election, a eurodollar rate (equivalent to the LIBOR rate) plus an          
applicable margin based on a range of ratios of total debt to earnings before   
interest, taxes, depreciation and amortization maturing on January 7, 2004. The 
amended and restated credit agreement is secured by a first lien on             
substantially all of our assets. Credit availability is based on a formula      
related to trade accounts receivable, inventories and outstanding letters of    
credit.                                                                         

    During the fiscal quarter ended September 30, 2000, we further amended and
restated our credit agreement. The amended and restated credit agreement        
increased the senior secured credit facilities to an aggregate of $235.0        
million, consisting of a $75.0 million term loan amortizing over sixteen        
consecutive quarterly installments commencing on March 31, 2001 and a $160.0    
million revolving credit facility maturing on January 7, 2004. The term loan and
revolving credit facility bear interest at an established base rate (equivalent 
to the prime rate of interest) or, at our election, a eurodollar rate           
(equivalent to the LIBOR rate), plus in either case an applicable margin based  
on total debt to earnings before interest, taxes, depreciation and amortization.

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   Under our settlement agreement with the Attorney Generals of New York and
Illinois we are required to make a payment of $1.2 million upon final approval  
of the agreement and two additional payments of $3.5 million each on March 1,   
2003 and 2004, respectively.                                                    

    In fiscal 1998 we had issued a promissory note to Applica, Inc in the face
amount of $15.0 million. We have entered into a settlement agreement with       
Applica. As a result, we cancelled the promissory note, having a carrying value 
prior to the settlement of approximately $10.8 million and an accounts payable  
balance of $1.3 million. We agreed to pay to Applica an amount of $1.8 million  
on or before December 31, 2002 and $2.0 million on or before June 30, 2004. This
settles all claims with Applica, including future amounts that would have been  
due under the earlier arrangement to pay Applica a fee based upon our net sales 
of White-Westinghouse(R) products to Kmart.                                     

    Our principal uses of liquidity will be to meet debt service requirements,
pay royalties and other fees under our license and other agreements, finance our
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 and borrowings under our amended and restated    
credit agreement. We anticipate capital expenditures of approximately $18       
million and $20 million for fiscal years 2003 and 2004. We incurred             
approximately $16.2 million for capital expenditures during fiscal 2002.        

Our senior credit facilities 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 otherwise restrict our corporate and business activities. In addition, under
the senior credit facilities, we are required to comply with specified financial
ratios and tests, including a minimum net worth test, a minimum fixed charge    
coverage ratio, a minimum interest coverage ratio and a maximum leverage ratio. 

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

Our ability to make scheduled payments of principal of, or to pay the 
interest or liquidated damages, if any, on, or to refinance, indebtedness       
(including the notes), to pay royalties and other fees under our license and    
other agreements or to fund planned capital expenditures and/or possible        
acquisitions, will depend upon our future performance, which, in turn, is       
subject to general economic, financial, competitive and other factors that are  
beyond our control. Based upon our current level of operations and anticipated  
growth, we believe that future cash flow from operations, together with         
available borrowings under our amended and restated credit agreement, and other 
sources of debt funding, will be adequate to meet our anticipated requirements  
for capital expenditures, potential acquisitions, royalty payments, working     
capital, interest payments and scheduled principal payments. We cannot assure   
you 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 our existing debt, including the notes, sell assets or obtain        
additional financing. We cannot assure you that any refinancing would be        
available or that any sales of assets or additional financing could be obtained.

    As of June 29, 2002, the Company is in compliance with all debt covenants.

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 to us 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.             

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EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE                              

Our 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.                                                              

Salton Europe currently uses foreign exchange contracts to hedge      
anticipated foreign currency transactions, primarily U.S. dollar inventory      
purchases. The contracts generally mature within one year and are designed to   
limit exposure to exchange rate fluctuations, primarily the British Pound       
Sterling against United States dollars.                                         

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS                              

     To facilitate an understanding of the Company's contractual obligations and
commercial commitments, the following data is provided:                         

                                                        [Enlarge/Download Table]

                                                                 PAYMENTS DUE BY PERIOD              
                                                    -------------------------------------------------
                                                      WITHIN                                  AFTER 5
                                          TOTAL       1 YEAR     2-3 YEARS     4-5 YEARS        YEARS
-----------------------------------------------------------------------------------------------------
                                                               (IN THOUSANDS)                        
                                                                                                     
CONTRACTUAL OBLIGATIONS                                                                              
Long-Term Debt                         $385,607     $ 54,824     $ 180,783     $      --     $150,000
Short-Term Debt                          95,000       95,000            --            --           --
Capital Lease Obligations                   812          300           512            --           --
Operating Leases                         32,686        9,868        11,033         6,061        5,724
-----------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations     $514,105     $159,992     $ 192,328     $   6,061     $155,724
=====================================================================================================

                                                        [Enlarge/Download Table]

                                                      AMOUNT OF COMMITMENT EXPIRATION PER PERIOD    
                                        TOTAL      -------------------------------------------------
                                      AMOUNTS       WITHIN                                   AFTER 5
                                        TOTAL       1 YEAR     2-3 YEARS      4-5 YEARS        YEARS
----------------------------------------------------------------------------------------------------
                                                              (IN THOUSANDS)                        
                                                                                                    
OTHER COMMERCIAL COMMITMENTS                                                                        
Guarantees(1)                         $ 1,393        1,393            --             --           --
Legal Settlements(2)                   12,000        6,500         5,500             --           --
Import Letters of Credit(3)             2,789        2,789            --             --           --
Executive Compensation(4)               2,325        2,325            --             --           --
----------------------------------------------------------------------------------------------------
Total Commercial Commitments          $18,507      $13,007     $   5,500      $      --      $    --
====================================================================================================

(1) Represents the additional Foreman liability for other venture participants. 

(2) Payments required under Applica and Attorney Generals settlement.           

(3) Outstanding letters of credit for inventory purchases.                      

(4) Executive salaries and bonuses under employment agreements expiring December
31, 2002, which are being renegotiated.                                 

ACCOUNTING PRONOUNCEMENTS                                                       

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets", superceding Accounting Principles Board ("APB") Opinion No. 
17, "Intangible Assets". This statement addresses how intangible assets that are
acquired individually or with a group of other assets (excluding assets acquired
in a business combination) should be accounted for in financial statements upon 
their acquisition. This statement also addresses how goodwill and other         
intangible assets should be accounted for after they have been initially        
recognized in the financial statements. In accordance with this statement,      
goodwill and certain other intangible assets with indefinite lives will no      
longer be amortized, but evaluated for impairment based upon financial tests    
related to the current value for the related assets. As a result there          

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may be more volatility in reported income than under the previous standards     
because impairment losses are likely to occur irregularly and in varying        
amounts. We intend to adopt this statement in the first quarter of fiscal 2003. 
The Company has determined that no impairment of goodwill or other intangible   
assets has occurred. Goodwill of $30 million and other intangible assets        
(patents and trademarks) of $160.5 million are recorded in the Company's balance
sheet as of June 29, 2002. The Company recorded $3.3 million and $10.6 million  
in amortization expense in fiscal 2002 related to goodwill and patents and      
trademarks, respectively.                                                       

     In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". This statement addresses financial accounting and reporting       
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs, and requires that such costs be recognized as
a liability in the period in which incurred. This statement is effective for    
financial statements issued for fiscal years beginning after June 15, 2002. We  
do not expect the adoption of this statement to have a material impact to the   
financial statements.                                                           

In August 2001, the FASB issued SFAS No. 144, "Accounting for the     
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.  
121 and requires that one accounting model be used for long-lived assets to be  
disposed of by sale, whether previously held and used or newly acquired and by  
broadening the presentation of discontinued operations to include more disposal 
transactions. This statement is effective for financial statements issued for   
fiscal years beginning after December 15, 2001. We do not expect the adoption of
this statement to have a material impact to the financial statements.           

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
SFAS 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical             
Corrections." SFAS No. 145 eliminates the current requirement that gains and    
losses on debt extinguishment must be classified as extraordinary items in the  
income statement. Instead, such gains and losses will be classified as          
extraordinary items only if they are deemed to be unusual and infrequent. The   
changes related to debt extinguishment will be effective for fiscal years       
beginning after May 15, 2002, and the changes related to lease accounting will  
be effective for transactions occurring after May 15, 2002; however, early      
application is encouraged. The Company early adopted this statement as it       
relates to the rescission of SFAS No. 4, "Reporting Gains & Losses from         
Extinguishment of Debt." The Company had a debt extinguishment in the current   
year related to the Applica transaction.                                        

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires recording 
costs associated with exit or disposal activities at their fair values when a   
liability has been incurred. Under previous guidance, certain exit costs were   
accrued upon management's commitment to an exit plan, which is generally before 
an actual liability has been incurred. This statement is effective for financial
statements issued for fiscal years beginning after December 31, 2002. We do not 
expect the adoption of this statement to have a material impact to the financial
statements.                                                                     

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ITEM 7A. Quantitative And Qualitative Disclosures About Market Risks            

     We use derivative financial instruments to manage interest rate and foreign
currency risk. Our objectives in managing our exposure to interest rate changes 
are to limit the impact of interest rate changes on earnings and cash flows and 
to lower our overall borrowing costs through the use of interest rate swaps. Our
objectives in managing our exposure to foreign currency fluctuations is to      
reduce the impact of changes in foreign exchange rates on consolidated results  
of operations and future foreign currency denominated cash flows. We do not     
enter into derivative financial instruments for trading purposes. Our policy is 
to manage interest rate risk through the use of a combination of fixed and      
variable rate debt, and hedge foreign currency commitments of future payments   
and receipts by purchasing foreign currency forward contracts. The following    
tables provide information about our market sensitive financial instruments and 
constitutes a "forward-looking statement." Our major risk exposures are changing
interest rates in the United States and foreign currency commitments in Europe. 
The fair values of our long-term, fixed rate debt and foreign currency forward  
contracts were estimated based on dealer quotes. The carrying amount of         
short-term debt and long-term variable-rate debt approximates fair value. All   
items described in the tables are non-trading.                                  

                                                        [Enlarge/Download Table]

                             2003      2004       2005       2006       2007     THEREAFTER    TOTAL     FAIR VALUE
-------------------------------------------------------------------------------------------------------------------
                                                            (DOLLARS IN THOUSANDS)                                 
                                                                                                                   
FISCAL YEAR 2002                                                                                                   
Liabilities:                                                                                                       
Revolver                    $95,000                                                           $ 95,000     $ 95,000
  Average interest rate        5.55%                                                                               
Foreman note payable        $22,750   $22,750                                                 $ 45,500     $ 43,853
  Average interest rate(3)     8.50%     8.50%                                                                     
Long-term debt(2)                               $125,000                           $150,000   $275,000     $281,954
  Average interest rate                            10.75%                             12.25%                       
  Variable rate amount      $18,750   $18,750   $  9,375                                      $ 46,875     $ 46,875
  Average interest                                                                                                 
    rates(1)                   5.68%                                                                               

                                                        [Enlarge/Download Table]

                             2002      2003       2004       2005       2006     THEREAFTER    TOTAL     FAIR VALUE
-------------------------------------------------------------------------------------------------------------------
                                                            (DOLLARS IN THOUSANDS)                                 
                                                                                                                   
FISCAL YEAR 2001                                                                                                   
Liabilities:                                                                                                       
Revolver                    $20,000                                                           $ 20,000     $ 20,000
  Average interest rates       8.79%                                                                               
  Jr. subordinated note                                                                                            
    payable                                     $ 13,406                                      $ 13,406     $  9,864
  Average interest rate                             8.00%                                                          
Foreman note payable        $ 2,750   $22,750   $ 22,750                                      $ 48,250     $ 43,246
  Average interest rate(3)      8.5%      8.5%       8.5%                                                          
  Other notes payable       $    30   $     5                                                 $     35     $     35
  Average interest rate        5.37%     5.37%                                                                     
Long-term debt(2)                                          $125,000                $150,000   $275,000     $273,325
  Average interest rate                                       10.75%                  12.25%                       
  Variable rate amount      $18,750   $18,750   $ 18,750   $  9,375                           $ 65,625     $ 65,625
  Average interest                                                                                                 
    rates(1)                   8.91%                                                                               

---------------                                                                 

(1) The variable rate $75.0 million Term Loan is set periodically at an         
established base rate (equivalent to the prime rate of interest) plus an
    applicable margin of 225 basis points or, at our election, a Eurodollar rate
plus an applicable margin of 325 basis points.                          

(2) In June 2002, we terminated an interest rate swap contract to pay a         
 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. The
  resulting gain from early termination of this contract of $8.1 million was
    deferred as an adjustment to the carrying amount of the outstanding debt and
   is being amortized as an adjustment to interest expense related to the debt
over the remaining period originally covered by the terminated swap. We 
simultaneously entered into another interest rate swap contract to pay a
   variable-rate interest of six-month LIBOR plus 7.02% and receive fixed-rate
 interest of 12.25% on $150 million notional amount of indebtedness, which
had a fair value of $0.2 million at June 29, 2002.                      

(3) The Foreman note does not include an interest element. The 8.5% is the      
estimated interest rate used for calculating the net present value.     

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We use foreign currency forward contracts with terms of less than one year, to  
hedge our exposure to changes in foreign currency exchange rates. In managing   
our foreign currency exposures, we identify and aggregate naturally occurring   
offsetting positions and then hedges residual balance sheet exposures. At June  
29, 2002, we had forward contracts outstanding for the sale of 67.4 million GBP 
and the purchase of $39.0 million over the course of the next twelve months,    
which had an aggregate fair value of ($3.3) million.                            

ITEM 8.  Financial Statements And Supplementary Data                            

     The following pages contain the Financial Statements and Supplementary Data
as specified by Item 8 of Part II of Form 10-K.                                 

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INDEPENDENT AUDITORS' REPORT                                                    

To the Board of Directors and Stockholders of Salton, Inc.                      
Lake Forest, Illinois                                                           

 We have audited the accompanying consolidated balance sheets of Salton,
Inc. (the "Company") as of June 29, 2002 and June 30, 2001 and the related      
consolidated statements of earnings, stockholders' equity, and cash flows for   
each of the three years in the period ended June 29, 2002. Our audits also      
included the financial statement schedule listed in the Index at Item 14 of the 
Annual Report on Form 10-K. These financial statements and the financial        
statement schedule are the responsibility of the Company's management. Our      
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

 We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan  
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

   In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 29, 2002
and June 30, 2001 and the results of its operations and its cash flows for each 
of the three years in the period ended June 29, 2002 in conformity with         
accounting principles generally accepted in the United States of America. Also, 
in our opinion, such financial statement schedule, when considered in relation  
to the basic consolidated financial statements taken as a whole, presents       
fairly, in all material respects, the information set forth therein.            

  As discussed in Note 2 in the consolidated financial statements, in 2002
the Company changed its method of accounting for inventory.                     

DELOITTE & TOUCHE LLP                                                           
Chicago, Illinois                                                               
September 16, 2002                                                              

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SALTON, INC.                                                                    

CONSOLIDATED BALANCE SHEETS                                                     
JUNE 29, 2002 AND JUNE 30, 2001                                                 
(IN THOUSANDS EXCEPT SHARE DATA)                                                

                                                                [Download Table]

                                                                  2002       2001 
--------------------------------------------------------------------------------- 
                                                                                  
ASSETS                                                                            
Current Assets:                                                                   
  Cash                                                        $ 31,055   $ 30,097 
  Accounts receivable, less allowance:                                            
    2002 -- $9,346; 2001 -- $9,223                             217,468    185,881 
  Inventories                                                  244,160    192,502 
  Prepaid expenses and other current assets                     12,889     10,100 
  Prepaid income taxes                                           2,781     14,907 
  Deferred income taxes                                          7,906      4,419 
--------------------------------------------------------------------------------- 
         Total current assets                                  516,259    437,906 
Property, Plant and Equipment:                                                    
  Land                                                           8,058      3,768 
  Buildings                                                     15,210     14,169 
  Molds and tooling                                             49,564     41,715 
  Warehouse equipment                                           13,024      8,939 
  Office furniture and equipment                                17,949     16,116 
--------------------------------------------------------------------------------- 
                                                               103,805     84,707 
  Less accumulated depreciation                                (47,255)   (36,983)
--------------------------------------------------------------------------------- 
Net Property, Plant and Equipment                               56,550     47,724 
Patents and Trademarks, Net of Accumulated Amortization        160,530    132,128 
Cash in Escrow for Pifco Loan Notes                             18,676     17,748 
Other Intangibles, Net of Accumulated Amortization, and                           
  Other Non-current Assets                                      73,553     87,378 
--------------------------------------------------------------------------------- 
TOTAL ASSETS                                                  $825,568   $722,884 
================================================================================= 

See notes to consolidated financial statements.                                 

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                                                                [Download Table]

                                                                  2002       2001 
--------------------------------------------------------------------------------- 
                                                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY                                              
Current Liabilities:                                                              
  Revolving line of credit and other current debt             $150,101   $ 41,530 
  Accounts payable                                              25,364     33,450 
  Accrued expenses                                              60,994     32,908 
  Foreman guarantee                                              1,393     19,370 
--------------------------------------------------------------------------------- 
         Total current liabilities                             237,852    127,258 
Non-Current Deferred Income Taxes                                1,076      2,293 
Senior Subordinated Notes due 2005                             125,000    125,000 
Senior Subordinated Notes due 2008                             156,954    148,325 
Loan Notes to Pifco Shareholders                                 4,908     11,271 
Term Loan and Other Notes Payable                               49,721     97,240 
Other Long Term Liabilities                                      5,021         -- 
--------------------------------------------------------------------------------- 
         Total liabilities                                     580,532    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; shares issued and outstanding:                                        
    2002 -- 10,992,582, 2001 -- 11,363,934                         146        144 
  Treasury stock -- at cost                                    (67,019)   (47,865)
  Additional paid-in capital                                    93,557     72,932 
  Accumulated other comprehensive income (loss)                    745     (1,174)
  Retained earnings                                            217,607    187,460 
--------------------------------------------------------------------------------- 
         Total stockholders' equity                            245,036    211,497 
--------------------------------------------------------------------------------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $825,568   $722,884 
================================================================================= 

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF EARNINGS                                             
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000                      
(IN THOUSANDS EXCEPT PER SHARE DATA)                                            

                                                        [Enlarge/Download Table]

                                                                  2002       2001       2000 
-------------------------------------------------------------------------------------------- 
                                                                                             
Net Sales                                                     $922,479   $792,114   $837,302 
Cost of Goods Sold                                             544,147    474,256    467,250 
Distribution Expenses                                           60,831     49,395     37,639 
-------------------------------------------------------------------------------------------- 
Gross Profit                                                   317,501    268,463    332,413 
Selling, General and Administrative Expenses                   223,577    156,885    156,749 
Lawsuit Settlements, Net                                         2,580         --         -- 
-------------------------------------------------------------------------------------------- 
Operating Income                                                91,344    111,578    175,664 
Interest Expense, Net                                          (44,431)   (37,732)   (28,761)
Fair Market Value Adjustment on Derivatives                     (2,372)        --         -- 
-------------------------------------------------------------------------------------------- 
Income Before Income Taxes                                      44,541     73,846    146,903 
Income Tax Expense                                              14,394     27,692     55,087 
-------------------------------------------------------------------------------------------- 
Net Income                                                    $ 30,147   $ 46,154   $ 91,816 
============================================================================================ 
Weighted Average Common Shares Outstanding                      11,005     11,750     11,221 
Weighted Average Common and Common Equivalent Shares                                         
  Outstanding                                                   15,042     16,065     15,526 
Net Income Per Common Share: Basic                            $   2.74   $   3.93   $   8.18 
============================================================================================ 
Net Income Per Common Share: Diluted                          $   2.00   $   2.87   $   5.91 
============================================================================================ 

See notes to consolidated financial statements.                                 

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 
YEARS ENDED JULY 1, 2000 THROUGH JUNE 29, 2002                                  
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------
                                                          COMMON        PREFERRED                        
                                                          SHARES         SHARES       COMMON    PREFERRED
                                                        OUTSTANDING    OUTSTANDING    STOCK       STOCK  
---------------------------------------------------------------------------------------------------------
                                                                                                         
BALANCE, JUNE 26, 1999                                     6,835                40     $133              
Net income                                                                                               
3 for 2 stock split effective 7/28/99                      3,417                                         
Other comprehensive income:                                                                              
    Minimum pension liability net of tax of $28                                                          
    Foreign currency translation                                                                         
         Total comprehensive income                                                                      
  Issuance of common stock                                   942                                         
  Stock options exercised                                    158                          2              
---------------------------------------------------------------------------------------------------------
BALANCE, JULY 1, 2000                                     11,352                40      135              
Net income                                                                                               
Other comprehensive income:                                                                              
Minimum pension liability net of tax of $314                                                             
Foreign currency translation                                                                             
    Total comprehensive income                                                                           
Issuance of common stock                                     930                          9              
Stock options exercised                                       24                                         
Foreman Additional Liability                                                                             
Treasury Stock Repurchase                                   (942)                                        
---------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001                                    11,364                40      144              
Net income                                                                                               
Other comprehensive income:                                                                              
Minimum pension liability net of tax of $719                                                             
Derivative liability net of tax of $339                                                                  
Foreign currency translation                                                                             
    Total comprehensive income                                                                           
Issuance of common stock                                     167                          2              
Stock options exercised                                       17                                         
Foreman Additional Liability                                (456)                                        
Treasury Stock Repurchase                                    (99)                                        
---------------------------------------------------------------------------------------------------------
BALANCE, JUNE 29, 2002                                    10,993                40     $146              
=========================================================================================================

See notes to consolidated financial statements.                                 

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                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------
                                           ACCUMULATED                                   
    ADDITIONAL                                OTHER            TOTAL                TOTAL
       PAID IN    RETAINED    TREASURY    COMPREHENSIVE    STOCKHOLDERS'    COMPREHENSIVE
       CAPITAL    EARNINGS     STOCK      INCOME (LOSS)       EQUITY               INCOME
-----------------------------------------------------------------------------------------
                                                                                         
     $ 91,968     $ 49,490    $(90,804)      $   (48)        $ 50,739                    
                    91,816                                     91,816          $91,816   
      (47,496)                  47,496                                                   
                                                  50               50               50   
                                                   4                4                4   
                                                                               -------   
                                                                               $91,870   
                                                                               =======   
       16,625                   13,097                         29,722                    
        1,475                                                   1,477                    
-----------------------------------------------------------------------------------------
       62,572      141,306     (30,211)            6          173,808                    
                    46,154                                     46,154          $46,154   
                                                (523)            (523)            (523)  
                                                (657)            (657)            (657)  
                                                                               -------   
                                                                               $44,974   
                                                                               =======   
       29,465                                                  29,474                    
          265                                                     265                    
      (19,370)                                                (19,370)                   
                               (17,654)                       (17,654)                   
-----------------------------------------------------------------------------------------
       72,932      187,460     (47,865)       (1,174)         211,497                    
                    30,147                                     30,147          $30,147   
                                              (1,198)          (1,198)          (1,198)  
                                                (639)            (639)            (639)  
                                               3,756            3,756            3,756   
                                                                               -------   
                                                                               $32,066   
                                                                               =======   
        2,473                                                   2,475                    
          175                                                     175                    
       17,977                  (18,029)                           (52)                   
                                (1,125)                        (1,125)                   
-----------------------------------------------------------------------------------------
     $ 93,557     $217,607    $(67,019)      $   745         $245,036                    
=========================================================================================

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000                      
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                                2002       2001         2000 
-------------------------------------------------------------------------------------------- 
                                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES:                                                        
Net income                                                    $ 30,147   $ 46,154   $ 91,816 
Adjustments to reconcile net income to net cash from                                         
  operating activities:                                                                      
    Imputed interest on note payable                             6,045      6,033      6,336 
    Deferred income tax (benefit) provision                     (3,779)     1,524      1,793 
    Fair value adjustment for derivatives                        2,372         --         -- 
    Foreign currency gains and losses                              450         --         -- 
    Legal settlements                                            2,580         --         -- 
    Depreciation and amortization                               30,649     23,594     19,075 
    Gain on sale of investment                                    (200)        --         -- 
    Loss on disposal of equipment                                   --        423         -- 
    Equity in net income of investees                             (761)      (292)      (321)
    Purchase reduction of note payable and other noncash                                     
     items                                                          --      2,777      1,662 
Changes in assets and liabilities, net of acquisitions:                                      
    Accounts receivable                                        (28,827)   (46,259)   (33,671)
    Inventories                                                (47,617)    42,757    (75,106)
    Prepaid expenses and other current assets                   (2,942)       238     (3,796)
    Accounts payable                                           (11,782)    (4,977)    (5,884)
    Taxes payable                                               12,870    (23,448)     4,578 
    Accrued expenses                                            16,123     (4,451)      (837)
-------------------------------------------------------------------------------------------- 
        Net cash from operating activities                       5,328     44,073      5,645 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                        
Capital expenditures                                           (16,252)    (9,557)   (13,976)
Increase in other non-current assets                              (974)   (13,422)        -- 
Proceeds from sale of investment                                   501         --         -- 
Acquisition of George Foreman Trademark                             --         --    (22,750)
Additional payment for patents and trademarks                  (18,029)    (2,043)        -- 
Additions to intangibles, patents and trademarks               (20,717)    (9,382)      (737)
Equity investment                                                   --         --     (9,615)
Acquisition of businesses, net of cash acquired                 (7,314)   (63,561)        -- 
-------------------------------------------------------------------------------------------- 
        Net cash from investing activities                     (62,785)   (97,965)   (47,078)
CASH FLOWS FROM FINANCING ACTIVITIES:                                                        
Net proceeds (repayment) from revolving line of credit and                                   
  other debt                                                    72,231    (48,065)    36,367 
Repayment of long-term debt                                    (18,807)   (73,624)      (625)
Proceeds from long-term debt                                        --     75,000         -- 
Proceeds from senior subordinated debt                              --    148,284         -- 
Costs associated with refinancing                               (1,115)    (7,798)      (616)
Common stock issued                                                175        265      2,669 
Proceeds from termination of Swap transaction                    8,146         --         -- 
Purchase of treasury stock                                      (1,125)   (17,654)        -- 
-------------------------------------------------------------------------------------------- 
        Net cash from financing activities                      59,505     76,408     37,795 
-------------------------------------------------------------------------------------------- 
The effect of exchange rate changes on cash                     (1,090)       (25)         4 
-------------------------------------------------------------------------------------------- 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               958     22,491     (3,634)
CASH, BEGINNING OF YEAR                                         30,097      7,606     11,240 
-------------------------------------------------------------------------------------------- 
CASH, END OF YEAR                                             $ 31,055   $ 30,097   $  7,606 
============================================================================================ 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                            
Cash paid during the year for:                                                               
Interest                                                      $ 37,407   $ 28,039   $ 22,257 
Income taxes                                                    10,304     50,716     50,509 

See notes to consolidated financial statements.                                 
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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000                      
(IN THOUSANDS EXCEPT SHARE DATA)                                                

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:          

  In the quarter ended June 29, 2002, the Company incurred a capital lease
obligation of $812.                                                             

    In the quarter ended June 30, 2001, the Company authorized the issuance of
167,229 shares of common stock for payment of executive bonuses.                

    In the quarter ended September 30, 2000, Salton acquired trademarks, other
intellectual property and molds of the Stiffel Company 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(TM) name by issuing 621,161 shares of Salton, Inc. common stock. In the 
quarter ended December 30, 2000, the Company increased its investment in an     
unconsolidated affiliate approximately 10% by issuing 109,000 shares of Salton, 
Inc. common stock. In the quarter ended March 31, 2001, in accordance with the  
Stiffel purchase agreement, Salton paid $2,043 under the guarantee provision to 
make up for the shortfall between the $6,500 purchase price and the proceeds    
from the sale of the 200,000 shares. In July 2001, to satisfy the $20,000       
guarantee to George Foreman, the Company took back 456,175 of the 546,075 shares
issued to him on September 30, 2000 and paid him cash of $18,000 which was net  
of the proceeds from the sale of the remaining shares previously issued to him. 
Also, the Company determined it intends to pay the other venture participants in
cash for the stock price guarantee related to the 75,086 shares issued to them  
on September 30, 2000. As of June 29, 2002, the guarantee liability to the other
venture participants was $1.4 million.                                          

     In the quarter ended March 25, 2000, the Company authorized the issuance of
53,977 shares of common stock out of treasury for payment of executive bonuses. 

 In the quarter ended December 25, 1999, the Company acquired, effective
July 1, 1999, the right to use in perpetuity and worldwide the name George      
Foreman(TM) in connection with the marketing and sale of food preparation and   
non-alcoholic drink preparation and serving appliances. The aggregate purchase  
price payable to George Foreman and other participants was $137,500, of which   
$113,750 is payable in five annual cash installments, and the remaining $23,750 
was paid through the issuance of 779,191 shares of Salton, Inc. common stock    
issued out of treasury. The first cash installment of $22,750 was paid during   
the first half of fiscal 2000. In connection with the transaction the Company   
issued a five-year $91,000 non-interest bearing subordinated promissory note    
which as of June 29, 2002, has a face amount of $45,500, and is recorded at its 
present value of $43,853.                                                       

    In the quarter ended December 25, 1999, the Company retired a $4.0 million
note payable associated with the acquisition of Toastmaster Inc. by issuing     
109,090 shares common stock out of treasury. The Company received $1.2 million  
in cash related to the subsequent sale of this stock by the holder, per terms of
the note payable retirement.                                                    
See notes to consolidated financial statements.                      (Concluded)

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SALTON, INC.                                                                    

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS                                       
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000                      

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES                                 

Salton, Inc. ("Salton" or the "Company") is a designer, marketer,     
manufacturer and distributor of a broad range of branded, high quality small    
appliances, tabletop, time and lighting products and personal care and wellness 
products.                                                                       

   The Company's portfolio of well-recognized owned and licensed brand names
includes Salton(R), George Foreman(TM), Toastmaster(R), Russell Hobbs(R),       
Juiceman(R), Farberware(R), Melitta(R), White-Westinghouse(R), Kenmore(R),      
Breadman(R), Haden(R), Maxim(R), Westinghouse(R), Ingraham(R), Block China(R),  
Stiffel(R), Westclox(R), Rejuvenique(R), Carmen(R), Pifco(R), Ultrasonex(TM),   
Relaxor(R) and Calvin Klein(R).                                                 

Principles of Consolidation -- The consolidated financial statements  
include the accounts of all majority-owned subsidiaries. Investments in         
affiliates, in which the company has the ability to exercise significant        
influence, but not control, are accounted for by the equity method. Intercompany
balances and transactions are eliminated in consolidation.                      

  Use of Estimates -- In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,       
management is required to make estimates and assumptions that affect the        
reported amounts of assets and liabilities and the disclosure of contingent     
assets and liabilities at the date of the financial statements and revenues and 
expenses during the reporting period. Actual results could differ from those    
estimates. Significant estimates include the allowance for doubtful accounts,   
reserve for returns and allowances, and depreciation and amortization, among    
others.                                                                         

     Accounting Period -- The Company's fiscal year ends on the Saturday closest
to June 30. The fiscal year ended June 29, 2002 consisted of 52 weeks and is    
referred to as "fiscal 2002." The fiscal years ended June 30, 2001 and July 1,  
2000 consisted of 52 and 53 weeks, respectively, and are referred to as "fiscal 
2001" and "fiscal 2000", respectively.                                          

Allowance for Doubtful Accounts -- The Company records allowances for 
estimated losses resulting from the inability of customers to make required     
payments. The Company assesses the credit worthiness of customers based on      
multiple sources of information and analyzes such factors as our historical bad 
debt experiences, publicly available information regarding customers and the    
inherent credit risk related to them, information from subscription based credit
reporting companies, trade association data and reports, current economic trends
and changes in customer payment terms or payment patterns.                      

     Inventories -- The Company's inventories are generally determined using the
last-in, first-out (LIFO) cost method. The Company values inventory at the lower
of cost or market, and regularly reviews the book value of discontinued product 
lines and stock keeping units (SKUs) to determine if these items are properly   
valued. If market value is less than cost, the Company writes down the related  
inventory to the lower of market or net realizable value. The Company regularly 
evaluates the composition of inventory to determine slow-moving and obsolete    
inventories to determine if additional write-offs are required. Cost is         
determined by the last-in, first-out (LIFO) method for approximately 80% and 30%
of the Company's inventories as of June 29, 2002 and June 30, 2001,             
respectively. All remaining inventory cost is determined on the first-in,       
first-out basis. See Note 2 "Change in Accounting Method" and Note 4            
"Inventories."                                                                  

   Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Expenditures for maintenance costs and repairs are charged against     
income. Depreciation, which includes amortization of assets under capital       

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leases, as well as depreciation for leasehold improvements, is based on the     
straight-line method over the useful lives of the assets (see Table below). For 
tax purposes, assets are depreciated using accelerated methods.                 

ASSET CATEGORY                                          USEFUL LIVES (IN YEARS) 
------------------------------------------------------------------------------- 
Buildings                                                              10 to 50 
Molds and tooling                                                        3 to 5 
Warehouse equipment                                                     3 to 10 
Office furniture and equipment                                          3 to 10 
=============================================================================== 

  Intangibles and Other Non-current Assets -- Intangible assets, which are
amortized over their estimated useful lives, and other non-current assets       
consist of:                                                                     

                                                        [Enlarge/Download Table]

                                               USEFUL LIFE (IN YEARS)    JUNE 29, 2002   JUNE 30, 2001
------------------------------------------------------------------------------------------------------
                                                                                (IN THOUSANDS)        
                                                                                                      
Patents and trademarks, net                                      5-20    $     160,530   $     132,128
Goodwill                                                        10-40           29,976          43,317
Financing and organization costs                                  2-7           12,417          14,625
Other non-current assets                                                        31,160          29,436
------------------------------------------------------------------------------------------------------
Other intangibles, net, and other noncurrent                                                          
  assets                                                                 $      73,553   $      87,378
======================================================================================================

   Accumulated amortization of intangible assets was $50.0 million and $30.8
million at June 29, 2002 and June 30, 2001, respectively.                       

   The Company records intangible assets when acquiring other companies. The
cost of acquisition is allocated to the assets and liabilities acquired,        
including identifiable intangible assets, with the remaining amount being       
classified as goodwill. The allocation of the acquisition cost to intangible    
assets and goodwill therefore has a significant impact on our future operating  
results. The allocation process requires the extensive use of estimates and     
assumptions, including estimates of future cash flows expected to be generated  
by the acquired assets. Independent valuation consultants are employed by the   
Company to assist in determining if and when intangible assets might be         
impaired. Further, when impairment indicators are identified with respect to    
previously recorded intangible assets, the values of the assets are determined  
using discounted future cash flow techniques, which are based on estimated      
future operating results.                                                       

     Long-Lived Assets -- Long-lived assets are reviewed for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. If such review indicates that the carrying  
amount of long-lived assets is not recoverable, the carrying amount of such     
assets is reduced to the estimated recoverable value.                           

Revenue Recognition -- The Company recognizes revenues when goods are 
shipped to its customers. Provision is made for estimated cost of returns,      
warranties, and product liability claims.                                       

Distribution Expenses -- Distribution expenses consist primarily of   
freight, warehousing, and handling costs of products sold.                      

Advertising -- The Company sponsors various programs under which it   
participates in the cost of advertising and other promotional efforts for       
Company products undertaken by its retail customers. Advertising and promotion  
costs associated with these programs are expensed in the period in which the    
advertising or other promotion by the retailer occurs.                          

  The Company's tradenames and, in some instances, specific products, also
are promoted from time to time through direct marketing channels, primarily     
television. Advertising and promotion costs are expensed in the period in which 
the advertising and promotion occurs.                                           

     Self-insurance -- The Company maintains a self-insurance program for health
claims and workers' compensation claims for certain covered employees. The      
Company accrues estimated future costs that will be incurred for existing       
employee claims. The Company does not provide any post-retirement health care   
benefits.                                                                       

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   Income Taxes -- The Company accounts for income taxes using the asset and
liability approach. The measurement of deferred tax assets is reduced, if       
necessary, by the amount of any tax benefits that, based on available evidence, 
management believes is more likely than not to be realized.                     

    Net Income Per Common and Common Equivalent Share -- On June 28, 1999, the
Company's Board of Directors authorized a 3-for-2 split of its common stock     
effective July 28, 1999, for stockholders of record at the close of business on 
July 14, 1999. All earnings per-share data in the accompanying consolidated     
financial statements have been restated to give effect to the split.            

 Fair Value of Financial Instruments -- The carrying values of financial
instruments included in current assets and liabilities approximate fair values  
due to the short-term maturities of these instruments. The fair value of the    
Company's long-term, fixed rate debt was estimated based on dealer quotes and   
approximates the carrying value recorded. The carrying amount of short-term debt
and long-term variable-rate debt approximates fair value.                       

Accounting Pronouncements -- In June 2001, the Financial Accounting   
Standards Board ("FASB") issued Statement of Financial Accounting Standards     
("SFAS") No. 142 "Goodwill and Other Intangible Assets", superceding APB Opinion
No. 17, "Intangible Assets". This statement addresses how intangible assets that
are acquired individually or with a group of other assets (excluding assets     
acquired in a business combination) should be accounted for in financial        
statements upon their acquisition. This statement also addresses how goodwill   
and other intangible assets should be accounted for after they have been        
initially recognized in the financial statements. In accordance with this       
statement, goodwill and certain other intangible assets with indefinite lives   
will no longer be amortized, but evaluated for impairment based upon financial  
tests related to the current value for the related assets. The Company will     
adopt this statement in the first quarter of fiscal 2003. The Company has       
determined that no impairment of goodwill or other intangible assets has        
occurred. Goodwill of $30.0 million and other intangible assets (patents and    
trademarks) of $160.5 million are recorded in the Company's balance sheet as of 
June 29, 2002. The Company recorded $3.3 million and $10.6 million in           
amortization expense in fiscal 2002 related to goodwill and patents and         
trademarks, respectively.                                                       

    In accordance with SFAS No. 142, the effect of this accounting standard is
to be reflected prospectively. Supplemental comparative disclosures as if the   
standard had been adopted retroactively is as follows:                          

                                                        [Enlarge/Download Table]

                                                        JUNE 29, 2002   JUNE 30, 2001   JULY 1, 2000
----------------------------------------------------------------------------------------------------
                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  
                                                                                                    
Net income:                                                                                         
Reported net income                                           $30,147         $46,154        $91,816
Goodwill amortization, net of tax                               2,155             438            658
Indefinite-life intangibles amortization, net of tax            8,213           6,455          5,271
----------------------------------------------------------------------------------------------------
Adjusted net income                                           $40,515         $53,047        $97,745
====================================================================================================
Basic income per share:                                                                             
Reported income per basic share                               $  2.74         $  3.93        $  8.18
Add: Goodwill amortization, net of tax per basic share           0.20            0.04           0.06
    Indefinite-life intangibles amortization net of                                                 
     tax per basic share                                         0.75            0.55           0.47
----------------------------------------------------------------------------------------------------
Adjusted basic income per share                               $  3.69         $  4.52        $  8.71
====================================================================================================
Diluted income per share:                                                                           
Reported income per diluted share                             $  2.00         $  2.87        $  5.91
Add: Goodwill amortization, net of tax per basic share           0.14            0.03           0.04
    Indefinite-life intangibles amortization net of                                                 
     tax per basic share                                         0.55            0.40           0.34
----------------------------------------------------------------------------------------------------
Adjusted diluted income per share                             $  2.69         $  3.30        $  6.29
====================================================================================================

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     In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting       
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs, and requires that such costs be recognized as
a liability in the period in which incurred. This statement is effective for    
financial statements issued for fiscal years beginning after June 15, 2002. The 
Company does not expect the adoption of this statement to have a material impact
to the financial statements.                                                    

In August 2001, the FASB issued SFAS No. 144, "Accounting for the     
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.  
121 and requires that one accounting model be used for long-lived assets to be  
disposed of by sale, whether previously held and used or newly acquired, and by 
broadening the presentation of discontinued operations to include more disposal 
transactions. This statement is effective for financial statements issued for   
fiscal years beginning after December 15, 2001. The Company does not expect the 
adoption of this statement to have a material impact to the financial           
statements.                                                                     

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
SFAS 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical             
Corrections." SFAS No. 145 eliminates the current requirement that gains and    
losses on debt extinguishment must be classified as extraordinary items in the  
income statement. Instead, such gains and losses will be classified as          
extraordinary items only if they are deemed to be unusual and infrequent. The   
changes related to debt extinguishment will be effective for fiscal years       
beginning after May 15, 2002, and the changes related to lease accounting will  
be effective for transactions occurring after May 15, 2002; however, early      
application is encouraged. The Company early adopted this statement as it       
relates to the rescission of SFAS No. 4 , "Reporting Gains & Losses from        
Extinguishment of Debt." The Company had a debt extinguishment in the current   
year related to the Applica transaction. See Note 5 "Applica Transaction."      

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires recording 
costs associated with exit or disposal activities at their fair values when a   
liability has been incurred. Under previous guidance, certain exit costs were   
accrued upon management's commitment to an exit plan, which is generally before 
an actual liability has been incurred. This statement is effective for financial
statements issued for fiscal years beginning after December 31, 2002. The       
Company does not expect the adoption of this statement to have a material impact
to the financial statements.                                                    

2. CHANGE IN ACCOUNTING METHOD                                                  

During the fourth quarter of fiscal year 2002, the Company changed its
method of accounting for certain inventories (principally Salton branded        
products) from the first-in, first-out method ("FIFO") to the last-in, last-out 
("LIFO") method, retroactively effective as of July 1, 2001. The Company        
believes the new method is preferable because the LIFO method of valuing        
inventories more closely matches current costs and revenues in periods of price 
level changes. This change was also made to apply a consistent method of        
inventory valuation for all U.S. inventories. During fiscal 2002, the           
integration of processes and systems for Toastmaster and other U.S. inventories 
was completed. As such, continued separate tracking for FIFO and LIFO valuation 
purposes would be without business or economic substance. The change results in 
substantially all of the Company's inventories being accounted for on the LIFO  
method.                                                                         

   The net effect of this change was to decrease net income by $0.4 million,
or $.03 per diluted share. It is not possible to determine the cumulative effect
of the change on retained earnings at July 1, 2001 or the pro forma effect of   
retroactive application of the change for prior periods. The impact on quarterly
financial results during fiscal year 2002 was de minimis.                       

3. ACQUISITIONS AND ALLIANCES                                                   

On May 2, 2001, the Company acquired the stock of Pifco Holdings PLC  
("Pifco"), a United Kingdom based producer and marketer of personal care        
appliances, electrical hardware, cookware and battery operated products (the    
"Pifco Acquisition"). The Company paid Pifco shareholders $4 per share, for a   
total purchase price of approximately $75 million. In addition, acquisition     
related expenses of $4.3 million were included in the purchase price. The       
acquisition was accounted for as a purchase. The excess of the purchase price   
over the fair values of the net assets acquired has been recorded as goodwill.  
The aggregate purchase price has been allocated to the assets of the Company,   
based upon an estimate of their respective fair market values. The purchase     
price included intangibles of                                                   
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approximately $31.3 million of acquired trademarks. The acquisition also        
included inventories and the related payables; trade receivables; property,     
plant and equipment; other long-term assets and accrued obligations. The fair   
market value of the net assets acquired exceeded the purchase price by          
approximately $4.3 million.                                                     

    Approximately $17.7 million of the purchase price was paid by issuing loan
notes (the "Loan Notes") in accordance with the purchase offer, with the        
remainder paid in cash. The Loan Notes have been fully funded by the Company and
recorded as an escrow asset as of June 29, 2002. The notes bear interest at 1%  
below LIBOR per annum, payable semi-annually, and are due June 30, 2006. The    
Loan Notes have been recorded at their net present value, or $18.2 million as of
June 29, 2002. The Loan Notes may be prepaid, at the option of the holder, after
June 30, 2002. On July 1, 2002, $13.3 million of the Loan Notes were redeemed by
shareholders. It is assumed that the balance will be redeemed on their second   
anniversary, June 30, 2003.                                                     

The operating results of Pifco have been included in the consolidated 
statements of earnings from the date of acquisition and included sales of       
approximately $7.2 million and net income of approximately $0.3 million for     
fiscal 2001.                                                                    

In fiscal 2002, Pifco was renamed Salton Europe.                      

Salton owns approximately 31% of the outstanding shares of Amalgamated
Appliance Holdings Limited ("Amalgamated"), a leading manufacturer and          
distributor of a wide range of branded consumer electronics and appliances in   
South Africa. The investment is being accounted for under the equity method of  
accounting, and is included in the consolidated financial statements in other   
assets. The equity in Amalgamated net income of $0.8 million, $0.3 million and  
$0.3 million was included in the consolidated income statement and selling,     
general and administrative expenses for fiscal 2002, fiscal 2001 and fiscal     
2000, respectively. Based in South Africa, Amalgamated is a publicly held       
company, listed on the Johannesburg Stock Exchange, which owns the rights to the
Salton brand name in South Africa. In conjunction with this transaction, the    
Chief Executive Officer of Salton, Inc., was added to Amalgamated's Board of    
Directors.                                                                      

    In the quarter ended December 25, 1999, Salton acquired, effective July 1,
1999, the right to use in perpetuity and worldwide the name George Foreman(TM)  
in connection with the marketing and sale of food preparation and non-alcoholic 
drink preparation and serving appliances. The aggregate purchase price payable  
to George Foreman and other participants was $137.5 million, of which $113.75   
million is payable in five annual cash installments, and the remaining $23.75   
million was paid through the issuance of 779,191 shares of Salton, Inc. common  
stock issued out of treasury. The first cash installment of $22.75 million was  
paid during the first half of fiscal 2000. In connection with the transaction   
Salton issued a five-year $91.0 million non-interest bearing subordinated       
promissory note which as of June 29, 2002, has a face amount of $45.5 million,  
and is recorded at its present value of $43.9 million and $43.2 million as of   
June 29, 2002 and June 30, 2001, respectively. In the quarter ended December 25,
1999, the effect of the George Foreman transaction was an elimination of $16.6  
million in royalty expense, partially offset by the recording of amortization of
$4.0 million and imputed interest of $3.2 million.                              

     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 $18.0 million. This payment,
which represented $20.0 million less the proceeds George Foreman received from  
the sale on the open market of shares 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. Upon     
completion of this transaction, the Company had only two installments remaining 
under the note as well as the outstanding guarantee obligation to the other     
participants.                                                                   

 In fiscal 2002, the Company acquired the trademarks, certain rights and
patents and other intellectual property, assets and molds of the Westclox(R),   
Big Ben(R) and Spartus(R) brands for $9.8 million; acquired the worldwide       
manufacturing, distribution and intellectual property rights in connection with 
certain food grilling products for $15.0 million; and formed a wholly-owned     
subsidiary, Icebox, LLC, to design and develop next generation kitchen products 
and e-commerce solutions. 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.                                      

 In fiscal 2001, the Company acquired Sonex International Corporation, a
designer and distributor of electrically operated toothbrushes, flossers and    
related products for $2.9 million; acquired the trademarks, other intellectual  
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property, assets and molds of the Stiffel Company, a designer of lamps and      
related products for $5.4 million; acquired the Relaxor(R) brand business and   
inventory, including a line of personal massagers and other personal care items 
from J.B. Research, Inc. for $4.5 million; acquired the right to use the        
Juiceman(R) brand name on a royalty-free basis for $5.3 million; and acquired   
the assets of ePods, Inc. at a public foreclosure sale.                         

4.  INVENTORIES                                                                 

A summary of inventories is as follows:                               

                                                        [Enlarge/Download Table]

                                                              JUNE 29, 2002   JUNE 30, 2001
-------------------------------------------------------------------------------------------
                                                                     (IN THOUSANDS)        
                                                                                           
Raw materials                                                      $  4,545        $  5,986
Work-in-process                                                       3,391           1,293
Finished goods                                                      236,224         185,223
-------------------------------------------------------------------------------------------
Total                                                              $244,160        $192,502
===========================================================================================

  If the first-in, first-out (FIFO) method of inventory valuation had been
used to determine cost for 100% of the Company's inventories at June 29, 2002   
and June 30, 2001, they would have been approximately $0.4 million higher and   
$0.5 million lower than reported, respectively. During the fourth quarter of    
fiscal year 2002, the Company recorded a reduction in inventory of approximately
$4.6 million associated with exiting certain product lines. During the fourth   
quarter of fiscal year 2001, the Company recorded a reduction in inventory of   
approximately $8.2 million for inventory losses identified through the physical 
inventory count and an additional $5.1 million in LIFO and other valuation      
adjustments.                                                                    

5.  APPLICA TRANSACTION                                                         

 On July 28, 1998, Salton repurchased (the "Stock Repurchase") 6,535,072
shares of Salton common stock owned by Applica, Inc. pursuant to a Stock        
Agreement dated as of May 6, 1998 (the "Applica Stock Agreement") by and among  
Salton, Applica and the executive officers of Salton. Prior to the Stock        
Repurchase, Applica 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 had a term of six and one-half years and bore   
interest at 4.0% per annum payable annually, was subject to offsets of 5% of the
total purchase price paid by Salton for product purchases from Applica and its  
affiliates during the term of the note. During fiscal 2001, the Company reduced 
this debt and interest by approximately $0.3 million, for related purchases of  
products from Applica. The principal amount of the Junior Subordinated Note was 
also subject to cancellation in the event Salton's supply agreement with Kmart  
is terminated for any reason. Effective upon the closing of the Repurchase, each
of the persons who had been designated by Applica to serve on Salton's Board of 
Directors resigned from Salton's Board of Directors.                            

    On January 23, 2001, the Company filed a lawsuit against Applica, Inc. and
its affiliate in the United States District Court for the Northern District of  
Illinois. The lawsuit alleged that Applica intentionally, willfully and         
maliciously breached its noncompetition agreement with Salton, attempted to     
conceal the breach, tortiously interfered with Salton's business and contractual
relationships and breached its duty of good faith and fair dealing. On September
5, 2002, the Company finalized a settlement agreement effective on June 21, 2002
with Applica, which resulted in the following:                                  

- The termination of the Company's obligation to pay Applica a fee based upon   
net sales of White-Westinghouse(R) products to Kmart and the payment by the 
Company to Applica of $1.8 million on or before December 31, 2002, primarily
for amounts previously accrued and outstanding under this obligation.       

- The payment by the Company to Applica of $2 million on or before June 30,     
2004, and the cancellation of the $15 million Junior Subordinated note that 
the Company issued to Applica in 1998 as a partial consideration for the    
  repurchase of the Company's common stock from Applica. The Junior Subordinated
  note, which had a carrying value prior to the settlement of $10.8 million, was
cancelled in view of the harm to the Company's business enterprise value and
the underlying Salton common stock repurchased.                             

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6.  REVOLVING LINE OF CREDIT, LETTERS OF CREDIT AND LONG-TERM DEBT              

   On December 16, 1998, the Company issued $125.0 million of 10 3/4% Senior
Subordinated Notes ("the 2005 Subordinated Notes") due 2005. Proceeds of the    
2005 Subordinated Notes were used to repay outstanding indebtedness and for     
working capital and general corporate purposes. The 2005 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 will otherwise restrict  
corporate and business activities. In addition, under the 2005 Subordinated     
Notes, the Company is required to comply with a specified financial fixed charge
coverage ratio. At June 29, 2002, the Company was in compliance with all the    
covenants described above.                                                      

 The Company amended and restated their Credit Agreement and replaced it
with the Third Amended and Restated Credit Agreement ("Credit Agreement") during
the quarter ended September 30, 2000. Salton increased its existing revolving   
credit facility from $115.0 million to $160.0 million. The Credit Agreement,    
among Salton, Lehman Brothers Inc., as arranger, Firstar Bank, N.A., as         
syndication agent, Lehman Commercial Paper Inc., as administrative agent, Fleet 
National Bank, as documentation agent, and a syndicate of banks, provides for   
$235.0 million in a senior secured credit facility consisting of a $75.0 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 plus an applicable margin of 325 basis    
points amortizing in sixteen consecutive quarterly installments commencing on   
March 31, 2001; and a $160.0 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 plus an applicable margin based on a range of ratios of total debt to      
earnings before interest, taxes, depreciation and amortization, maturing on     
January 7, 2004. The Credit Agreement 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 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 will otherwise restrict corporate and business activities. In addition,     
under the 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. At June 29, 2002, the Company was in      
compliance with all of the covenants described above. At June 29, 2002, the     
Eurodollar rate plus applicable margin on the Term Loan was 5.63% and the       
Eurodollar rate plus applicable margin on the Revolving Credit Facility was     
5.09%.                                                                          

Information regarding short-term borrowings under the Revolving Credit
Facility is:                                                                    

                                                        [Enlarge/Download Table]

                                                              JUNE 29, 2002   JUNE 30, 2001
-------------------------------------------------------------------------------------------
                                                                     (IN THOUSANDS)        
                                                                                           
Balance at end of fiscal period                                    $ 95,000        $ 20,000
Interest rate at end of fiscal period                                 5.09%           6.66%
Maximum amount outstanding at any month-end                         151,000         153,000
Average amount outstanding                                           96,154          91,607
Weighted average interest rate during fiscal period                   5.55%           8.79%
Outstanding letters of credit at end of fiscal period                 2,789           4,632
Unused letters of credit at end of the fiscal period                 22,211          20,368

On April 23, 2001, the Company issued $150.0 million of 12 1/4% Senior
Subordinated notes ("the 2008 Subordinated Notes) due 2008. Proceeds of the 2008
Subordinated Notes were used to repay outstanding indebtedness and for the      
acquisition of Pifco Holdings PLC (see Note 3). The 2008 Subordinated Notes     
contain a number of                                                             

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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 will otherwise restrict corporate and 
business activities. In addition, under the 2008 Subordinated Notes, the Company
is required to comply with a specified fixed charge coverage ratio. At June 29, 
2002, the Company was in compliance with all the covenants described above.     

Notes payable consist of the long term portion of the note payable    
associated with the acquisition of the George Foreman trademarks and the long   
term portion of the term loan. See Note 3 "Acquisitions and Alliances."         

Long-term debt matures as follows (in thousands):                     

                                                        [Enlarge/Download Table]

FISCAL YEAR ENDED                                                                   FOREMAN            
                                    SUBORDINATED    TERM     PIFCO LOAN   CAPITAL    NOTE              
                                       NOTES        LOAN       NOTES      LEASES    PAYABLE      TOTAL 
------------------------------------------------------------------------------------------------------ 
                                                                                                       
2003                                $         --   $18,750   $   13,325   $   277   $22,749   $ 55,101 
2004                                          --    18,750        4,908       268    21,104     45,030 
2005                                     125,000     9,375           --       224        --    134,599 
2006                                          --        --           --        --        --         -- 
2007                                          --        --           --        --        --         -- 
Thereafter                               150,000        --           --        --        --    150,000 
                                    ------------   -------   ----------   -------   -------   -------- 
                                    $    275,000   $46,875   $   18,233   $   769   $43,853    384,730 
                                    ============   =======   ==========   =======   =======            
Less current maturities                                                                        (55,101)
                                                                                              -------- 
                                                                                              $329,629 
                                                                                              ======== 

    The recorded balance of the 2008 Subordinated Notes includes the following
components (in thousands):                                                      

                                                        [Enlarge/Download Table]

                                                              JUNE 29, 2002   JUNE 30, 2001 
------------------------------------------------------------------------------------------- 
                                                                                            
Principal balance                                                  $150,000        $150,000 
Fair value adjustment for terminated swap                             8,146                 
Fair value adjustment for current swap                                  238                 
Unamortized discount                                                 (1,430)         (1,675)
------------------------------------------------------------------------------------------- 
Recorded balance                                                   $156,954        $148,325 
=========================================================================================== 

     In addition to the preceding maturity schedules, the Company is required to
make additional mandatory payments of 50% of the defined annual excess cash flow
of the Company, 100% of the net proceeds of any sale or disposition of certain  
assets, and 100% of the net proceeds of the incurrence of certain indebtedness. 
All such amounts are first applied to the prepayment of outstanding term loans  
and secondly to the reduction of the Revolving Credit Facility. No additional   
payments were required in fiscal 2002 and 2001.                                 

7.  DERIVATIVE FINANCIAL INSTRUMENTS                                            

   The Company uses derivative financial instruments to manage interest rate
and foreign currency risk. The Company does not enter into derivative financial 
instruments for trading purposes. Interest rate swap agreements are used as part
of our program to manage the fixed and floating interest rate mix of our total  
debt portfolio and related overall cost of borrowing. The Company's European    
subsidiary uses forward exchange contracts to hedge foreign currency payables   
for periods consistent with the expected cash flow of the underlying            
transactions. The contracts generally mature within one year and are designed to
limit exposure to exchange rate fluctuations, primarily related to the British  
pound.                                                                          

    When entered into, these financial instruments are designated as hedges of
underlying exposures. When a high correlation between the hedging instrument and
the underlying exposure being hedged exists, fluctuations in the value of the   
instruments are offset by changes in the value of the underlying exposures.     

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    The estimated fair values of derivatives used to hedge or modify our risks
fluctuate over time. These fair value amounts should not be viewed in isolation,
but rather in relation to the fair values of the underlying hedging transactions
and investments and to the overall reduction in our exposure to adverse         
fluctuations in interest rates and foreign exchange rates. The notional amounts 
of the derivative financial instruments do not necessarily represent amounts    
exchanged by the parties and, therefore, are not a direct measure of our        
exposure from our use of derivatives. The amounts exchanged are calculated by   
reference to the notional amounts and by other terms of the derivatives, such as
interest rates or exchange rates.                                               

INTEREST RATE MANAGEMENT                                                        

   At June 30, 2001, the Company had an interest rate swap contract to pay a
variable-rate interest of three-month LIBOR plus 6.13% and receive fixed-rate   
interest of 12.25% on $150.0 million notional amount of indebtedness. This      
contract was terminated in June 2002 resulting in a gain of $8.1 million. The   
gain from early termination of this contract was deferred as an adjustment to   
the carrying amount of the outstanding debt and is being amortized as an        
adjustment to interest expense related to the debt over the remaining period    
originally covered by the terminated swap. The Company simultaneously entered   
into another interest rate swap contract to pay a variable-rate interest of     
six-month LIBOR plus 7.02% and receive fixed-rate interest of 12.25% on $150.0  
million notional amount of indebtedness. This resulted in approximately 65% of  
the Company's underlying debt being subject to variable interest rates. The     
$150.0 million notional amount of the outstanding contract will mature in 2008. 
The underlying hedged debt instrument is callable by the Company at certain     
dates and premiums during the term of the debt. The interest rate swap contract 
is also callable by the counterparty at the same dates and premiums. The Company
has determined that the call feature is clearly and closely related to the      
hedged debt instrument as the amount paid at settlement is not based on changes 
in an index and the debt instrument was not issued at a substantial discount. As
of June 29, 2002, the Company's balance sheet included approximately $0.2       
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     
offset by a corresponding change in fair value recorded on the hedged debt, and 
resulted in no net earnings impact.                                             

FOREIGN CURRENCY MANAGEMENT                                                     

   All foreign exchange contracts have been recorded on the balance sheet at
fair value of ($3.3) million classified within accrued expenses. The change in  
the fair value of contracts that qualify as foreign currency cash flow hedges   
and are highly effective was ($0.9) million. This amount was recorded in other  
comprehensive income, net of tax. The changes in the fair value of contracts    
that do not qualify as foreign currency cash flow hedges of ($2.4) million were 
recorded through earnings. The Company anticipates that all gains and losses in 
accumulated other comprehensive income related to foreign exchange contracts    
will be reclassified into earnings during fiscal year 2003. At June 29, 2002,   
the Company's European subsidiary had foreign exchange contracts for the        
purchase of 39.0 million U.S. dollars.                                          

8. CAPITAL STOCK                                                                

 On June 28, 1999, the Company's Board of Directors authorized a 3-for-2
split of its common stock effective July 28, 1999, for stockholders of record at
the close of business on July 14, 1999. All earnings per-share data in the      
accompanying financial statements and notes thereto have been restated to give  
effect to the split.                                                            

     On July 28, 1998, the Company issued $40.0 million of convertible preferred
stock in connection with a Stock Purchase Agreement dated July 15, 1998. The    
convertible preferred stock is non-dividend bearing except if the Company       
breaches, in any material respect, any of the material obligations in the       
preferred stock agreement or the certificate of incorporation relating to the   
convertible preferred stock, the holders of the convertible preferred stock are 
entitled to receive quarterly cash dividends on each share from the date of the 
breach until it is cured at a rate per annum to 12 1/2% of the Liquidation      
Preference (defined below). The preferred shares are convertible into 3,529,411 
shares of Salton common stock (reflecting a $11.33 per share conversion price). 
The holders of the convertible preferred stock are entitled to one vote for each
share of Salton common stock that the holder would receive upon conversion of   
the convertible preferred stock. In connection with the convertible preferred   
stock                                                                           

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issuance, two individuals representing the purchasers of the preferred stock    
were appointed to serve on the Company's Board of Directors.                    

In the event of a change in control of the Company, each preferred    
shareholder has the right to require the Company to redeem the shares at a      
redemption price equal to the Liquidation Preference (defined below) plus       
interest accrued thereon at a rate of 7% per annum compounded annually each     
anniversary date from July 28, 1998 through the earlier of the date of such     
redemption or July 28, 2003.                                                    

  In the event of a liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of the Convertible Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution 
to its stockholders an amount in cash equal to $1,000 per share, plus the amount
of any accrued and unpaid dividends thereon (the "Liquidation Preference"),     
before any distribution is made to the holders of any Salton common stock or any
other of our capital stock ranking junior as to liquidation rights to the       
convertible preferred stock.                                                    

 The Company may optionally convert in whole or in part, the convertible
preferred stock at any time on and after July 15, 2003 at a cash price per share
of 100% of the then effective Liquidation Preference per share, if the daily    
closing price per share of the Company common stock for a specified 20          
consecutive trading day period is greater than or equal to 200% of the then     
current Conversion Price. On September 15, 2008, the Company will be required to
exchange all outstanding shares of convertible preferred stock at a price equal 
to the Liquidation Performance per share, payable at the Company's option in    
cash or shares of Salton common stock.                                          

On December 6, 1999, the Company's Board of Directors approved the    
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of $.01 par value common stock from 20,000,000 to   
40,000,000.                                                                     

9.  EARNINGS PER SHARE                                                          

                                                        [Enlarge/Download Table]

                                                       YEAR ENDED        YEAR ENDED       YEAR ENDED
                                                    JUNE 29, 2002     JUNE 30, 2001     JULY 1, 2000
----------------------------------------------------------------------------------------------------
                                                       (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)    
                                                                                                    
Net Income(1)                                       $      30,147     $      46,154     $     91,816
Average common shares outstanding                          11,005            11,750           11,221
Earnings per share -- basic                         $        2.74     $        3.93     $       8.18
Dilutive stock equivalents                                  4,037             4,315            4,305
Average common and common equivalent shares                                                         
  outstanding                                              15,042            16,065           15,526
Earnings per share -- diluted                       $        2.00     $        2.87     $       5.91
====================================================================================================

(1) Net income is the same for purposes of calculating basic and diluted EPS.   

Options to purchase 270,000 shares at a price of $29.25 per share were
outstanding at June 29, 2002, June 30, 2001 and July 1, 2000 but were not       
included in the computation of diluted EPS because the options are contingent   
upon the Company's share price reaching specified targets for a specified period
of time. Options to purchase 643,572 shares of common stock at a price range of 
$17.50 to $37.00 per share, 486,293 shares of common stock at a price range of  
$27.38 to $37.00 per share, and 212,160 shares of common stock at a price of    
$8.17 per share were outstanding at June 29, 2002, June 30, 2001 and July 1,    
2000, respectively, but were not included in the computation of diluted EPS     
because the exercise prices were greater than the average market price of the   
common shares.                                                                  

10.  EMPLOYEE BENEFIT PLANS                                                     

 The Company has a 401(k) defined contribution plan that covers eligible
employees. This plan combined and replaced the former Salton and Toastmaster    
401(k) plans. The employees are eligible for benefits upon completion of one    
year of service. Under the terms of the plan, the Company may elect to match a  
portion of the employee contributions. The Company's discretionary matching     
contribution is based on a portion of participants' eligible                    

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wages, as defined, up to a maximum amount ranging typically from two percent to 
six percent. A higher matching percentage was approved in fiscal 2000 for       
Toastmaster employees affected by the freeze of the Toastmaster defined pension 
plans. The Company's total matching contributions were approximately $0.5       
million, $0.6 million and $0.3 million, in fiscal 2002, 2001 and 2000,          
respectively. In fiscal 2000, the Company amended the former Toastmaster 401(k) 
plan to allow for discretionary employer contributions to all employees, whether
or not the employees contribute individually to the plan, in connection with the
freeze of the Toastmaster defined pension plans. A discretionary employer       
contribution of approximately $0.3 million was made in fiscal 2000.             

   The Company has two defined benefit plans that cover substantially all of
the employees of Toastmaster as of the date the plans were curtailed. The plans'
assets consist of a portfolio of investments in money market, common stock, bond
and real estate funds. The Company uses March 31 as the measurement date for    
determining pension plan assets and obligations. Effective October 30, 1999, the
Company's Board of Directors approved the freezing of benefits under the        
Company's two defined benefit plans. Beginning October 31, 1999, no further     
benefits were accrued under the plans. Effective June 26, 1999, the Company     
adopted SFAS No. 132, "Employers' Disclosures about Pension and Other           
Postretirement Benefits." SFAS No. 132 requires the disclosure of the           
information presented below:                                                    

                                                        [Enlarge/Download Table]

                                                              JUNE 29, 2002   JUNE 30, 2001
-------------------------------------------------------------------------------------------
                                                                     (IN THOUSANDS)        
                                                                                           
Change in benefit obligation:                                                              
  Benefit obligation at beginning of year                        $10,135         $ 9,806   
  Service cost                                                       168              --   
  Interest cost                                                      747             737   
  Actuarial loss                                                     300             814   
  Curtailment gain                                                    --              --   
  Benefits paid and expenses                                        (806)         (1,222)  
-------------------------------------------------------------------------------------------
  Benefit obligation at end of year                              $10,544         $10,135   
===========================================================================================
Change in plan assets:                                                                     
  Fair value of plan assets at beginning of year                 $10,193         $12,694   
  Actual return on plan assets                                        46          (1,564)  
  Employer contribution                                               --             285   
  Benefits paid from plan assets                                    (806)         (1,222)  
-------------------------------------------------------------------------------------------
  Fair value of plan assets at end of year                       $ 9,433         $10,193   
===========================================================================================
Funded status                                                    $(1,112)        $    58   
Unrecognized net actuarial loss                                    2,753           1,666   
Unrecognized transitional asset                                       --              --   
Unrecognized prior service cost                                       --              --   
Additional pension liability in excess of unrecognized prior                               
  service cost                                                    (2,753)           (837)  
-------------------------------------------------------------------------------------------
(Accrued)/Prepaid pension cost                                   $(1,112)        $   887   
===========================================================================================

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                                                        [Enlarge/Download Table]

                                                        JUNE 29, 2002   JUNE 30, 2001   JULY 1, 2000 
---------------------------------------------------------------------------------------------------- 
                                                             (IN THOUSANDS, EXCEPT PERCENTAGES)      
                                                                                                     
Weighted average assumptions:                                                                        
  Discount rate                                                  7.25%           7.50%          7.75%
  Expected return on plan assets                                 9.00%           9.00%          9.00%
==================================================================================================== 
Components of net periodic pension cost:                                                             
  Service cost benefits earned during the year                  $ 168          $   --        $   323 
  Interest cost on projected benefit obligation                   747             737            788 
  Actuarial return on plan assets                                (887)         (1,136)        (1,021)
  Curtailment gain                                                 --              --         (1,009)
  Net amortization and deferral                                    54             (49)            -- 
---------------------------------------------------------------------------------------------------- 
Net pension expenses (benefit)                                  $  82         $  (448)       $  (919)
==================================================================================================== 

  The Company recorded a $1.0 million curtailment gain in fiscal 2000 as a
result of a freeze in pension plan benefits. Under the requirements of SFAS No. 
87, "Employers' Accounting for Pensions," an additional minimum pension         
liability for both plans, representing the excess of accumulated benefits over  
the plan assets and accrued pension costs, was recognized at June 29, 2002, with
the balance recorded as a separate reduction of stockholders' equity, net of    
deferred tax effect.                                                            

11.  STOCK OPTION PLANS                                                         

   In October 1995, SFAS No. 123, "Accounting For Stock-Based Compensation,"
was issued and is effective for financial statements for fiscal years beginning 
after December 15, 1995. As permitted by the statement, the Company continues to
measure compensation cost for stock option plans in accordance with Accounting  
Principles Board Opinion No. 25, "Accounting For Stock Issued to Employees."    
Accordingly, no compensation cost has been recognized for the Company's fixed   
stock option plans. Had compensation cost for the Company's stock option plans  
been determined consistent with the fair value method outlined in SFAS No. 123, 
the impact on the Company's net income and earnings per common share would have 
been as follows:                                                                

                                                        [Enlarge/Download Table]

                                                                 2002         2001         2000
-----------------------------------------------------------------------------------------------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                               
Net income:                                                                                    
  As reported                                                 $30,147      $46,154      $91,816
  Pro forma                                                    27,419       40,647       85,266
Net income per common share: Basic                                                             
  As reported                                                 $  2.74      $  3.93      $  8.18
  Pro forma                                                      2.49         3.46         7.60
Net income per common share: Diluted                                                           
  As reported                                                    2.00         2.87         5.91
  Pro forma                                                      1.82         2.53         5.49

Options to purchase common stock of the Company have been granted to  
employees under the 1992, 1995, 1998, 1999, and 2001 stock option plans at      
prices equal to the fair market value of the stock on the dates the options were
granted. Options have also been granted to non-employee directors of the        
Company, which are exercisable one year after the date of grant. All options    
granted expire 10 years from the date of grant, and can vest immediately or up  
to 3 years from the date of grant.                                              

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     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following assumptions were used     
during the respective years to estimate the fair value of options granted:      

                                                        [Enlarge/Download Table]

                                                                    2002         2001         2000 
-------------------------------------------------------------------------------------------------- 
                                                                                                   
Dividend yield                                                      0.00%        0.00%        0.00%
Expected volatility                                                65.36%       64.15%       61.45%
Risk-free interest rate                                             4.39%        5.07%        6.50%
Expected life of options                                      8.00 years   7.56 years   7.98 years 

   A summary of the Company's fixed stock options for the fiscal years ended
June 29, 2002, June 20, 2001, and July 1, 2000, is as follows:                  

                                                        [Enlarge/Download Table]

                                              2002                2001                2000       
                                        -----------------   -----------------   -----------------
                                                 WEIGHTED            WEIGHTED            WEIGHTED
                                                  AVERAGE             AVERAGE             AVERAGE
                                        SHARES   EXERCISE   SHARES   EXERCISE   SHARES   EXERCISE
                                         (000)      PRICE    (000)      PRICE    (000)      PRICE
-------------------------------------------------------------------------------------------------
                                                                                                 
Outstanding at beginning of year         2,164   $  17.77    1,688   $  17.88    1,101   $   7.83
Granted                                    156       9.84      501      17.18      745      30.36
Exercised                                  (17)     10.29      (24)     10.91     (158)      6.64
Expired or Canceled                        (27)                 (1)                              
                                        ------              ------              ------           
Outstanding at end of year               2,276      17.23    2,164      17.77    1,688      17.88
                                        ======              ======              ======           
Options exercisable at end of year       1,848      16.04    1,599      16.12    1,038       9.39
Weighted-average fair value of options                                                           
  granted during the year                 7.22                          11.37               24.05

  The shares outstanding at the beginning of the year for fiscal 2000 have
been restated to reflect the three-for-two stock split that was effective on    
July 28, 1999. The remaining activity in fiscal 2000 occurred on a post-split   
basis.                                                                          

    The following information summarizes the stock options outstanding at June
29, 2002:                                                                       

                                                        [Enlarge/Download Table]

                                                                                       OPTIONS      
                                               OPTIONS OUTSTANDING                   EXERCISABLE    
RANGE OF EXERCISE PRICES                      ---------------------               ------------------
                                                          WEIGHTED-                                 
                                                            AVERAGE   WEIGHTED-            WEIGHTED-
                                                          REMAINING     AVERAGE              AVERAGE
                                              SHARES    CONTRACTUAL    EXERCISE   SHARES    EXERCISE
                                               (000)   LIFE (YEARS)       PRICE    (000)       PRICE
----------------------------------------------------------------------------------------------------
                                                                                                    
$0.583-$1.667                                    234          2.86    $    1.63      234   $    1.63
$2.292-$5.833                                     34          4.89         5.21       34        5.21
$6.333-$10.44                                    521          6.10         8.38      369        7.77
$13.917-$17.50                                   746          7.69        15.12      746       15.30
$27.375-$37.00                                   741          7.46        31.08      465       31.04
                                              ------                              ------            
$0.583-$37.00                                  2,276           N/A                 1,848            
                                              ======                              ======            

12.  RELATED PARTY TRANSACTIONS                                                 

  The Company purchased inventory from Applica, Inc. of approximately $3.0
million, $7.0 million and $26.4 million, in fiscal years ended June 29, 2002,   
June 30, 2001 and July 1, 2000, respectively. Applica owned shares of Salton    
common stock until July 1998 at which time the Company repurchased the shares.  
See Note 5 "Applica Transaction".                                               

  The Company purchased inventory from Markpeak, Ltd. ("Markpeak"), a Hong
Kong company, including commissions, of approximately $0.1 million, $3.6 million
and $185.0 million, in fiscal years 2002, 2001 and 2000, respectively. The      
Company had a receivable from Markpeak of approximately $19.2 million and $19.1 
million at                                                                      

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June 29, 2002 and June 30, 2001, respectively. The Company owed Markpeak        
approximately $3.6 million and $3.7 million at June 29, 2002 and June 30, 2001, 
respectively. Markpeak acts as a buying agent on behalf of the Company with     
certain suppliers in the Far East. A director of the Company is the former      
managing director of Markpeak.                                                  

     The Company paid Shapiro, Devine and Craparo, Inc. ("SDC"), a manufacturers
representation firm, commissions of approximately $0.5 million, $0.5 million and
$0.4 million, in fiscal 2002, 2001 and 2000, respectively. A director of the    
Company was a co-founder of SDC. The Company owed approximately $0.1 million for
current commissions at June 29, 2002 and June 30, 2001.                         

13.  COMMITMENTS AND CONTINGENCIES                                              

LEASES                                                                          

The Company leases certain facilities and equipment under long-term   
operating leases. Rental expense under all leases was approximately $9.1        
million, $8.4 million and $5.8 million for the fiscal years ended June 29, 2002,
June 30, 2001 and July 1, 2000, respectively. Leased equipment meeting certain  
criteria is capitalized and the present value of the related lease payments is  
recorded as a liability. Amortization of capitalized leased assets is computed  
on the straight-line method of the term of the lease.                           

    The future minimum rental commitments as of June 29, 2002 were as follows:

                                                        [Enlarge/Download Table]

                                                              OPERATING      CAPITAL     
                                                               LEASES         LEASES     
---------------------------------------------------------------------------------------- 
                                                                    (IN THOUSANDS)       
                                                                                         
2003                                                            $ 9,868             $300 
2004                                                              6,967              293 
2005                                                              4,066              219 
2006                                                              3,195               -- 
2007                                                              2,866               -- 
Thereafter                                                        5,724               -- 
---------------------------------------------------------------------------------------- 
Total                                                            32,686              812 
Less amounts representing interest                                   --              (43)
---------------------------------------------------------------------------------------- 
Present value of future and minimum lease payments              $32,686             $769 
======================================================================================== 

Present value of net minimum capital lease obligations:               

                                                                [Download Table]
                                                                  
==================================================================
Current portion                                               $277
Long term portion                                              492
------------------------------------------------------------------
Total obligations                                             $769
==================================================================

  Assets recorded under capital leases are included in Property, Plant and
Equipment as follows:                                                           

                                                                [Download Table]

-----------------------------------------------------------------------------
                                                              2002       2001
-----------------------------------------------------------------------------
                                                              (IN THOUSANDS) 
                                                                             
Machinery and equipment                                       $812        $--

OTHER COMMITMENTS                                                               

     The Company has employment agreements with its five executive officers that
are in effect until December 30, 2002. These are currently being reviewed for   
renewal. Such agreements provide for minimum salary levels as well as for       
incentive bonuses that are payable if the Company achieves specified target     
performance goals. The agreements also provide for lump sum severance payments  
upon termination of employment under certain circumstances. The                 

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Company's aggregate annual commitment for future salaries at June 29, 2002,     
excluding bonuses, was approximately $2.2 million.                              

     The Company has license agreements with White Consolidated Industries, Inc.
("White Consolidated"), which require minimum royalty payments through the year 
2011. In fiscal 2002, 2001 and 2000, royalty payments were at or above the      
minimum requirements. The Company also has various license agreements with other
parties for periods usually not exceeding three years. The agreements are then  
typically renewable upon mutual consent. These license agreements require       
royalty payments based on the sales of licensed product in the period. Total    
royalties paid under these agreements, including the White Consolidated         
Industries, Inc. agreement, were $8.2 million in fiscal 2002, $8.0 million in   
fiscal 2001 and $24.8 million in fiscal 2000.                                   

14.  LEGAL PROCEEDINGS                                                          

APPLICA                                                                         

   On January 23, 2001, the Company filed a lawsuit against Applica, Inc and
its affiliate in the United States District Court for the Northern District of  
Illinois. The lawsuit alleged that Applica intentionally, willfully and         
maliciously breached its noncompetition agreement with us, attempted to conceal 
the breach, tortiously interfered with the Company business and contractual     
relationships and breached its duty of good faith and fair dealing. On September
5, 2002, the Company finalized a settlement agreement effective on June 21, 2002
with Applica, which resulted in the following:                                  

     The termination of the Company's obligation to pay Applica a fee based upon
the Company's net sales of White-Westinghouse products to Kmart and the payment 
by the Company to Applica of $1.8 million on or before December 31, 2002,       
primarily for amounts previously accrued and outstanding under this obligation. 

     The payment by the Company to Applica of $2.0 million on or before June 30,
2004, and the cancellation of the $15.0 million promissory note that the Company
issued to Applica in 1998 as a partial consideration for the repurchase of the  
Company's common stock from Applica. The promissory note, which had a carrying  
value prior to the settlement of $10.8 million, was cancelled in view of the    
harm to the Company's business enterprise value and the underlying Salton common
stock repurchased.                                                              

ADVANTAGE PARTNERS LLC                                                          

On July 2, 2001, the Company was 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 the Company and retailers that sell the Company's "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.                                 

    On August 9, 2001, AdVantage Partners LLC filed a second complaint against
the Company for patent infringement in the United States District Court for the 
Central District of California. In this complaint, AdVantage alleged that the   
Company had infringed a patent assigned to AdVantage, and sought a permanent    
injunction against the Company's 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.                    

     In the first quarter of fiscal 2003, the Company settled the aforementioned
patent infringement litigations as well as those suits involving some of the    
Company's retail customers. The resolution provides the Company with the right  
to distribute and sell certain rotisserie products, including the Company's     
current versions of the George Jr. and Baby George Rotisseries, and retailers   
the right to resell those products, without fear of future patent litigation.   
The resolution also preserves to Popeil Inventions Inc. the exclusive license in
countertop rotisseries to the rotisserie patents developed by Ron Popeil.       

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PHILIPS ORAL HEALTHCARE, INC.                                                   

On May 6, 2002, Philips Oral Healthcare, Inc. ("Philips") filed suit  
against the Company in the federal court of the Western District of Washington. 
In its Complaint, Philips challenges various advertising claims made by the     
Company about the Ultrasonex electric toothbrush. Phillips alleges causes of    
action for false advertising and seeks to enjoin the Company from using various 
claims in its advertising of the product.                                       

     On August 28, 2002, the Court entered an order granting Philips' motion for
preliminary injunction. As a result of this order, the Company is preliminarily 
enjoined from airing two commercials or developing new advertising for the      
Ultrasonex using one of the specific advertising claims at issue. The           
preliminary order does not enjoin the sale of the toothbrush or require that the
Company modify the product's packaging in any way. Under the current scheduling 
order, a trial on the merits is scheduled for October 2003. The outcome of this 
suit is indeterminable as of June 29, 2002.                                     

ATTORNEY GENERALS OF NEW YORK AND ILLINOIS                                      

On September 5, 2002, the Company entered into an agreement with the  
Attorney Generals of New York and Illinois governing the Company's future       
conduct with retailers relating to the Company's indoor electric grills. The    
Company expects all, or nearly all, other states will join this agreement. This 
agreement provides the Company to make a payment of $1.2 million upon final     
approval of the agreement and two additional payments of $3.5 million each on   
March 1, 2003 and 2004, respectively. All of the Company's payments are         
contingent on states representing at least 80% of the national population       
entering into the settlement agreement.                                         

ENVIRONMENTAL                                                                   

 The Company is participating in environmental remediation activities at
four sites, which it owns or operates. As of June 29, 2002, the Company has     
accrued approximately $0.2 million for the anticipated costs of investigation,  
remediation and/or operation and maintenance costs at these sites. Although such
costs could exceed that amount, the Company believes that any such excess will  
not have a material adverse effect on the financial condition or annual results 
of operations of the Company.                                                   

OTHER                                                                           

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

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15.  OPERATING SEGMENTS                                                         

  The Company consists of a single operating segment that designs, markets
and distributes housewares, including appliances, Salton at Home and personal   
care and 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.                                                          

PRODUCT INFORMATION -- NET SALES -                                              

                                                        [Enlarge/Download Table]

                                                        JUNE 29, 2002   JUNE 30, 2001   JULY 1, 2000
----------------------------------------------------------------------------------------------------
                                                                       (IN THOUSANDS)               
                                                                                                    
Small appliances                                             $807,799        $714,125       $742,774
Salton At Home                                                 85,957          59,793         60,709
Personal care and wellness products                            28,723          18,196         33,819
----------------------------------------------------------------------------------------------------
Total                                                        $922,479        $792,114       $837,302
====================================================================================================

GEOGRAPHIC INFORMATION -                                                        

                                                        [Enlarge/Download Table]

                                                                            LONG-LIVED ASSETS      
                                                        NET SALES                 AS OF            
                                                      -------------   -----------------------------
                                                      JUNE 29, 2002   JUNE 29, 2002   JUNE 30, 2001
---------------------------------------------------------------------------------------------------
                                                                     (IN THOUSANDS)                
                                                                                                   
United States                                              $740,150        $219,721        $208,032
Great Britain                                               123,346          71,248          64,202
Other foreign countries                                      58,983          18,340          12,744
---------------------------------------------------------------------------------------------------
Total                                                      $922,479        $309,309        $284,978
===================================================================================================

  Net sales by geographic area are based upon revenues generated from each
country's operations. Sales generated from any one foreign geographic area did  
not exceed 10% of net sales for fiscal 2001 and 2000.                           

MAJOR CUSTOMERS AND SUPPLIERS --                                                

 The Company entered into a major supply contract with Kmart Corporation
("Kmart") on January 31, 1997. Under the contract, the Company supplies Kmart   
with small kitchen appliances, personal care products, heaters, fans and        
electrical air cleaners and humidifiers under the White-Westinghouse(R) brand   
name. Sales to Kmart approximated 6%, 11% and 12%, of total net sales of the    
Company in fiscal 2002, 2001 and 2000, respectively.                            

  On March 30, 1999, Salton entered into a five-year supply agreement with
Zellers, the leading national chain of discount department stores in Canada.    
Under the contract, the Company supplies Zellers with small kitchen appliances  
under the White-Westinghouse(R) brand name. The agreement has a minimum purchase
requirement by Zellers of approximately $17.0 million, over an initial period of
five years, with rights to extend the contract for additional one-year periods. 

The Company's net sales in the aggregate to its five largest customers
during the fiscal years ended June 29, 2002, June 30, 2001 and July 1, 2000 were
43%, 47% and 46% of total net sales in these periods, respectively. In addition 
to Kmart, one customer accounted for 14%, 12% and 13% of total net sales during 
the fiscal years ended June 29, 2002, June 30, 2001 and July 1, 2000,           
respectively, while another customer accounted for 12%, 9% and 7%, for the same 
respective years.                                                               

  Although the Company has long-established relationships with many of its
customers, with the exception of Kmart Corporation and Zellers, it does not have
long-term contracts with any of its customers. A significant concentration of   
the Company's business activity is with department stores, upscale mass         
merchandisers, specialty                                                        

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stores, and warehouse clubs whose ability to meet their obligations to the      
Company is dependent upon prevailing economic conditions within the retail      
industry.                                                                       

    During fiscal 2002, 2001 and 2000, one supplier located in China accounted
for approximately 33%, 35% and 38% of the Company's product purchases.          

16.  INCOME TAXES                                                               

Income before income taxes is as follows:                             

                                                        [Enlarge/Download Table]

                                                        JUNE 29, 2002   JUNE 20, 2001   JULY 1, 2000
----------------------------------------------------------------------------------------------------
                                                                       (IN THOUSANDS)               
                                                                                                    
Domestic                                                      $15,251         $52,987       $109,909
Foreign                                                        29,290          20,859         36,994
----------------------------------------------------------------------------------------------------
Total                                                         $44,541         $73,846       $146,903
====================================================================================================

Federal, state and foreign taxes were approximately as follows:       

                                                        [Enlarge/Download Table]

                                                                                  FISCAL YEARS ENDED
                                                        --------------------------------------------
                                                        JUNE 29, 2002   JUNE 30, 2001   JULY 1, 2000
----------------------------------------------------------------------------------------------------
                                                                       (IN THOUSANDS)               
                                                                                                    
Federal                                                                                             
  Current                                                     $12,678         $19,039        $44,514
  Deferred                                                     (3,623)          1,271          1,521
State                                                                                               
  Current                                                       1,503           3,999          7,954
  Deferred                                                       (156)            253            272
Foreign                                                                                             
  Current                                                       3,992           3,130            826
  Deferred                                                                                          
----------------------------------------------------------------------------------------------------
Total                                                         $14,394         $27,692        $55,087
====================================================================================================

   Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consisted   
of:                                                                             

                                                        [Enlarge/Download Table]

                                                              JUNE 29, 2002   JUNE 30, 2001 
------------------------------------------------------------------------------------------- 
                                                                     (IN THOUSANDS)         
                                                                                            
Allowance for doubtful accounts                                     $ 1,382         $ 2,015 
Interest                                                              1,129           1,452 
Depreciation and amortization                                        (1,353)         (2,388)
Other deferred items, net                                              (297)           (657)
Net operating loss carry-forward                                        635               0 
Accrued liabilities                                                   1,404           3,063 
Inventory reserves and capitalization                                 3,930          (1,359)
------------------------------------------------------------------------------------------- 
Net deferred tax asset                                              $ 6,830         $ 2,126 
=========================================================================================== 

  Tax benefits from net operating loss carry-forwards will expire by 2019.

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    A reconciliation of the statutory federal income tax rate to the effective
rate is as follows:                                                             

                                                        [Enlarge/Download Table]

                                                                                  FISCAL YEARS ENDED 
                                                        -------------------------------------------- 
                                                        JUNE 29, 2002   JUNE 30, 2001   JULY 1, 2000 
---------------------------------------------------------------------------------------------------- 
                                                                                                     
Statutory federal income tax rate                                35.0%           35.0%          35.0%
Effective state tax rate                                          1.0             4.2            3.9 
Permanent differences                                             1.7             1.2            0.4 
Effect of foreign tax rate                                       (6.5)           (3.8)          (1.4)
Other                                                             1.1             0.9           (0.4)
---------------------------------------------------------------------------------------------------- 
Effective income tax rate                                       32.30%          37.50%         37.50%
==================================================================================================== 

U.S. income taxes were not provided on certain unremitted earnings of 
Salton Hong Kong, Ltd. and Salton Europe which the Company considers to be      
permanent investments. The cumulative amount of U.S. income taxes which have not
been provided totaled approximately $8.8 million at June 29, 2002.              

17.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)                                

 Unaudited quarterly financial data is as follows (amounts in thousands,
except per share data).                                                         

                                                        [Enlarge/Download Table]

                                                            FIRST       SECOND      THIRD     FOURTH 
                                                          QUARTER   QUARTER(1)    QUARTER    QUARTER 
---------------------------------------------------------------------------------------------------- 
                                                                                                     
2002(2)                                                                                              
Net Sales                                                $198,350   $  318,489   $188,095   $217,545 
Gross Profit                                               67,855      113,782     66,793     69,071 
Net income                                                  7,365       21,186      3,933     (2,337)
Earning per share: Basic                                     0.67         1.93       0.36      (0.21)
Earning per share: Diluted                                   0.49         1.42       0.26      (0.21)
2001(2)                                                                                              
Net Sales                                                $207,246   $  262,197   $153,558   $169,113 
Gross Profit                                               79,270       97,852     57,203     34,138 
Net income                                                 21,502       26,579      9,485    (11,412)
Earning per share: Basic                                     1.85         2.19       0.81      (0.99)
Earning per share: Diluted                                   1.35         1.60       0.60      (0.99)
2000(2)                                                                                              
Net Sales                                                $196,340   $  292,767   $172,100   $176,095 
Gross Profit                                               78,819      116,011     67,831     69,751 
Net income                                                 13,898       47,558     15,047     15,313 
Earning per share: Basic                                     1.35         4.25       1.33       1.35 
Earning per share: Diluted                                   0.95         3.08       0.95       0.98 
==================================================================================================== 

(1) The Company has historically experienced higher sales in the August through 
November months due to holiday sales, which primarily impacts the second
quarter.                                                                

(2) Total quarterly earnings per common share may not equal the annual amount   
because net income per common share is calculated independently for each
  quarter. Common stock equivalents can change on a quarter-to-quarter basis
  due to their dilutive impact on the independent quarterly EPS calculation.

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION                           

The payment obligations of the Company under the 12 1/4% senior       
subordinated notes (see Note 6) are guaranteed by certain of the Company's      
wholly-owned domestic subsidiaries (Subsidiary Guarantors). Such guarantees are 
full, unconditional and joint and several. Separate financial statements of the 
Subsidiary Guarantors are not presented because the Company's management has    
determined that they would not be material to investors. The following          
supplemental financial information sets forth, on a combined basis, balance     
sheets, statements of earnings and statements of cash flows for the Subsidiary  
Guarantors, the Company's non-guarantor subsidiaries and for Salton, Inc.       

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CONSOLIDATING BALANCE SHEET AS OF JUNE 29, 2002                                 
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                            GUARANTOR          OTHER                                 CONSOLIDATED
                                         SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
ASSETS                                                                                                           
Current Assets:                                                                                                  
  Cash                                     $  7,931       $ 20,327       $  2,797      $      --       $ 31,055  
  Accounts receivable                       165,446         51,249            773             --        217,468  
  Inventories                               193,851         47,914          2,395             --        244,160  
  Prepaid expenses and other current                                                                             
    assets                                    3,061          5,329          4,499             --         12,889  
  Intercompany                             (135,451)       (76,536)       211,987             --             --  
  Prepaid income taxes                      (12,348)        (7,170)        22,299             --          2,781  
  Deferred income taxes                       3,846            625          3,435             --          7,906  
-----------------------------------------------------------------------------------------------------------------
      Total current assets                  226,336         41,738        248,185             --        516,259  
Property, Plant and Equipment, Net of                                                                            
  Accumulated Depreciation                   14,205         23,282         19,063             --         56,550  
Investments in Subsidiaries                    (833)        79,742        375,521       (454,430)            --  
Patents and Trademarks, Net of                                                                                   
  Accumulated Amortization                   10,781         31,347        118,402             --        160,530  
Cash in escrow for Pifco loan notes              --         18,676             --             --         18,676  
Other Intangibles, Net of Accumulated                                                                            
  Amortization, and                              --             --             --             --                 
  Other Non-current Assets                   24,209         16,307         33,037             --         73,553  
-----------------------------------------------------------------------------------------------------------------
Total Assets                               $274,698       $211,092       $794,208      $(454,430)      $825,568  
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                             
Current Liabilities:                                                                                             
  Revolving line of credit and other                                                                             
    current debt                           $114,026       $ 13,325       $ 22,750      $      --       $150,101  
  Accounts payable                            3,457         13,504          8,403             --         25,364  
  Accrued expenses                           18,789         21,202         21,003             --         60,994  
  Foreman guarantee                              --             --          1,393             --          1,393  
-----------------------------------------------------------------------------------------------------------------
      Total current liabilities             136,272         48,031         53,549             --        237,852  
Non-current Deferred Income Taxes              (906)         1,487            495             --          1,076  
Senior subordinated notes due 2005               --             --        125,000             --        125,000  
Senior subordinated notes due 2008               --             --        156,954             --        156,954  
Loan notes to Pifco shareholders                 --          4,908             --             --          4,908  
Term loans and other notes payable           28,617             --         21,104             --         49,721  
Other long term liabilities                                                 5,021                         5,021  
-----------------------------------------------------------------------------------------------------------------
      Total liabilities                     163,983         54,426        362,123             --        580,532  
Stockholders' Equity                        110,715        156,666        432,085       (454,430)       245,036  
-----------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'                                                                              
  Equity                                   $274,698       $211,092       $794,208      $(454,430)      $825,568  
=================================================================================================================

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CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 2001                                 
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                        GUARANTOR          OTHER                                 CONSOLIDATED
                                     SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS
-------------------------------------------------------------------------------------------------------------
                                                                                                             
ASSETS                                                                                                       
Current Assets:                                                                                              
  Cash                               $      8,242   $     15,615   $      6,240   $         --   $     30,097
  Accounts receivable                      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
=============================================================================================================

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CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED JUNE 29, 2002            
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                  GUARANTOR          OTHER                                 CONSOLIDATED 
                               SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS 
------------------------------------------------------------------------------------------------------- 
                                                                                                        
Net Sales                      $    989,913   $    505,824   $    386,156   $   (959,414)  $    922,479 
Cost of Goods Sold                  806,859        426,174        263,727       (952,613)       544,147 
Distribution Expenses                54,425          5,450            956             --         60,831 
------------------------------------------------------------------------------------------------------- 
  Gross Profit                      128,629         74,200        121,473         (6,801)       317,501 
Selling, General and                                                                                    
  Administrative expenses            99,490         37,881         93,007         (6,801)       223,577 
Lawsuit Settlements, Net                 --             --          2,580             --          2,580 
------------------------------------------------------------------------------------------------------- 
  Operating Income (Loss)            29,139         36,319         25,886             --         91,344 
Interest Expense, Net                (5,368)        (5,399)       (33,664)                      (44,431)
Fair Market Value Adjustment                                                                            
  on Derivatives                         --         (2,372)            --             --         (2,372)
Equity in Earnings of                                                                                   
  Subsidiaries                         (743)            --         36,296        (35,553)            -- 
------------------------------------------------------------------------------------------------------- 
  Income (Loss) Before Income                                                                           
    Taxes                            23,028         28,548         28,518        (35,553)        44,541 
Income Tax Expense (Benefit)         12,031          3,992         (1,629)            --         14,394 
------------------------------------------------------------------------------------------------------- 
  Net Income (Loss)            $     10,997   $     24,556   $     30,147   $    (35,553)  $     30,147 
======================================================================================================= 

CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED JUNE 30, 2001            
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                  GUARANTOR          OTHER                                 CONSOLIDATED 
                               SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS 
------------------------------------------------------------------------------------------------------- 
                                                                                                        
Net Sales                      $    202,331   $    242,689   $    565,009   $   (217,915)  $    792,114 
Cost of Goods Sold                  158,345        213,075        314,751       (211,915)       474,256 
Distribution Expenses                15,521            633         33,241                        49,395 
------------------------------------------------------------------------------------------------------- 
  Gross Profit                       28,465         28,981        217,017         (6,000)       268,463 
Selling, General and                                                                                    
  Administrative expenses            32,217          7,641        123,027         (6,000)       156,885 
------------------------------------------------------------------------------------------------------- 
  Operating Income (Loss)            (3,752)        21,340         93,990             --        111,578 
Interest Expense, Net                   817           (379)       (38,170)            --        (37,732)
Equity in Earnings of                                                                                   
  Subsidiaries                          101             --         15,698        (15,799)            -- 
------------------------------------------------------------------------------------------------------- 
  Income (Loss) Before Income                                                                           
    Taxes                            (2,834)        20,961         71,518        (15,799)        73,846 
Income Tax Expense (Benefit)           (802)         3,130         25,364                        27,692 
------------------------------------------------------------------------------------------------------- 
  Net Income (Loss)            $     (2,032)  $     17,831   $     46,154   $    (15,799)  $     46,154 
======================================================================================================= 

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CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED JULY 1, 2000             
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                  GUARANTOR          OTHER                                 CONSOLIDATED 
                               SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS 
------------------------------------------------------------------------------------------------------- 
                                                                                                        
Net Sales                      $    151,326   $    141,117   $    648,181   $   (103,322)  $    837,302 
Cost of Goods Sold                  121,165         98,651        344,756        (97,322)       467,250 
Distribution Expenses                10,681            310         26,648             --         37,639 
------------------------------------------------------------------------------------------------------- 
  Gross Profit                       19,480         42,156        276,777         (6,000)       332,413 
Selling, General and                                                                                    
  Administrative expenses            23,085          7,377        132,287         (6,000)       156,749 
------------------------------------------------------------------------------------------------------- 
  Operating Income (Loss)            (3,605)        34,779        144,490             --        175,664 
Interest Expense, Net                   122          1,917        (30,800)            --        (28,761)
Equity in Earnings of                                                                                   
  Subsidiaries                         (298)            --         28,241        (27,943)            -- 
------------------------------------------------------------------------------------------------------- 
  Income (Loss) Before Income                                                                           
    Taxes                            (3,781)        36,696        141,931        (27,943)       146,903 
Income Tax Expense (Benefit)           (956)         5,928         50,115             --         55,087 
------------------------------------------------------------------------------------------------------- 
  Net Income (Loss)            $     (2,825)  $     30,768   $     91,816   $    (27,943)  $     91,816 
======================================================================================================= 

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CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JUNE 29, 2002              
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                         GUARANTOR          OTHER                                 CONSOLIDATED 
                                                      SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS 
------------------------------------------------------------------------------------------------------------------------------ 
                                                                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                          
  Net income (loss)                                   $     10,997   $     24,557   $     30,146   $    (35,553)  $     30,147 
  Adjustments to reconcile net income (loss) to net                                                                            
    cash used in operating activities:                                                                                         
    Imputed interest on note payable                            --          1,528          4,517             --          6,045 
    Gain on sale of investment                                  --           (200)             0             --           (200)
    Deferred income tax provision                           (2,927)           563         (1,415)            --         (3,779)
    Fair value adjustment for derivatives                       --          2,372              0             --          2,372 
    Foreign currency transaction gains & losses              1,135           (685)             0             --            450 
    Legal settlements                                           --             --          2,580             --          2,580 
    Depreciation and amortization                            4,938          5,105         20,606             --         30,649 
    Loss on disposal of equipment                                                                                            0 
    Equity in income of unconsolidated affiliate/                                                                              
      consolidated subsidiary                                  743           (761)       (36,296)        35,553           (761)
    Changes in assets and liabilities, net of                                                                                  
      acquisitions:                                                                                                            
      Accounts receivable                                 (125,972)       (16,624)       113,769             --        (28,827)
      Inventories                                          (25,819)       (19,967)        (1,831)            --        (47,617)
      Prepaid expenses and other current assets                301         (5,104)         1,861             --         (2,942)
      Intercompany                                          56,883         34,264        (91,147)            --             -- 
      Accounts payable                                        (112)        (9,832)        (1,838)            --        (11,782)
      Taxes payable                                         17,288          2,984         (7,402)            --         12,870 
      Accrued expenses                                       7,149            858          8,116             --         16,123 
------------------------------------------------------------------------------------------------------------------------------ 
        NET CASH FROM OPERATING ACTIVITIES                 (55,396)        19,058         41,666             --          5,328 
------------------------------------------------------------------------------------------------------------------------------ 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                          
      Capital expenditures                                  (1,877)        (6,206)        (8,169)            --        (16,252)
      Increase in other non-current assets                     792         (6,069)         4,303             --           (974)
      Proceeds from sale of investment                          --            501              0                           501 
      Acquisition of businesses, net of cash                                                                                   
        acquired                                                --         (2,014)        (5,300)            --         (7,314)
      Additional payment for patents and trademarks             --             --        (18,029)            --        (18,029)
      Additions to intangibles, patents and                                                                                    
        trademarks                                              --             --        (20,717)            --        (20,717)
------------------------------------------------------------------------------------------------------------------------------ 
        NET CASH FROM INVESTING ACTIVITIES                  (1,085)       (13,788)       (47,912)            --        (62,785)
------------------------------------------------------------------------------------------------------------------------------ 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                          
      Net proceeds from revolving line of credit and                                                                           
        other debt                                          74,976             --         (2,745)            --         72,231 
      Repayment of long-term debt                          (18,807)            --             --             --        (18,807)
      Proceeds from long-term debt                                             --             --             --              0 
      Proceeds from termination of Swap transaction             --             --          8,146             --          8,146 
    Costs associated with refinancing                           --             --         (1,115)            --         (1,115)
    Common stock issued                                         --             --            175             --            175 
    Treasury stock purchase                                     --             --         (1,125)            --         (1,125)
------------------------------------------------------------------------------------------------------------------------------ 
        NET CASH FROM FINANCING ACTIVITIES                  56,169             --          3,336             --         59,505 
------------------------------------------------------------------------------------------------------------------------------ 
The effect of exchange rate changes on cash                     --           (559)          (531)            --         (1,090)
Cash, beginning of the period                                8,242         15,615          6,240             --         30,097 
Net Change in Cash                                            (312)         4,711         (3,441)            --            958 
------------------------------------------------------------------------------------------------------------------------------ 
Cash, end of period                                   $      7,930   $     20,326   $      2,799   $         --   $     31,055 
============================================================================================================================== 

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CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JUNE 30, 2001              
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                          GUARANTOR        OTHER                                     CONSOLIDATED 
                                         SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS 
----------------------------------------------------------------------------------------------------------------- 
                                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                             
  Net income (loss)                      $     (2,032)  $     17,831   $     46,154   $    (15,799)  $     46,154 
  Adjustments to reconcile net income                                                                             
    (loss) to net cash used in                                                                                    
    operating activities:                                                                                         
    Imputed interest on note payable               --             --          6,033             --          6,033 
    Deferred income tax provision                  --             --          1,524             --          1,524 
    Depreciation and amortization               4,699          1,112         17,783             --         23,594 
    Loss on disposal of equipment                 423             --                                          423 
    Equity in net income of investees                                                                             
      and consolidated subsidiaries              (101)          (545)       (15,445)        15,799           (292)
    Purchase reduction of note payable                                                                            
      and other non cash items                     --             --          2,777             --          2,777 
    Changes in assets and liabilities,                                                                            
      net of acquisitions:                                                                                        
      Accounts receivable                     (12,371)        (8,799)       (25,089)            --        (46,259)
      Inventories                               5,957           (986)        37,786             --         42,757 
      Prepaid expenses and other                                                                                  
         current assets                          (149)           (50)           437             --            238 
      Intercompany                             41,055         83,933       (124,988)            --             -- 
      Accounts payable                         (2,368)        12,468        (15,077)            --         (4,977)
      Taxes payable                               751         (4,894)       (19,305)            --        (23,448)
      Accrued expenses                         (1,064)        (1,236)        (2,151)            --         (4,451)
----------------------------------------------------------------------------------------------------------------- 
         NET CASH FROM OPERATING                                                                                  
           ACTIVITIES                          34,800         98,834        (89,561)            --         44,073 
----------------------------------------------------------------------------------------------------------------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                             
      Capital expenditures                     (1,072)        (1,024)        (7,461)            --         (9,557)
      Increase in other non-current                                                                               
         assets                                    --             --        (13,422)            --        (13,422)
      Acquisition of businesses, net of                                                                           
         cash acquired                             --        (60,741)        (2,820)            --        (63,561)
      Additional payment for patents                                                                              
         and trademarks                            --             --         (2,043)            --         (2,043)
      Additions to intangibles, patents                                                                           
         and trademarks                            --             --         (9,382)            --         (9,382)
----------------------------------------------------------------------------------------------------------------- 
         NET CASH FROM INVESTING                                                                                  
           ACTIVITIES                          (1,072)       (61,765)       (35,128)            --        (97,965)
----------------------------------------------------------------------------------------------------------------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                             
      Net (repayments) of revolving                                                                               
         line of credit and other debt        (48,065)            --             --             --        (48,065)
      Repayment of long-term debt             (53,621)            --        (20,003)            --        (73,624)
      Proceeds from long-term debt             75,000             --             --             --         75,000 
      Proceeds from senior subordinated                                                                           
         notes                                                              148,284             --        148,284 
      Costs associated with refinancing            --             --         (7,798)            --         (7,798)
      Common stock issued                          --             --            265             --            265 
      Treasury stock purchase                      --             --        (17,654)            --        (17,654)
----------------------------------------------------------------------------------------------------------------- 
         NET CASH FROM FINANCING                                                                                  
           ACTIVITIES                         (26,686)            --        103,094             --         76,408 
----------------------------------------------------------------------------------------------------------------- 
The effect of exchange rate changes on                                                                            
  cash                                             --            (25)            --             --            (25)
Cash, beginning of the period                     125            951          6,530             --          7,606 
Net Change in Cash                              7,042         37,044        (21,595)            --         22,491 
----------------------------------------------------------------------------------------------------------------- 
Cash, end of period                      $      7,167   $     37,995   $    (15,065)  $         --   $     30,097 
================================================================================================================= 

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CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JULY 1, 2000               
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                          GUARANTOR        OTHER                                     CONSOLIDATED 
                                         SUBSIDIARIES   SUBSIDIARIES   SALTON, INC.   ELIMINATIONS         TOTALS 
----------------------------------------------------------------------------------------------------------------- 
                                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                             
  Net income (loss)                      $     (2,825)  $     30,768   $     91,816   $    (27,943)  $     91,816 
  Adjustments to reconcile net income                                                                             
    (loss) to net cash used in                                                                                    
    operating activities:                                                                                         
    Imputed interest on note payable               --             --          6,336             --          6,336 
    Deferred income tax provision              (1,057)            --          2,850             --          1,793 
    Depreciation and amortization               4,272            468         14,335             --         19,075 
    Equity in net income of investees                                                                             
      and consolidated subsidiaries               298           (321)       (28,241)        27,943           (321)
    Purchase reduction of note payable                                                                            
      and other non cash items                     --             --          1,662             --          1,662 
    Changes in assets and liabilities:                                                                            
      Accounts receivable                      (2,987)         4,232        (34,916)            --        (33,671)
      Inventories                             (16,747)        (5,892)       (52,467)            --        (75,106)
      Prepaid expenses and other                                                                                  
         current assets                        (1,206)          (134)        (2,456)            --         (3,796)
      Intercompany                            (15,729)       (37,392)        53,121             --             -- 
      Accounts payable                          2,510          6,423        (14,817)            --         (5,884)
      Taxes payable                               146          5,102           (670)            --          4,578 
      Accrued expenses                         (1,321)            69            415             --           (837)
----------------------------------------------------------------------------------------------------------------- 
         NET CASH FROM OPERATING                                                                                  
           ACTIVITIES                         (34,646)         3,323         36,968             --          5,645 
----------------------------------------------------------------------------------------------------------------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                             
      Capital expenditures                     (1,042)        (3,099)        (9,835)            --        (13,976)
      Acquisition of the George Foreman                                                                           
         Trademark                                 --             --        (22,750)                      (22,750)
      Additions to intangibles, patents                                                                           
         and trademarks                            --             --           (737)            --           (737)
      Equity Investment                            --         (6,027)        (3,588)                       (9,615)
----------------------------------------------------------------------------------------------------------------- 
         NET CASH FROM INVESTING                                                                                  
           ACTIVITIES                          (1,042)        (9,126)       (36,910)            --        (47,078)
----------------------------------------------------------------------------------------------------------------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                             
      Net proceeds from revolving line                                                                            
         of credit                             36,367             --             --             --         36,367 
      Repayment of long-term debt                (591)            --            (34)            --           (625)
      Costs associated with refinancing            --             --           (616)            --           (616)
      Common stock issued                          --             --          2,669             --          2,669 
----------------------------------------------------------------------------------------------------------------- 
         NET CASH FROM FINANCING                                                                                  
           ACTIVITIES                          35,776             --          2,019             --         37,795 
----------------------------------------------------------------------------------------------------------------- 
The effect of exchange rate changes on                                                                            
  cash                                             --              4             --             --              4 
Cash, beginning of the period                      37          6,750          4,453             --         11,240 
Net Change in Cash                                 88         (5,799)         2,077             --         (3,634)
----------------------------------------------------------------------------------------------------------------- 
Cash, end of period                      $        125   $        951   $      6,530   $         --   $      7,606 
================================================================================================================= 

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19.  SUBSEQUENT EVENTS                                                          

    See Note 5 "Applica Transaction" and Note 14 "Legal Proceedings" under the
caption Applica.                                                                

   See Note 14 "Legal Proceedings" under the caption AdVantage Partners LLC.

 See Note 14 "Legal Proceedings" under the caption Attorneys General New
York and Illinois.                                                              

  See Note 3 "Acquisitions and Alliances" for Pifco Loan Notes redemption.

     On August 15, 2002, the existing interest rate swap contract was terminated
resulting in a gain of $6.1 million. The gain from early termination of this    
contract will be deferred as an adjustment to the carrying amount of the        
outstanding debt and will be amortized as an adjustment to interest expense     
related to the debt over the remaining period originally covered by the         
terminated swap. The Company simultaneously entered into another interest rate  
swap contract to pay a variable-rate interest of six-month LIBOR plus 7.78% and 
receive fixed-rate interest of 12.25% on $150.0 million notional amount of      
indebtedness.                                                                   

ITEM 9. Changes in and Disagreements with Accountants on Accounting and         
Financial Disclosures                                           

Not applicable.                                                       

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PART III

ITEM 10.  Directors And Executive Officers Of The Registrant                    

     The information required by this Item 10 as to the Directors of the Company
is incorporated herein by reference to the information set forth under the      
caption "Election of Directors" in the Company's definitive Proxy Statement for 
the 2002 Annual Meeting of Stockholders, since such Proxy Statement will be     
filed with the Securities and Exchange Commission not later than 120 days after 
the end of our fiscal year pursuant to Regulation 14A. Information required by  
this Item 10 as to the executive officers of the Company is included in Part I  
of this Annual Report on Form 10-K.                                             

ITEM 11.  Executive Compensation                                                

  The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Compensation of Directors and      
Executive Officers" in the Company's definitive Proxy Statement for the 2002    
Annual Meeting of Stockholders, since such Proxy Statement will be filed with   
the Securities and Exchange Commission not later than 120 days after the end of 
our fiscal year pursuant to Regulation 14A.                                     

ITEM 12.  Security Ownership Of Certain Beneficial Owners And Management        

  The information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Stock Ownership of Principal       
Holders and Management" in the Company's definitive Proxy Statement for the 2002
Annual Meeting of Stockholders, since such Proxy Statement will be filed with   
the Securities and Exchange Commission not later than 120 days after the end of 
our fiscal year pursuant to Regulation 14A.                                     

EQUITY COMPENSATION PLAN INFORMATION                                            

   This table shows information about the securities authorized for issuance
under our equity compensation plans as of June 29, 2002.                        

                                                                [Download Table]

----------------------------------------------------------------------------
                                                  (A)                    (B)

                             NUMBER OF SECURITIES TO      WEIGHTED-AVERAGE  
                             BE ISSUED UPON EXERCISE     EXERCISE PRICE OF  
                             OF OUTSTANDING OPTIONS,    OUTSTANDING OPTIONS,
                               WARRANTS AND RIGHTS      WARRANTS AND RIGHTS 
----------------------------------------------------------------------------
                                                                            
EQUITY COMPENSATION PLANS                                                   
  APPROVED BY SECURITY                                                      
  HOLDERS(1)                                1,288,510          $13.90       
EQUITY COMPENSATION PLANS                                                   
  NOT APPROVED BY SECURITY                                                  
  HOLDERS(2)                                  987,826          $21.59       
                             ------------------------                       
TOTAL                                       2,276,336          $17.23       


---------------------------  -----------------------                        
                                                 (C)                        
                                NUMBER OF SECURITIES                        
                             REMAINING AVAILABLE FOR                        
                               FUTURE ISSUANCE UNDER                        
                                 EQUITY COMPENSATION                        
                                    PLANS (EXCLUDING                        
                                SECURITIES REFLECTED                        
                                      IN COLUMN (A))                        
---------------------------  -----------------------                        
                                                                            
EQUITY COMPENSATION PLANS                                                   
  APPROVED BY SECURITY                                                      
  HOLDERS(1)                                 647,346                        
EQUITY COMPENSATION PLANS                                                   
  NOT APPROVED BY SECURITY                                                  
  HOLDERS(2)                                 388,029                        
                             -----------------------                        
TOTAL                                      1,035,375                        

---------------                                                                 

(1) Includes our:                                                               

- 1991 Stock Option Plan                                                

- 1995 Stock Option Plan                                                

- 1995 Non-Employee Directors Stock Option Plan                         

- 1998 Stock Option Plan                                                

- 2002 Stock Option Plan                                                

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(2) Includes our:                                                               
- 1999 Stock Option Plan                                                
- 2001 Stock Option Plan                                                

ITEM 13. Certain Relationships And Transactions                                 

  The information required by this Item 13 is incorporated by reference to
the information set forth under the caption "Certain Transactions" in the       
Company's definitive Proxy Statement for the 2002 Annual Meeting of             
Stockholders, since such Proxy Statement will be filed with the Securities and  
Exchange Commission not later than 120 days after the end of our fiscal year    
pursuant to Regulation 14A.                                                     

PART IV 

ITEM 14. Exhibits, Financial Statement Schedules, And Reports On Report         
8-K(A)(1) Financial Statements                                

   The following Financial Statements of the registrant and its subsidiaries
are included in Part II, Item 8:                                                

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                                                               PAGE
-------------------------------------------------------------------
                                                                   
Salton                                                             
Independent, Auditors' Report                                   39 
Consolidated Balance Sheets as of June 29, 2002 and June 30,       
  2001                                                          40 
Consolidated Statement of Earnings for the Years Ended             
  June 29, 2002, June 30, 2001, and July 1, 2000                41 
Consolidated Statement of Stockholders' Equity for the Years       
  Ended                                                            
  June 29, 2002, June 30, 2001, and July 1, 2000                42 
Consolidated Statement of Cash Flows for the Years Ended           
  June 29, 2002, June 30, 2001, and July 1, 2000                43 
Notes to the Consolidated Financial Statements                  45 

(A)(2) FINANCIAL STATEMENTS SCHEDULES                                           

    The following Financial Statement Schedules of the Registrant are included
in Item 14 hereof.                                                              

                                                                [Download Table]

                                                               PAGE
-------------------------------------------------------------------
                                                                   
Schedule VIII -- Valuation and Qualifying Accounts              76 

All other schedules for which provision is made in the applicable     
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been     
omitted.                                                                        

(A)(3) EXHIBITS                                                                 

See Exhibit Index for the Exhibits filed as part of or incorporated by
reference into this Report.                                                     

(B) REPORTS ON FORM 8-K                                                         

The following current reports on Form 8-K were filed during the fourth
fiscal quarter of 2002                                                          

         (i) Current Report on Form 8-K dated May 7, 2002 reporting under Item
5 Other Events the announcement of our third quarter results.         

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on the 26(th) day of        
September, 2002.                                                                

                SALTON, INC.

                                  By:       /s/ LEONARD DREIMANN

                                            ------------------------------------
                                            Leonard Dreimann
                                           Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this report has been
signed below by the following persons on behalf of the Registrant and in the    
capacities indicated on September 26, 2002.                                     

                                                        [Enlarge/Download Table]

SIGNATURE                                                                                     
---------                                                                                     
                                                                                              
          /s/ LEONHARD DREIMANN             Chief Executive Officer and Director              
------------------------------------------  (Principal Executive Officer)                     
            Leonhard Dreimann                                                                 

            /s/ WILLIAM B. RUE              President and Chief Operating Officer and Director
------------------------------------------                                                    
              William B. Rue                                                                  

           /s/ JOHN E. THOMPSON             Senior Vice President and Chief Financial Officer 
------------------------------------------  (Principal Accounting and Financial Officer)      
             John E. Thompson                                                                 

            /s/ DAVID C. SABIN              Chairman of the Board and Director                
------------------------------------------                                                    
              David C. Sabin                                                                  

             /s/ FRANK DEVINE               Director                                          
------------------------------------------                                                    
               Frank Devine                                                                   

           /s/ BERT DOORNMALEN              Director                                          
------------------------------------------                                                    
             Bert Doornmalen                                                                  

                                            Director                                          
------------------------------------------                                                    
            Robert A. Bergmann                                                                

                                            Director                                          
------------------------------------------                                                    
             Bruce G. Pollack                                                                 

                                            Director                                          
------------------------------------------                                                    
             Bruce J. Walker                                                                  

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CERTIFICATIONS

I, Leonhard Dreimann, Chief Executive Officer of Salton, Inc., certify
that:                                                                           

       1. I have reviewed this annual report on Form 10-K of Salton, Inc.;

     2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact  
    necessary to make the statements made, in light of the circumstances under
    which such statements were made, not misleading with respect to the period
covered by this annual report; and                                    

 3. Based on my knowledge, the financial statements, and other
     financial information included in this annual report, fairly present in all
   material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this 
annual report.                                                        

Date: September 26(th), 2002                                                    

                     Leonhard Dreimann
                           Chief Executive Officer

   I, John E. Thompson, Senior Vice President and Chief Financial Officer of
Salton, Inc., certify that:                                                     

      1. I have reviewed this annual report on Form 10-K of Salton, Inc.

     2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact  
    necessary to make the statements made, in light of the circumstances under
    which such statements were made, not misleading with respect to the period
covered by this annual report; and                                    

 3. Based on my knowledge, the financial statements, and other
     financial information included in this annual report, fairly present in all
   material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this 
annual report.                                                        

Date: September 26(th), 2002                                                    

                    John E. Thompson
                                   Senior Vice President and Chief
                     Financial Officer

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    The following pages contain the Financial Statement Schedules as specified
by 12(a) and 14(a)(2) of Part IV of Form 10-K.                                  

EXHIBIT 12(A) 

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 
SALTON, INC.

                                                        [Enlarge/Download Table]

                    YEAR ENDED                       2002       2001        2000       1999      1998  
-------------------------------------------------------------------------------------------------------
                                                                (THOUSANDS, EXCEPT RATIOS)             
                                                                                                       
Fixed Charges                                                                                          
  Interest and amortization of debt issuance costs                                                     
    on all indebtedness                             $43,357   $ 39,043    $ 31,102    $15,864   $ 7,336
  Add interest element implicit in rentals            3,040      3,724       1,923      1,158       521
-------------------------------------------------------------------------------------------------------
    Total fixed charges                             $46,397   $ 42,767    $ 33,025    $17,022   $ 7,857
Income                                                                                                 
  Income before income taxes                        $44,541   $ 73,846    $146,903    $53,863   $32,186
  Add fixed charges                                  46,367     42,767      33,025     17,022     7,857
-------------------------------------------------------------------------------------------------------
  Income before fixed charges and income taxes      $90,908   $116,613    $179,928    $70,885   $40,043
=======================================================================================================
Ratio of earnings to fixed charges                     1.96       2.73        5.45       4.16      5.10

VALUATION AND QUALIFYING ACCOUNTS 

YEAR ENDED JUNE 29, 2002
SALTON, INC.

                                                        [Enlarge/Download Table]

                                                                     CHARGED TO                       
                                                                     NET SALES,                       
                                                         BEGINNING   COSTS AND                 ENDING 
                                                          BALANCE     EXPENSES    DEDUCTIONS   BALANCE
------------------------------------------------------------------------------------------------------
                                                                        (IN THOUSANDS)                
                                                                                                      
Year Ended July 1, 2000:                                                                              
Allowance for returns, allowances and doubtful accounts  $   6,102   $   45,593   $  (44,584)  $ 7,111
Year Ended June 30, 2001:                                                                             
Allowance for returns, allowances and doubtful accounts  $   7,111   $   47,854   $  (45,742)  $ 9,223
Year Ended June 29, 2002:                                                                             
Allowance for returns, allowances and doubtful accounts  $   9,223   $   56,903   $  (56,780)  $ 9,346

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EXHIBIT                                                               
NUMBER                      DESCRIPTION OF DOCUMENT                   
-------                     -----------------------                   
                                                                      
 3.1      Amended and Restated Certificate of Incorporation of        
          Registrant, as amended.                                     
 3.2      By-laws of the Registrant. Incorporated by reference to the 
          Registrant's Registration Statement on Form S-1             
          (Registration No. 33-42097).                                
 3.3      Certificate of Designation for the Series A Convertible     
          Preferred Stock of the Registrant. Incorporated by reference
          to the Registrant's Current Report on Form 8-K dated July   
          28, 1998.                                                   
 4.1      Specimen Certificate for shares of Common Stock, $.01 par   
          value, of the Registrant. Incorporated by reference to the  
          Registrant's Registration Statement on Form S-1             
          (Registration No. 33-42097).                                
 4.2      Form of Note for Registrant's 10 3/4% Senior Subordinated   
          Notes. Incorporated by reference to the Registrant's        
          Registration Statement on Form S-4 (Registration No.        
          333-70169)                                                  
 4.3      Indenture dated December 16,1998 between Norwest Bank       
          National Association, as Issuer, and the Registrant relating
          to the Registrant's 10 3/4% Senior Subordinated Notes.      
          Incorporated by reference to the Registrant's Registration  
          Statement on Form S-4 (Registration No. 333-70169)          
 4.4      Indenture, dated as of April 23, 2001, amount Salton, Inc., 
          the Guarantors (as defined therein), and Wells Fargo Bank   
          Minnesota, N.A., as trustee, relating to $250,000,000 in    
          aggregate principal amount and maturity of 12 1/4% senior   
          subordinated notes due 2008. Incorporated by Reference to   
          the Quarterly Report on Form 10-Q for the fiscal quarter    
          ended March 31, 2001.                                       
 4.5      Form of Note for Registrant's 12 1/4% senior subordinated   
          notes due April 15, 2008. Incorporated by Reference to the  
          Quarterly Report on Form 10-Q for the fiscal quarter ended  
          March 31, 2001.                                             
10.1      Salton/Maxim Housewares, Inc. Stock Option Plan.            
          Incorporated by reference to the Registrant's Registration  
          Statement on form S-1 (Registration No. 33-42097).          
10.2      Stockholders Agreement, dated August 6, 1991, by and among  
          the Registrant, Braddock Financial Corporation, Financo     
          Investors Fund, L.P., and Mesirow Private Equity, Inc.      
          (successor to Mesirow Venture Capital, Inc.) as the         
          authorized representative of Mesirow Capital Partners III,  
          Mesirow Capital Partners IV, Mesirow Capital Partners V and 
          Allied Investment Corporation. Incorporated by reference to 
          the Registrant's Registration Statement on Form S-1         
          (Registration No. 33-42097).                                
10.3      Form of Sales Representative Agreement generally used by and
          between the Registrant and its sales representatives.       
          Incorporated by reference to the Registrant's Registration  
          Statement on Form S-1 (Registration No. 33-42097).          
10.4      Stock Registration Rights Agreement, dated as of August 6,  
          1991, by and between the Registrant, Braddock Financial     
          Corporation, Financo Investors Fund, L.P., Mesirow Capital  
          Partners II, Mesirow Capital Partners IV, Mesirow Capital   
          Partners V and Allied Investment Corporation. Incorporated  
          by reference to the Registrant's Registration Statement on  
          Form S-1 (Registration No. 33-42097).                       
10.5      Salton/Maxim Housewares, Inc. 1995 Employee Stock Option    
          Plan. Incorporated by reference to the Registrant's         
          Quarterly Report on Form 10-Q for the fiscal quarter ended  
          December 30, 1995.                                          
10.6      Salton/Maxim Housewares, Inc. Non-Employee Directors Stock  
          Option Plan. Incorporated by reference to the Registrant's  
          Quarterly Report on Form 10-Q for the fiscal quarter ended  
          December 30, 1995.                                          
10.7      Asset Purchase Agreement dated July 1, 1996 by and among the
          Registrant, Block China Corporation and Robert C. Block     
          Incorporated by reference from the Company's Current Report 
          on Form 8-K dated July 1, 1996.                             
10.8      License Agreement dated as of February 1, 1996 by and       
          between White Consolidated Industries Inc. and the          
          Registrant. Incorporated by reference to the Registrant's   
          Quarterly Report on Form 10-Q/A for the fiscal quarter ended
          December 28, 1996.                                          
10.9      License Agreement dated as of May 21, 1996 by and between   
          White Consolidated Industries Inc. and the Registrant.      
          Incorporated by reference to the Registrant's Quarterly     
          Report on Form 10-Q/A for the fiscal quarter ended December 
          28, 1996.                                                   

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EXHIBIT                                                               
NUMBER                      DESCRIPTION OF DOCUMENT                   
-------                     -----------------------                   
                                                                      
10.10     Purchase, Distribution and Marketing Agreement dated as of  
          January 27, 1997 between the Registrant and Kmart           
          Corporation. Incorporated by reference to the Registrant's  
          Quarterly Report on Form 10-Q/A for the fiscal quarter ended
          December 28, 1996.                                          
10.11     Employment Agreement dated as of December 19, 1997 between  
          the Registrant and Leonhard Dreimann. Incorporated by       
          reference to the Registrant's Annual Report on Form 10-K for
          the fiscal year ended June 27, 1998.                        
10.12     Employment Agreement dated as of December 19, 1997 between  
          the Registrant and David C. Sabin. Incorporated by reference
          to the Registrant's Annual Report on Form 10-K for the      
          fiscal year ended June 27, 1998.                            
10.13     Employment Agreement dated as of December 19, 1997 between  
          the Registrant and William B. Rue. Incorporated by reference
          to the Registrant's Annual Report on Form 10-K for the      
          fiscal year ended June 27, 1998.                            
10.14     Stock Agreement, dated as of May 6, 1998, by and between the
          Registrant, Windmere-Durable Holdings, Inc. and the Salton  
          Executive Related Parties (as defined therein). Incorporated
          by reference to the Registrant's Current Report on Form 8-K 
          dated May 6, 1998.                                          
10.15     Note, dated July 27, 1998, issued by the Registrant to      
          Windmere-Durable Holdings, Inc. Incorporated by reference to
          the Registrant's Current Report on Form 8-K dated July 28,  
          1998.                                                       
10.16     Agreement dated July 27, 1998, between the Registrant to    
          Windmere-Durable Holdings, Inc. Incorporated by reference to
          the Registrant's Current Report on Form 8-K dated July 28,  
          1998.                                                       
10.17     Credit Agreement dated July 27, 1998 among the Registrant,  
          the several lenders from time to time parties thereto,      
          Lehman Brothers Inc., as arranger, Lehman Commercial Paper  
          Inc., as syndication agent, and Lehman Commercial Paper     
          Inc., as administrative agent. Incorporated by reference to 
          the Registrant's Current Report on Form 8-K dated July 28,  
          1998.                                                       
10.18     Stock Purchase Agreement dated July 15, 1998 by and among   
          the Registrant and Centre Capital Investors III, L.P.,      
          Centre Capital Tax-Exempt Investors II, L.P., Centre Capital
          Offshore Investors, L.P., The State Board of Administration 
          of Florida, Centre Parallel Management Partners, L.P. and   
          Centre Partners Coinvestment, L.P. Incorporated by reference
          to the Registrant's Current Report on Form 8-K dated July   
          15, 1998.                                                   
10.19     Registration Rights Agreement dated July 15, 1998 by and    
          among the Registrant and Centre Capital Investors II, L.P., 
          Centre Capital Tax-Exempt Investors II, L.P., Centre Capital
          Offshore Investors II, L.P., The State Board of             
          Administration of Florida, Centre Parallel Management       
          Partners, L.P. and Centre Partners Coinvestment, L.P.       
          Incorporated by reference to the Registrant's Current Report
          on Form 8-K dated July 28, 1998.                            
10.20     The Salton, Inc. 1998 Employee Stock Option Plan.           
          Incorporated by reference to the Registrant's Definitive    
          Proxy Statement on Schedule 14A filed on December 2, 1998.  
10.21     Agreement effective as of July 1, 1999 between Salton and   
          George Foreman. Incorporated by reference to the            
          Registrant's, Current Report on Form 8-K dated December 9,  
          1999.                                                       
10.22     Agreement effective as July 1, 1999 between Salton and Sam  
          Perlmutter. Incorporated by reference to the Registrant's,  
          Current Report on Form 8-K dated December 9, 1999.          
10.23     Agreement effective as of July 1, 1999 between Salton and   
          Michael Srednick Incorporated by reference to the           
          Registrant, Current Report on Form 8-K dated December 9,    
          1999.                                                       
10.24     Second amended and restated credit agreement, among Salton, 
          Inc., as borrower, the several lenders from time to time    
          parties hereto, Lehman Brothers Inc., as arranger, Lehman   
          Commercial Paper Inc., as syndication agent, and            
          administration agent and Fleet National Bank as             
          documentation agent dated as of December 10, 1999.          
          Incorporated by reference to Registrant's Quarterly Report  
          on Form 10-Q for the fiscal quarter ended December 25, 1999.

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EXHIBIT                                                               
NUMBER                      DESCRIPTION OF DOCUMENT                   
-------                     -----------------------                   
                                                                      
10.25     Agreement effective January 12, 2000, between Salton, Inc.