Salton Inc – ‘10-K’ for 6/30/01

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         85    412K 
 2: EX-10.33    2001 Employee Stock Option Plan                       18     74K 
 3: EX-23.1     Consent of Deloitte & Touche LLP                       1      5K 

10-K   —   Annual Report
Document Table of Contents

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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 30, 2001 Or                                      

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934                         

For The Transition Period From ________ To ________                             

Commission File Number 0-19557                                                  
SALTON, INC.
(Exact Name Of Registrant As Specified In Its Charter)

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

1955 W. FIELD CT.,                                      
LAKE FOREST, ILLINOIS                              60045    
---------------------                              -----    
(Address of Principal Executive Offices)                  (Zip Code)          

(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)

Indicate by check mark whether this registrant (1) has filed all reports        
required to be filed by section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.   Yes  X    No                        
                             ---      ----

The aggregate market value of the Common Stock held by non-affiliates of the    
Registrant as of September 25, 2001 was approximately $92,659,000 computed on   
the basis of the last reported sale price per share ($9.60) of such stock on the
NYSE. Shares of Common Stock held by each officer and director and by each      
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. 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 17, 2001 was 11,081,680.                                              

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DOCUMENTS INCORPORATED BY REFERENCE:                                            

                                                                [Download Table]


       PART OF FORM 10-K              DOCUMENT INCORPORATED BY REFERENCE     
       -----------------              ----------------------------------     
                                                                             
Part III (Items 10, 11, 12 and  Portions of the Registrant's Definitive Proxy
13)                             Statement to be used in connection with its  
                                2001 Annual Meeting of Stockholders.         

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 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:                  

o    Our degree of leverage;                                  

o    Economic conditions and the retail environment;          

      o    The timely development, introduction and customer acceptance of
our products;                                       

o    Competitive products and pricing;                        

   o    Dependence on foreign suppliers and supply and manufacturing
constraints;                                        

        o    Our relationship and contractual arrangements with key customers,
suppliers and licensors;                            

o    Cancellation or reduction of orders;                     

o    International business activities;                       

o    Availability and success of future acquisitions;         

o    The risks relating to legal proceedings;                 

o    The risks relating to intellectual property matters;     

o    The risks relating to regulatory matters; and            

        o    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.     

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PART I

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 domestic designer, marketer and distributor of a broad
range of branded, high quality small appliances under well-recognized brand     
names such as Salton(R), George Foreman(TM), Toastmaster(R), Breadman(R),       
Juiceman(R), Juicelady(R), White-Westinghouse(R), Farberware(R), Melitta(R),    
Welbilt(R), Aircore(R), Russell Hobbs(R), Tower(R), Haden(R) and Pifco(R). We   
believe that we have the leading domestic market share in indoor grills,        
toasters, juice extractors, bread makers, 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 Block China(R),   
Atlantis(R) Crystal, Sasaki(R), Calvin Klein(R), Timex(R), Ingraham(R),         
Westclox(R), Big Ben(R), Spartus(R), Stiffel(R), Ultrasonex(R), Relaxor(R),     
Carmen(R), Hi-Tech(R), Mountain Breeze(R) and Salton(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.                                 

       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                                                                                           
    Health Conscious.................. o  Thermal grills                      o  Rice cookers              
                                       o  Juice extractors                    o  Vegetable steamers        
                                       o  Juicers                             o  Ice cream makers          
                                       o  Smoothie makers                     o  Yogurt and soy milk makers

    Thermal and Cooking............... o  Toasters                            o  Electric and gas outdoor  
                                       o  Bread makers                           grills                    
                                       o  Waffle makers                       o  Sandwich makers           
                                       o  Griddles                            o  Irons                     
                                       o  Countertop ovens                    o  Deep fryers               
                                       o  Buffet ranges/hotplates             o  Electric pressure cookers 
                                                                              o  Electric woks             

    Coffee and Tea.................... o  Drip coffee makers and percolators  o  Iced tea and iced coffee  
                                       o  Espresso and cappuccino makers         makers                    
                                       o  Tea kettles                         o  Latte makers              
                                                                              o  Coffee grinders           

    Food Preparation and Serving...... o  Electric knives                     o  Blenders                  
                                       o  Crepe makers                        o  Choppers                  
                                       o  Mixers                              o  Pizza makers              
                                       o  Can openers                         o  Warming trays             
SALTON AT HOME                                                                                             
    Tabletop Products................. o  Crystal products                    o  Ceramic products          
                                       o  Fine china and basic dinnerware     o  Flatware                  

    Time Products..................... o  Electric and analog alarm clocks    o  LED digital clocks        
                                       o  Electric and quartz wall clocks     o  Household timers          

    Lighting Products................. o  Table lamps                         o  Floor lamps               
                                       o  Wall sconces                        o  Function lighting         

PERSONAL CARE AND WELLNESS PRODUCTS... o  Massagers                           o  Curling irons and brushes 
                                       o  Indoor calming pools                o  Make-up mirrors           
                                       o  Ultrasonic toothbrushes             o  Manicure systems          
                                       o  Aroma therapy products              o  Shower radios             
                                       o  Hair dryers                         o  Magnetic therapy products 

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      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, Kmart, Sears,      
Target Corporation, Federated Department Stores, QVC, May Company Department    
Stores, J.C. Penney Company, Lowe's, Linens 'n Things, Bed Bath & Beyond and    
Kohl's Department Stores. 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 small household appliance industry in which we compete was     
approximately a $14 billion retail business in the United States in 1999.       
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        
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 brand  
name since 1831 and the Toastmaster brand                                       

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name since 1926. These names are widely recognized in the housewares industry.  
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. We believe that                    
White-Westinghouse(R) and Farberware(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 George Foreman(TM), Melitta(R), Timex(R), Calvin Klein(R), Stiffel(R),  
Relaxor(R), Ultrasonex(TM), Aircore(R), Russell Hobbs(R), Carmen(R), Hi-Tech(R),
Tower(R), Haden(R), Mountain Breeze(R), Pifco(R), Westclox(R), Big Ben(R) and   
Spartus(R), and under private-label brand names such as Kenmore(R) (Sears),     
Cook's Essentials(R) (QVC) and Magic Chef(R) (Wal-Mart).                        

        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 many contemporary 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 and the Wet      
Tunes(R) shower radios. During fiscal 2001, we introduced 1,973 new stock       
keeping units, or SKUs, excluding 1,622 acquired in the Pifco transaction (See  
Pifco transaction in the Business Strategy section). 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 8,848 SKUs, including
1,622 SKUs acquired in the Pifco transaction, across multiple housewares        
categories using our portfolio of more than 60 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. For example, we have recently added to our product offerings the        
Ultrasonex(TM) line of electrically operated toothbrushes and related products  
and the Toastmaster(R) UltraVection(TM) countertop oven.                        

         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 
offerings, reputation for quality products and established brand names. In      
addition, we have been able to secure long-term supply agreements with customers
such as Kmart and Zellers. We have also expanded our                            

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distribution of private-label products with certain major retailers under brand 
names such as Kenmore(R) (Sears), Cook's Essentials(R) (QVC) and Magic Chef(R)  
(Wal-Mart). 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.                       

         Our geographically diverse customer base covers a wide cross-section of
retail and distribution channels. For fiscal 2001, no one customer accounted for
more than 12% of our net sales, with our top five customers accounting for      
approximately 47% of our net sales.                                             

 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, 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 12 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 2001,     
excluding SKUs added by the Pifco transaction, we introduced 389 new SKUs in the
small appliance category, 1,434 new SKUs in the Salton At Home products category
and 150 new SKUs in the personal care and wellness products category. In        
addition, as a result of the Pifco transaction, we introduced 1,024 new SKUs in 
the small appliance category, 200 new SKUs in the Salton At Home products       
category and 398 in the personal care and wellness products category. For       
example, we recently introduced:                                                

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    o    George Foreman(TM) Portable Outdoor Gas Grills for tailgates,
picnic and camping use;                             

      o    George Foreman(TM) Indoor Grills with dual cooking sections for
preparing multiple items at the same time;          

         o    the George Foreman(TM) translucent colored indoor grills, which we
             advertised with a thirty-second commercial during Super Bowl XXXV
on January 28, 2001;                                

        o    Three sizes of George Foreman(TM) Rotisserie Ovens, which cook up
        to a 16-pound turkey and have six temperature settings and a
countdown timer;                                    

        o    Toastmaster(R) oil free deep fryers, which dry fry, roast and air
bake snack foods;                                   

       o    Toastmaster(R) UltraVection(TM) ovens, which combine convection,
        conductive and radiant heat to cook faster than conventional
ovens; and                                          

     o    the Ultrasonex(TM) line of electrically operated toothbrushes,
    which use ultra high frequency sonic waves for cleaning.

      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 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 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, Sears and Wal-Mart, which they sell under the                
White-Westinghouse(R), Kenmore(R) and Magic Chef(R) brand names, respectively.  
We also have a joint marketing alliance with Kellogg USA. As part of this       
alliance, we have both agreed 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. In addition, we  
have licensing rights to market certain products under the Farberware(R),       
Melitta(R), Sasaki(R), Timex(R), Indiglo(R), Marilyn Monroe(R), LooneyTunes(R)  
and Calvin Klein(R) brands. We also recently entered into a worldwide exclusive 
licensing agreement to market and distribute the UltraVection(TM) oven and the  
"spin fryer" home appliance and became the exclusive distributor in North       
America of Welbilt(R) small kitchen appliances.                                 

     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 Aircore(R) (walk-away cookware),
electric woks, pizza makers, George Foreman(TM) Rotisserie Ovens, Ultrasonex(TM)
line of electrically                                                            

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operated toothbrushes and related products, the Toastmaster(R) UltraVection(TM) 
oven and George Foreman(TM) 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 industry 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: 

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

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

o    the Aircore(R) cookware brand and certain inventory;     

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

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

     o    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 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 believe that Pifco'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 recently began marketing 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 recently increased our ownership of      
Amalgamated Appliance Holdings Limited, a public company located in South Africa
which manufactures and distributes appliances and electrical accessories, to    
approximately 31% of its outstanding equity. We have begun marketing certain of 
our products in South Africa through Amalgamated Appliance Holdings Limited.    

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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                                                                                           
    Health Conscious.................. o  Thermal grills                      o  Rice cookers              
                                       o  Juice extractors                    o  Vegetable steamers        
                                       o  Juicers                             o  Ice cream makers          
                                       o  Smoothie makers                     o  Yogurt and soy milk makers

    Thermal and Cooking............... o  Toasters                            o  Electric and gas outdoor  
                                       o  Bread makers                           grills                    
                                       o  Waffle makers                       o  Sandwich makers           
                                       o  Griddles                            o  Irons                     
                                       o  Countertop ovens                    o  Deep fryers               
                                       o  Buffet ranges/hotplates             o  Electric pressure cookers 
                                                                              o  Electric woks             

    Coffee and Tea.................... o  Drip coffee makers and percolators  o  Iced tea and iced coffee  
                                       o  Espresso and cappuccino makers         makers                    
                                       o  Tea kettles                         o  Latte makers              
                                                                              o  Coffee grinders           

    Food Preparation and Serving...... o  Electric knives                     o  Blenders                  
                                       o  Crepe makers                        o  Choppers                  
                                       o  Mixers                              o  Pizza makers              
                                       o  Can openers                         o  Warming trays             
SALTON AT HOME                                                                                             
    Tabletop Products................. o  Crystal products                    o  Ceramic products          
                                       o  Fine china and basic dinnerware     o  Flatware                  

    Time Products..................... o  Electric and analog alarm clocks    o  LED digital clocks        
                                       o  Electric and quartz wall clocks     o  Household timers          

    Lighting Products................. o  Table lamps                         o  Floor lamps               
                                       o  Wall sconces                        o  Function lighting         

PERSONAL CARE AND WELLNESS PRODUCTS... o  Massagers                           o  Curling irons and brushes 
                                       o  Indoor calming pools                o  Make-up mirrors           
                                       o  Ultrasonic toothbrushes             o  Manicure systems          
                                       o  Aroma therapy products              o  Shower radios             
                                       o  Hair dryers                         o  Magnetic therapy products 

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

                                                        [Enlarge/Download Table]


                                                                   FISCAL YEARS ENDED                             
                                                                ------------------------                          
                                         JUNE 30, 2001(2)             JULY 1, 2000            JUNE 26, 1999(1)    
                                     -------------------------  ------------------------  ------------------------
                                     NET SALES      % OF TOTAL  NET SALES     % OF TOTAL  NET SALES     % OF TOTAL
                                     ---------      ----------  ---------      ---------  ---------     ----------
                                                                                                                  
Small Appliances                      $714,125         90.2%    $742,774         88.7%    $459,621         90.8%  
Salton At Home                          59,793          7.5%      60,709          7.3%      34,875          6.9%  
Personal Care and Wellness Products     18,196          2.3%      33,819          4.0%      11,620          2.3%  
                                      --------        -----     --------        -----     --------        -----   
                                      $792,114        100.0%    $837,302        100.0%    $506,116        100.0%  
                                      ========        =====     ========        =====     ========        =====   

----------                                                                      

(1)  Includes the sales of Toastmaster from its acquisition date of January 7,  
1999.                                                                 

(2)  Includes the sales of Pifco from June 1, 2001 through June 30, 2001.       

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SMALL APPLIANCES                                                                

      We design and market an extensive line of small appliances under the
Salton(R), George Foreman(TM), Toastmaster(R), Breadman(R), Juiceman(R),        
Juicelady(R), White-Westinghouse(R), Farberware(R), Melitta(R) Welbilt(R),      
Aircore(R), Russell Hobbs(R), Tower(R), Haden(R) and Pifco(R) brand names. At   
the end of fiscal 2001, we marketed approximately 2,673 SKUs under our brand    
names in this category, including 1,024 acquired in the Pifco transaction.      
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 160 SKUs as of June 30, 2001.                                 

Our small appliances product category includes:               

         o    products for health conscious consumers, including thermal grills,
     juice extractors, juicers, smoothie makers, rice cookers,
        vegetable steamers, ice cream makers and yogurt and soy milk
makers;                                             

      o    thermal and cooking products, including toasters, bread makers,
waffle makers, griddles, countertop ovens, buffet   
           ranges/hotplates, sandwich makers, irons, deep fryers, electric
          and gas outdoor grills, electric pressure cookers and electric
woks;                                               

    o    coffee and tea related products, including combination coffee
  makers, espresso/cappuccino/drip coffee makers, coffee
        percolators, tea kettles, iced tea/iced coffee makers, latte
        makers, coffee grinders, and a broad range of coffee related
accessories; and                                    

        o    food preparation and serving products, including electric knives,
        crepe makers, mixers, can openers, blenders, choppers, pizza
makers and warming trays.                           

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

   We further enhanced our small appliance offerings in June 2001 by
acquiring Pifco Holdings, PLC. In addition to small appliance offerings, Pifco  
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 2001, we marketed          
approximately 5,488 SKUs under our brand names in this category, including 200  
acquired in the Pifco transaction. Tabletop products include crystal products   
offered under the Block(R), Atlantis(R), Sasaki(R) and Jonal(R) brand names,    
fine china and basic dinnerware in various designs and patterns under the       
Block(R), Calvin Klein(R), Sasaki(R) and Hi-Tech(R) 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                                                     

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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 and domestic 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), Farberware(R), Salton(R) Time, Timex(R), Timex(R) Indiglo,     
Westclox(R), Big Ben(R) and Spartus(R) brand names. We also market household    
(electromechanical and electronic) timers, which are used for, among other      
purposes, switching electric lights and other appliances on and off at          
pre-determined times.                                                           

       We recently began offering table lamps, wall sconces, floor lamps and
function lighting after our acquisition 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) and Stiffel(R) 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(R), Salton(R),                     
White-Westinghouse(R), Rejuvenique(R), Ultrasonex(TM), Relaxor(R) and Carmen(R).
At the end of fiscal 2001, we marketed approximately 687 SKUs in the personal   
care and wellness products category, including 398 acquired in the Pifco        
transaction.                                                                    

      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(R) 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                                                  

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programs include the mini tool, calcutape, travel smoke alarm, emergency auto   
flasher, deluxe art 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 2001, excluding SKUs added by the Pifco transaction, we
introduced 389 new SKUs in the small appliance category, 1,434 new SKUs in the  
Salton At Home products category and 150 new SKUs in the personal care and      
wellness products category. In addition, as a result of the Pifco transaction,  
we introduced 1,024 new SKUs in the small appliance category, 200 new SKUs in   
the Salton At Home products category and 398 in the personal care and wellness  
products category.                                                              

MARKETING AND DISTRIBUTION                                                      

      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, Kmart, Sears,      
Target Corporation, Federated Department Stores, QVC, May Company Department    
Stores, J.C. Penney Company, Lowe's, Linens 'n Things, Bed Bath & Beyond and    
Kohl's Department Stores.                                                       

     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 Aircore(R) (walk-away cookware), electric woks, pizza makers,
George Foreman(TM) Rotisserie Ovens, Ultrasonex line of electrically operated   
toothbrushes and related products, the Toastmaster(R) UltraVection(TM) oven and 
George Foreman(TM) 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.                  

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   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 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 also   
uses this system to monitor point-of-sale information at certain accounts. We   
also 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. We also 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 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. 
Our total net sales to our five largest customers during fiscal 2000 were       
approximately 46% of net sales, with Wal-Mart representing approximately 13% of 
our net sales and Kmart representing approximately 12% of our net sales.        

         In 1997, we entered into a seven-year supply agreement with Kmart 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 to Kmart approximated 11% 
and 12% of our total net sales for fiscal years 2001 and 2000, 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
in the consumer electronics industry 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. We have paid Applica, Inc. (formerly   
known as Windmere-Durable Holdings, Inc.) a fee based upon our net sales less   
specified costs and expenses relating to the Kmart supply agreement in          
consideration of Applica's guarantee of our obligations under the supply        
agreement. See "Item 3--Legal Proceedings".                                     

         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), Cook's Essentials(R)    
(QVC) and Magic Chef(R) (Wal-Mart).                                             

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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 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 35.2% of our product 
purchases during fiscal 2001. During fiscal 2000, one supplier also located in  
China, which acted as our purchasing agent from several other suppliers,        
accounted for approximately 38.0% of our product purchases. 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 effect 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. Our policy is to maintain an inventory base to service   
the seasonal demands of 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, Hamilton Beach, 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, Applica, Clairol, Inc. (a                            

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wholly-owned subsidiary of Bristol-Myers Squibb Company), 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 30, 2001, we employed approximately 1,326 persons, including
over 500 employees from our acquisition of Pifco. Approximately 80 employees,   
who work at our Kenilworth, New Jersey facility and approximately 80 employees  
at our recently acquired Pifco Holdings, PLC, Wolverhampton, England facility,  
were covered by collective bargaining agreements. The Kenilworth, New Jersey    
agreement expires on February 28, 2002 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.                                                                

In July 2000, we received a letter from the Food and Drug     
Administration warning that our marketing and sale of the Rejuvenique(R) facial 
mask violates certain FDA rules and regulations. On August 8, 2001, the FDA     
granted us clearance to market our Rejuvenique(R) facial toning system directly 
to consumers.                                                                   

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 30, 2001, we had a   
backlog of approximately $346.8 million, including approximately $4.6 million   
from our Pifco acquisition, compared to approximately $426.4 million as of July 
1, 2000. We do not believe that backlog is necessarily indicative of our future 
results of operations or prospects.                                             

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                                                       

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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 which, 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 the second quarter of 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.                                                             

        We entered into a license agreement with Aesthetics, Inc. in the third
quarter of fiscal 1999. The license covers the manufacturing, marketing and     
distributing of the Rejuvenique(R) facial product lines.                        

       In the fourth quarter of 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.                                                          

       On November 9, 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, 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        
products. The aggregate purchase price was $113.75 million in cash, 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. As a     
result of this transaction, we now have only two installments remaining under   
the note as well as our outstanding guarantee obligation to the other venture   
participants.                                                                   

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    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.             

       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 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.                                               

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.                                         

      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), Indiglo(R), Hershey Kiss(R), LooneyTunes(R) and Marilyn    
Monroe(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.                      

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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 30, 2001, we had total consolidated indebtedness of $423.4     
million, including $148.3 million of the 12 1/4% senior subordinated notes due  
2008 and $125.0 million of 10 3/4% senior subordinated notes due 2005, and total
stockholders' equity of $211.5 million. We also had additional availability     
under our revolving credit facility of $97.3 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:                                                                             

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

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

      o    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;                                 

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

       o    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 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. Our    
total net sales to our five largest customers during fiscal 2000 were           
approximately 46% of net sales, with Wal-Mart representing approximately 13% of 
our net sales and Kmart representing approximately 12% 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.                                                          

THE TERMINATION OF OUR SUPPLY AGREEMENT WITH KMART WOULD ADVERSELY AFFECT OUR   
NET SALES.                                                                      

     In January 1997, we entered into a seven-year supply agreement with
Kmart. Under this agreement, Kmart is the exclusive discount department store in
the United States to market and sell a broad range of small appliances under the
White-Westinghouse(R) brand name.                                               

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        The initial term of our agreement with Kmart expires on June 30, 2004.
However, Kmart may terminate the agreement without cause after June 30, 2002.   
Kmart may also terminate our agreement on the basis of any claim which Kmart    
reasonably believes impairs or would impair Kmart's ability to receive the      
benefits of its supply agreement with Applica, Inc. (formerly known as          
Windmere-Durable Holdings, Inc.) or us.                                         

       Sales to Kmart of White-Westinghouse products, approximated 3.8%, and
7.3% of our total net sales for fiscal years 2001 and 2000 , respectively. The  
termination or any significant modification of our supply agreement with Kmart  
could have a material adverse effect on our business, financial condition and   
results of operations.                                                          

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
35.2% of our product purchases during fiscal 2001. During fiscal 2000, one      
supplier also located in China, which acted as our purchasing agent from several
other suppliers, accounted for approximately 38.0% of our product purchases. 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:                                                     

o    import duties;                                           

o    trade restrictions;                                      

      o    production delays due to unavailability of parts or components;

  o    increase in transportation costs and transportation delays;

o    work stoppages;                                          

o    foreign currency fluctuations; and                       

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o    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:

o    price;                                                   

o    access to retail shelf space;                            

o    product features and enhancements;                       

o    brand names;                                             

o    new product introductions; and                           

o    marketing support and distribution approaches.           

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

         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.                                                                     

IF THE RETAIL INDUSTRY EXPERIENCES 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. As we have 
previously announced, the current general slowdown in the retail sector has     
adversely impacted our net sales of products. If such conditions continue or    
worsen, it could have a material adverse effect on our business, financial      
condition and results of operations.                                            

         Certain of our retail customers have filed for bankruptcy protection in
recent years. 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                             

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you that the anticipated benefits of our recent acquisitions of the Westclox(R),
Big Ben(R) and Spartus(R) brands, Pifco Holdings PLC, Sonex International       
Corporation, certain assets and intellectual property of The Stiffel Company and
the Relaxor(R) brand and certain inventory 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 7% of our total net sales for fiscal
2001. We expect international sales will increase in fiscal 2002 as we include a
full year of results from Pifco Holdings PLC. 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:                                                                      

o    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;                                         

o    unexpected changes in regulatory requirements;           

o    inadequate protection of intellectual property in foreign
countries;                                          

o    foreign currency fluctuations;                           

o    transportation costs;                                    

o    adverse tax consequences; and                            

o    political and economic instability.                      

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

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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 land owners.   
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.          

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 tradenames from third parties for use
on our products. These licenses generally place marketing obligations on us and 
require us to pay                                                               

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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.                    

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; and William B. Rue, President and Chief Operating 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 30, 2001, Centre Partners Management LLC and entities
directly or indirectly controlled by Centre Partners beneficially owned in the  
aggregate approximately 26% 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                                             

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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:                     

o    a classified board of directors;                         

    o    a prohibition on stockholder action through written consents;

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

o    availability of "blank check" preferred stock.           

WE DO NOT ANTICIPATE PAYING DIVIDENDS.                                          

         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. In addition, our credit agreement and  
senior subordinated notes prohibit us from paying dividends on our capital      
stock.                                                                          

ITEM 2.  PROPERTIES                                                             

A summary of our leased properties is as follows:             

                                                        [Enlarge/Download Table]


LOCATION                           DESCRIPTION                  AREA (SQ. FT.)  LEASE EXPIRATION  
--------                           -----------                  --------------  ----------------  
                                                                                                  
Rancho Dominguez, CA...... Warehouse                               340,672      October 31, 2002  
Mira Loma, CA............. Warehouse and distribution facility     216,300      October 30, 2007  
Elizabeth, NJ ............ Warehouse                               188,000      October 31, 2004  
Harrison, NJ ............. Warehouse and sales office              146,555      May 31, 2002      
Lake Forest, IL........... Corporate offices and showrooms          58,680      September 30, 2011
McColl, SC ............... Warehouse                                52,628      October 15, 2001  
Maxton, NC ............... Warehouse                                50,000      March 14, 2002    
Gurnee, IL ............... Retail outlet and warehouse              34,649      November 30, 2006 
Laurinburg, NC ........... Warehouse                                18,000      Month to month    

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                                                                [Download Table]
                                                                                 
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  December 31, 2001 
High Point, NC ........... Showroom                     4,500  Month to month    
Westend, NJ .............. Retail outlet                2,400  May 31, 2004      
Mississauga, Ontario...... Sales Office                 2,158  April 30, 2002    
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    
Chicago, IL .............. Retail store                   560  October 31, 2007  

 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]


LOCATION                           DESCRIPTION                   AREA (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     168,000    
Moberly, MO............... Warehouse                                134,000    
Staffordshire, England.... Warehouse                                115,000    
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                              2,000    

        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.                                                      

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ITEM 3.  LEGAL PROCEEDINGS                                                      

GENERAL                                                                         
    In September 1999, Linda Evans Fitness Centers, Inc. (the "Fitness
Centers"), Mark Golub and Thomas Gergley filed suit against us and our principal
executive officers in the Superior Court of Contra Costa County, California     
alleging that we tortiously interfered with a contract between the Fitness      
Centers and Ms. Evans by hiring Ms. Evans to act as a spokesperson for the      
Rejuvenique(R) facial toning system. Before Ms. Evans was hired by us, Ms. Evans
had brought suit against the Fitness Centers seeking a determination that her   
contract with the Fitness Centers had been terminated on the basis of fraud and 
the failure of the Fitness Centers to make certain payments. We believe that we 
have valid defenses against the claims made against us by the Fitness Centers.  

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

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

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

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         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 30, 2001, we have accrued             
approximately $150,000 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.                     

REGULATORY                                                                      

In July 2000, we received a letter from the Food and Drug     
Administration warning that our marketing and sale of the Rejuvenique(R) facial 
mask violates certain FDA rules and regulations. On August 8, 2001, the FDA     
granted us clearance to market our Rejuvenique(R) facial toning system directly 
to consumers.                                                                   

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                      

(a)  Not applicable                                           

(b)  Not applicable                                           

(c)  Not applicable                                           

(d)  Not applicable                                           

 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 Nasdaq National Market 
prior to February 26, 1999 and on the New York Stock Exchange after such date,  
in each case adjusted for the three-for-two stock split effected on July 28,    
1999.                                                                           

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                                                                [Download Table]


                                             HIGH                LOW  
                                             ----                ---- 
                                                                      
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

FISCAL 1999                                                           
         First Quarter                      $11.17              $ 7.67
         Second Quarter                     $15.50              $ 5.92
         Third Quarter                      $22.83              $14.00
         Fourth Quarter                     $33.58              $14.67

         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, 2001, there were   
approximately 347 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 generally non-dividend bearing; however, 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.       

 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                                               

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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 Salton's      
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 Salton's 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 21, 2001, 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 30, 2001, July 1, 2000, June 26, 1999, June 27, 1998 and
June 28, 1997 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 30,         July 1,          June 26,         June 27,         June 28, 
                                                   2001             2000             1999             1998             1997   
                                                ---------        ---------        ---------        ---------        --------- 
                                                                                                                              
STATEMENT OF EARNINGS:                                                                                                        
Net sales                                       $ 792,114        $ 837,302        $ 506,116        $ 305,599        $ 182,806 
Cost of goods sold                                474,256          467,250          285,526          179,376          121,590 
Distribution expenses                              49,395           37,639           21,621           12,327            7,809 
                                                ---------        ---------        ---------        ---------        --------- 
    Gross profit                                  268,463          332,413          198,969          113,896           53,407 
Selling, general and administrative expenses      156,885          156,749          129,588           84,216           42,944 
                                                ---------        ---------        ---------        ---------        --------- 
    Operating income                              111,578          175,664           69,381           29,680           10,463 
Interest expense,net                              (37,732)         (28,761)         (15,518)          (5,333)          (4,063)
Cost associated with refinancing                       --               --               --           (1,133)              -- 
Realized gain on sale of marketable securities         --               --               --            8,972               -- 
                                                ---------        ---------        ---------        ---------        --------- 
    Income before income taxes                     73,846          146,903           53,863           32,186            6,400 
Income tax expense                                 27,692           55,087           19,320           12,205            2,001 
                                                ---------        ---------        ---------        ---------        --------- 
    Net income                                  $  46,154        $  91,816        $  34,543        $  19,981        $   4,399 
                                                =========        =========        =========        =========        ========= 

Weighted average common shares outstanding         11,750           11,221           10,760           19,594           19,260 
Net income per share:                                                                                                         
  Basic                                         $    3.93        $    8.18        $    3.21        $    1.02        $    0.23 
Weighted average common shares and common                                                                                     
  equivalent shares outstanding                    16,065           15,526           14,562           20,259           19,623 
Net income per share:                                                                                                         
  Diluted                                       $    2.87        $    5.91        $    2.37        $    0.99        $    0.22 

BALANCE SHEET DATA (AT PERIOD END):                                                                                           
Working capital                                 $ 310,648        $ 197,671        $ 165,936        $  44,768        $  17,996 
Total assets                                      722,884          564,276          328,316          141,397          102,343 
Total debt                                        423,366          327,220          214,558           50,475           43,410 
Stockholders' equity                              211,497          173,808           50,739           57,710           38,622 

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 its behalf are expressly qualified in their entirety by the   
Cautionary Statements. We do not 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.                                                           

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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), Farberware(R), Melitta(R),    
Welbilt(R), Aircore(R), Russell Hobbs(R), Tower(R), Haden(R) and Pifco(R). We   
believe that we have the leading domestic market share in indoor grills,        
toasters, juice extractors, 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),            
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 through our own     
sales force and a network of independent commissioned sales representatives.    

         The general slowdown in the retail sector which began during our second
fiscal quarter of 2001 has continued to have an adverse effect on our sales.    
During our fourth fiscal quarter of 2001 we experienced a shift in our          
customers' buying patterns from higher-priced products to lower price point     
products. 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. Our products, and our 
market leading position in so many categories, gives us a solid foundation to   
actively face the difficult economic environment.                               

   With the assumption that the economic climate and customer buying
patterns will remain unchanged, we expect that sales over the first two quarters
of fiscal 2002 will range between $450 million and $475 million in an operating 
environment that will be highly promotional and price sensitive. At these       
levels, we currently anticipate that fully diluted earnings per share will range
between $1.80 and $2.20 per share for this period.                              

         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.                       

In July 2000, we received a letter from the Food and Drug     
Administration warning us that our marketing and sale of the Rejuvenique(R)     
facial mask violates certain FDA rules and regulations. Our sales of the        
Rejuvenique(R) facial mask have been adversely impacted because many of our     
retail customers decided to stop selling the product pending the resolution of  
this matter. On August 8, 2001, the FDA granted us clearance to market the      
Rejuvenique(R) facial                                                           

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toning system directly to consumers. We are working with our retail customers to
restore their inventories of the Rejuvenique(R) facial toning system.           

         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.                                             

        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.                                         

       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.       

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

                                                                [Download Table]


                                             FISCAL YEARS ENDED                   
                           -------------------------------------------------------
                           JUNE 30, 2001        JULY 1, 2000         JUNE 26, 1999
                           -------------        ------------         -------------
                                                                                  
Net sales                        100%               100.0%               100.0%   
Cost of Goods sold              59.9                 55.8                 56.4    
Distribution expenses            6.2                  4.5                  4.3    
                              ------               ------               ------    
    Gross profit                33.9                 39.7                 39.3    
Selling, general and                                                              
  administrative expenses       19.8                 18.7                 25.6    
                              ------               ------               ------    
    Operating income            14.1%                21.0%                13.7%   
                              ======               ======               ======    

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(R) brand   
and the Kenmore(R) brand. Sales of new product lines, primarily under the       
Relaxor(R), Sonex(R), 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.    

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    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 9.9% of net sales or $78.5 
million in fiscal 2001 compared to 10.7% of net sales or $89.7 million in fiscal
2000. This reduction was primarily from less spending on infomercials, as well  
as lower royalties on White-Westinghouse products, partially offset by increased
spending on cooperative and direct advertising. The remaining selling, general  
and administrative costs increased to $78.4 million or 9.9% of net sales in     
fiscal 2001 compared to $67.0 million or 8.0% 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 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.   
Salton's 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  

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share counts reflect a 3-for-2 split of Salton's common stock effective July 28,
1999, for stockholders of record at the close of business on July 14, 1999.     

YEAR ENDED JULY 1, 2000 COMPARED TO YEAR ENDED JUNE 26, 1999                    

  NET SALES. Net sales in the fifty-three weeks ended July 1, 2000
("fiscal 2000") were $837.3 million, an increase of approximately $331.2 million
or 65.4%, compared to net sales of $506.1 million in the fifty-two weeks ended  
June 26, 1999 ("fiscal 1999"). This increase is primarily attributable to       
increased sales of products within the George Foreman(R) product line, including
the initial shipments of the George Foreman indoor/outdoor electric grills,     
sales of Toastmaster(R) products for a full fiscal year, and sales of           
Farberware(R), Juicelady(R) and Juiceman(R) products. Net sales of the          
White-Westinghouse(R) brand and other products to Kmart approximated 12% of net 
sales in fiscal 2000 compared to 16% of net sales in fiscal 1999.               

       GROSS PROFIT. Gross profit in fiscal 2000 was $332.4 million or 39.7%
of net sales as compared to $199.0 million or 39.3% of net sales in fiscal 1999.
Cost of goods sold during fiscal 2000 decreased to 55.8% of net sales compared  
to 56.4% in fiscal 1999. Distribution expenses were $37.6 million or 4.5% of net
sales in fiscal 2000 compared to $21.6 million or 4.3% of net sales in fiscal   
1999. Distribution expenses increased slightly as a percentage of sales due to  
higher costs for shipping to customers, primarily due to higher fuel costs and  
expenses related to the addition of two warehouses during fiscal 2000. Gross    
profit in fiscal 2000 as a percentage of net sales increased primarily due to a 
more favorable mix of sales with lower costs in their respective channels of    
distribution when compared to fiscal 1999.                                      

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to 18.7% of net sales or $156.7 million in    
fiscal 2000 compared to 25.6% of net sales or $129.6 million for fiscal 1999.   
Expenditures for television, royalty expense, certain other media and           
cooperative advertising and trade show expenses were 10.7% of net sales or $89.7
million in fiscal 2000 when compared to 17.4% of net sales or $88 million in    
fiscal 1999. The effect of the acquisition of the George Foreman name related to
fiscal 2000 was the elimination of royalty payments partially offset by         
amortization expense of $8.1 million and imputed interest of $6.3 million,      
compared to payments of royalties of $38.3 million in fiscal 1999. The remaining
selling, general and administrative costs increased to $67 million or 8% of net 
sales in fiscal 2000 compared to $41.6 million or 8.2% of net sales in fiscal   
1999, primarily attributable to higher costs related to the higher level of     
sales.                                                                          

  OPERATING INCOME. As a result of the foregoing, operating income
increased by $106.3 million or 153.2%, to $175.7 million in fiscal 2000 from    
$69.4 million in fiscal 1999. Operating income as a percentage of net sales     
increased to 21.0% in fiscal 2000 from 13.7% in fiscal 1999.                    

    NET INTEREST EXPENSE. Net interest expense was approximately $28.8
million for fiscal 2000 compared to $15.5 million in fiscal 1999. The increase  
is primarily attributable to imputed interest of $6.3 million on the George     
Foreman note payable and a full year of actual interest of $11.1 million on debt
incurred to complete the Toastmaster acquisition compared to $5.1 million of    
interest expense from the January 7, 1999 completion date of the Toastmaster    
acquisition. Salton's rate of interest on amounts outstanding under the         
revolver, term loan and senior subordinated debt was a weighted average annual  
rate of 10.0% in fiscal                                                         

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2000 compared to 9.2% in fiscal 1999. The average amount of all debt outstanding
was $279.5 million for fiscal 2000 compared to $155.7 million for fiscal 1999.  
These increases contributed to higher interest expense and the increased        
borrowings were used to provide working capital necessary to support the growth 
in sales.                                                                       

       INCOME TAX EXPENSE. Salton had tax expense of $55.1 million in fiscal
2000 as compared to tax expense of $19.3 million in fiscal 1999.                

    NET INCOME. Net income increased 165.8% to $91.8 million in fiscal
2000, compared to $34.5 million in fiscal 1999.                                 

    EARNINGS PER SHARE. Basic earnings per common share were $8.18 per
share on weighted average common shares outstanding of 11,221,379 in fiscal 2000
compared to earnings of $3.21 per share on weighted average common shares       
outstanding of 10,760,455 in fiscal 1999. Diluted earnings per common share were
$5.91 per share on weighted average common shares outstanding, including        
dilutive common stock equivalents, of 15,525,991 in fiscal 2000 compared to     
earnings of $2.37 per share on weighted average common shares outstanding,      
including dilutive common stock equivalents, of 14,561,964 in fiscal 1999. All  
share counts reflect a 3-for-2 split of Salton's common stock effective July 28,
1999, for stockholders of record at the close of business on July 14, 1999.     

LIQUIDITY AND CAPITAL RESOURCES                                                 

        During fiscal 2001, we provided net cash of $44.1 million in operating
activities and used net cash of $98.0 million in investing activities. The cash 
provided from operating activities resulted primarily from net income, the      
reduction of inventory levels in fiscal 2001, as compared to fiscal 2000, as    
well as lower anticipated sales levels during the next several quarters and non 
cash expenses for depreciation, amortization and imputed interest on notes that 
carry lower than market interest charges. These sources of cash were partially  
offset by an increase in accounts receivable. This increase was caused by a     
significant reduction of sales of White-Westinghouse(R) brand products,         
generally sold to K-Mart on 10 day terms, and sales made to certain credit      
worthy customers on longer terms, generally 30 days to 60 days longer than their
normal sales terms, as an inducement to keep stores stocked with merchandise. In
addition, we experienced a shift in sales mix to customers that generally       
receive longer terms on a regular basis. Income tax payments also were higher as
estimated payments made earlier in the year did not anticipate the loss         
experienced in the fourth quarter. These prepaid taxes of $14.9 million will be 
used to offset taxes for the year ended June 29, 2002 ("fiscal 2002") or will be
refunded in fiscal 2002. Cash used in investing activities included $63.6       
million related to the acquisitions of Pifco Holdings PLC and Sonex             
International Corp., and $11.4 million for certain ongoing product development  
activities, the buyout for $5.3 million of the Juiceman(R) brand name, cash     
payments related to the acquisition of Stiffel lamps, as well as increased      
investments in capital assets, primarily tooling. Additional cash of            
approximately $10 million will be expended in fiscal 2002 to complete the       
acquisition of Pifco Holdings PLC. Financing activities provided net cash of    
$76.4 million.                                                                  

        At June 30, 2001, we had debt outstanding of $423.4 million, including
$148.3 million of 12 1/4% senior subordinated notes due 2008, $125.0 million of 
10 3/4% senior subordinated notes due 2005, $85.6 million outstanding under our 
amended and restated credit agreement                                           

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(exclusive of unused commitments of up to $97.3 million under the revolving     
credit facility) and $17.7 million related to the loan notes issued in the Pifco
Holdings PLC acquisition. The loan notes are shown on the balance sheet at a    
present value of $11.3 million to reflect the below market interest on the loan 
notes. The loan notes are cash collateralized at a bank in the United Kingdom.  
At June 30, 2001, we had the ability to borrow up to an additional $97.3 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 30,  
2001, has a face amount of $48.3 million, and is recorded at its present value  
of $43.2 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. As a     
result of this transaction, we now have only two installments remaining under   
the note as well as our outstanding guarantee obligation to the other venture   
participants.                                                                   

   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                            

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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.

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  
$16 million and $18 million for fiscal years 2002 and 2003. We incurred         
approximately $9.6 million for capital expenditures during fiscal 2001.         

        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 and
10 3/4% senior subordinated notes 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 fundings, 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                                                                             

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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.                            

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.             

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.                                                              

ACCOUNTING PRONOUNCEMENTS                                                       

       During the first quarter of fiscal year 2001, we adopted Statement of
Financial Accounting Standards Statement No. 133, "Accounting for Derivative    
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 sets forth    
accounting and reporting standards for derivative instruments and hedging       
activities, requiring recognition of all derivative instruments (including      
certain derivatives embedded in other contracts) as either assets or liabilities
in the balance sheet measured at fair value. SFAS No. 133 also establishes      
criteria for a derivative to qualify as a hedge for accounting purposes. The    
adoption of SFAS No. 133 did not affect our consolidated financial statements.  

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

 We have approximately $43.3 million in goodwill recorded in our
consolidated balance sheet as of June 30, 2001. Under the provisions of SFAS No.
142, goodwill will cease to be amortized for fiscal years beginning after       
December 15, 2001 (fiscal year 2003 for the                                     

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Company.) We recorded approximately $.7 million in amortization expense related 
to goodwill in fiscal 2001. We will also assess the useful lives of our patents 
and trademarks for indefinite economic useful lives, which will also cease to be
amortized under SFAS No. 142. We have $132.1 million of patents and trademarks  
as of June 30, 2001 and recorded $9.8 million of related amortization expense.  
We intend to adopt SFAS No. 142 for the 2003 fiscal year.                       

ITEM 7A.  QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISKS             

         Our major market risk exposure is changing interest rates in the United
States. Our policy is to manage interest rates through the use of a combination 
of fixed and variable rate debt.                                                

On June 4, 2001 we entered into a $150 million Notional Amount
fixed-for-floating interest rate swap agreement for First Union National Bank,  
related to our $150 million 12 1/4% senior subordinated notes due 2008. The     
interest rate swap agreement provides that floating rate payments of LIBOR plus 
an agreed upon spread will be exchanged for fixed payments at a rate of 12 1/4% 
with the floating rate payments initially set at approximately 10.5%. The       
floating rate will be reset at each semi-annual interest payment date of the    
12 1/4% senior subordinated notes. After execution of the interest rate swap,   
approximately 30% of the outstanding indebtedness will be fixed rate debt at a  
rate of 10 3/4% through December 15, 2005.                                      

     The following tables provide information about our market sensitive
financial instruments and constitutes a "forward-looking statement." Our major  
risk exposure is changing interest rates in the United States. Our policy is to 
manage interest rates through the use of a combination of fixed and variable    
rate debt. The fair value of our long-term, fixed rate debt was 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.                                                                

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                                                        [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         8.5%       8.5%         8.5%                                                            
  Other notes payable      $     30   $      5                                                      $     35   $     35 
  Average interest rate        5.37%      5.37%                                                                         
Long-term debt including                                                                                                
    current portion fixed                                                                                               
    rate amount                                               $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                         (3)  $ 65,622   $ 65,625 
  Average interest rates       8.91%          (2)          (2)        (2)                                               

                                                        [Enlarge/Download Table]


                             2001       2002         2003        2004        2005     THEREAFTER   TOTAL    FAIR VALUE
                             ----       ----         ----        ----        ----     ----------   -----    ----------
                                                                                                                      
FISCAL YEAR 2000                                                                                                      
Liabilities:                                                                                                          
Revolver                   $ 68,000                                                               $ 68,000   $ 68,000 
  Average interest rates       8.73%                                                                                  
  Jr. subordinated note                                                                                               
    payable                                                   $ 13,406                            $ 13,406   $  9,015 
  Average interest rate                                            8.0%                                               
Foreman note payable       $ 45,500   $ 22,750     $ 22,750                                       $ 91,000   $ 80,854 
  Average interest rate         8.5%       8.5%         8.5%                                                          
  Other notes payable      $     62   $     35     $      4                                       $    101   $    101 
  Average interest rate        5.37%      5.37%        5.37%                                                          
Long-term debt including                                                                                              
    current portion fixed                                                                                             
    rate amount                                                           $ 125,000               $125,000   $125,000 
  Average interest rate                                                       10.75%                                  
  Variable rate amount     $    375   $    500     $    500   $ 11,000    $  31,875               $ 44,250   $ 44,250 
  Average interest rates       9.77%          (1)          (1)        (1)          (1)                                

----------                                                                      

(1) The variable rate $45.0 million Term Loan is set quarterly at an established
base rate (equivalent to the prime rate of interest) plus an applicable margin  
of 225 basis points or, at the Company's election, a Eurodollar rate (equivalent
to the LIBOR rate) plus an applicable margin of 325 basis points.               

(2) 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 125 basis points or, at the Company's election, a          
Eurodollar rate plus an applicable margin of 225 basis points.                  

(3) 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 million notional amount of indebtedness.             

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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 30, 2001 and July 1, 2000 and the related            
consolidated statements of earnings, stockholders' equity, and cash flows for   
each of the three years in the period ended June 30, 2001. 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 30, 2001 and
July 1, 2000 and the results of its operations and its cash flows for each of   
the three years in the period ended June 30, 2001 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.                       

DELOITTE & TOUCHE LLP                                                           

Chicago, Illinois                                                               
September 10, 2001                                                              

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SALTON, INC.                                                                    

CONSOLIDATED BALANCE SHEETS                                                     
June 30, 2001 and July 1, 2000                                                  
(In thousands except share data)                                                
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                        2001         2000   
                                                                            
ASSETS                                                                      

Current Assets:                                                             
  Cash                                                $  30,097   $   7,606 
  Accounts receivable, less allowance:                                      
    2001 - $9,223;  2000 - $7,111                       185,881     129,850 
  Inventories                                           192,502     219,230 
  Prepaid expenses and other current assets              10,100      10,146 
  Prepaid income taxes                                   14,907          -- 
  Deferred income taxes                                   4,419       3,713 
                                                      ---------   --------- 
           Total current assets                         437,906     370,545 

Property, Plant and Equipment:                                              
  Land                                                    3,768       1,625 
  Buildings                                              14,169       8,079 
  Molds and tooling                                      41,715      35,749 
  Warehouse equipment                                     8,939       7,061 
  Office furniture and equipment                         16,116       9,373 
                                                      ---------   --------- 
                                                         84,707      61,887 
  Less accumulated depreciation                         (36,983)    (27,244)
                                                      ---------   --------- 
Net Property, Plant and Equipment                        47,724      34,643 
Patents and Trademarks, Net of                                              
    Accumulated Amortization                            132,128     127,074 
Cash in Escrow for Pifco Loan Notes                      17,748          -- 
Other Intangibles, Net of Accumulated Amortization,                         
   and Other Non-current Assets                          87,378      32,014 
                                                      ---------   --------- 
TOTAL ASSETS                                          $ 722,884   $ 564,276 
                                                      =========   ========= 

LIABILITIES AND STOCKHOLDERS' EQUITY                                        

Current Liabilities:                                                        
  Revolving line of credit and other current debt     $  41,530   $ 112,155 
  Accounts payable                                       33,450      35,113 
  Accrued expenses                                       32,908      21,028 
  Foreman guarantee                                      19,370          -- 
  Income taxes payable                                       --       4,578 
                                                      ---------   --------- 

           Total current liabilities                    127,258     172,874 
Non-Current Deferred Income Taxes                         2,293       2,529 
Senior Subordinated Notes due 2005                      125,000     125,000 
Senior Subordinated Notes due 2008                      148,325          -- 
Loan Notes to Pifco Shareholders                         11,271          -- 
Term Loan and Other Notes Payable                        97,240      90,065 
                                                      ---------   --------- 

           Total liabilities                            511,387     390,468 
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:                        
   2001 - 11,363,934 shares, 2000 - 11,351,927              144         135 
  Treasury stock - at cost                              (47,865)    (30,211)
  Additional paid-in capital                             72,932      62,572 
  Accumulated other comprehensive income (loss)          (1,174)          6 
  Retained earnings                                     187,460     141,306 
                                                      ---------   --------- 

           Total stockholders' equity                   211,497     173,808 
                                                      ---------   --------- 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $ 722,884   $ 564,276 
                                                      =========   ========= 

See notes to consolidated financial statements.                                 

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF EARNINGS                                             
Years Ended June 30, 2001, July 1, 2000, and June 26, 1999                      
(In thousands except per share data)                                            
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                2001         2000       1999    
                                                                                
Net Sales                                     $ 792,114   $ 837,302   $ 506,116 

Cost of Goods Sold                              474,256     467,250     285,526 
Distribution Expenses                            49,395      37,639      21,621 
                                              ---------   ---------   --------- 
Gross Profit                                    268,463     332,413     198,969 
Selling, General and Administrative Expenses    156,885     156,749     129,588 
                                              ---------   ---------   --------- 
Operating Income                                111,578     175,664      69,381 
Interest Expense, Net                           (37,732)    (28,761)    (15,518)
                                              ---------   ---------   --------- 
Income Before Income Taxes                       73,846     146,903      53,863 
Income Tax Expense                               27,692      55,087      19,320 
                                              ---------   ---------   --------- 
Net Income                                    $  46,154   $  91,816   $  34,543 
                                              =========   =========   ========= 
Weighted Average Common Shares Outstanding       11,750      11,221      10,760 
Weighted Average Common and Common                                              
  Equivalent Shares Outstanding                  16,065      15,526      14,562 
Net Income Per Common Share: Basic            $    3.93   $    8.18   $    3.21 
                                              =========   =========   ========= 
Net Income Per Common Share: Diluted          $    2.87   $    5.91   $    2.37 
                                              =========   =========   ========= 

See notes to consolidated financial statements.                                 

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 
Years Ended June 26, 1999 through June 30, 2001                                 
(In thousands)                                                                  
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                           COMMON       PREFERRED                                   ADDITIONAL              
                                           SHARES        SHARES         COMMON        PREFERRED      PAID IN        RETAINED
                                         OUTSTANDING   OUTSTANDING       STOCK          STOCK        CAPITAL        EARNINGS
                                         -----------   -----------     ---------      ---------     ----------     ---------
                                                                                                                            
BALANCE, JUNE 27, 1998                       13,100                    $     130                    $  53,481      $  14,947
  Net income                                                                                                          34,543
  Other comprehensive income:                                                                                               
    Minimum pension liability                                                                                               
      net of tax of $28                                                                                                     
    Foreign currency translation                                                                                            

           Total comprehensive income                                                                                       

  Issuance of preferred stock                                  40                                      37,000               
  Purchase of treasury stock                 (6,535)                                                                        
  Stock options exercised                       270                            3                        1,487               
                                          ---------     ---------      ---------      ---------     ---------      ---------
BALANCE, JUNE 26, 1999                        6,835            40            133                       91,968         49,490
  Net income                                                                                                          91,816
  3 for 2 stock split effective 7/28/99       3,417                                                   (47,496)              
  Other comprehensive income:                                                                                               
    Minimum pension liability                                                                                               
      net of tax of $28                                                                                                     
    Foreign currency translation                                                                                            

           Total comprehensive income                                                                                       

  Issuance of common stock                      942                                                    16,625               
  Stock options exercised                       158                            2                        1,475               
                                          ---------     ---------      ---------      ---------     ---------      ---------
BALANCE, JULY 1, 2000                        11,352            40            135                       62,572        141,306
  Net income                                                                                                          46,154
  Other comprehensive income:                                                                                               
  Minimum pension liability                                                                                                 
      net of tax of $314                                                                                                    
  Foreign currency translation                                                                                              
                                          ---------     ---------      ---------      ---------     ---------      ---------
           Total comprehensive income                                                                                       

Issuance of common stock                        930                            9                       29,465               
Stock options exercised                          24                                                       265               
Foreman Additional Liability                                                                          (19,370)              
Treasury Stock Repurchase                      (942)                                                                        
                                          ---------     ---------      ---------      ---------     ---------      ---------
BALANCE, JUNE 30, 2001                       11,364            40      $     144             --     $  72,932      $ 187,460
                                          =========     =========      =========      =========     =========      =========



                                                                             ACCUMULATED                                    
                                                              OTHER             LESS             TOTAL             TOTAL    
                                           TREASURY       COMPREHENSIVE         NOTE         STOCKHOLDERS'     COMPREHENSIVE
                                             STOCK        INCOME (LOSS)       RECEIVABLE        EQUITY            INCOME    
                                           ---------      -------------      -----------     -------------     -------------
                                                                                                                            

BALANCE, JUNE 27, 1998                                      $      --         $ (10,848)       $  57,710                    
  Net income                                                                                      34,543            34,543  
  Other comprehensive income:                                                                                               
    Minimum pension liability                                                                                               
      net of tax of $28                                           (50)                               (50)              (50) 
    Foreign currency translation                                    2                                  2                 2  
                                                                                                                 ---------  
           Total comprehensive income                                                                            $  34,495  
                                                                                                                 =========  
  Issuance of preferred stock                                                                     37,000                    
  Purchase of treasury stock               $ (90,804)                            10,848          (79,956)                   
  Stock options exercised                                                                          1,490                    
                                           ---------        ---------         ---------        ---------                    
BALANCE, JUNE 26, 1999                       (90,804)             (48)               --           50,739                    
  Net income                                                                                      91,816         $  91,816  
  3 for 2 stock split effective 7/28/99       47,496                                                                        
  Other comprehensive income:                                                                                               
    Minimum pension liability                                                                                               
      net of tax of $28                                            50                                 50                50  
    Foreign currency translation                                    4                                  4                 4  
                                                                                                                 ---------  
           Total comprehensive income                                                                            $  91,870  
                                                                                                                 =========  
  Issuance of common stock                    13,097                                              29,722                    
  Stock options exercised                                                                          1,477                    
                                           ---------        ---------         ---------        ---------                    
BALANCE, JULY 1, 2000                        (30,211)               6                --          173,808                    
  Net income                                                                                      46,154         $  46,154  
  Other comprehensive income:                                                                                               
  Minimum pension liability                                                                                                 
      net of tax of $314                                         (523)                              (523)             (523) 
  Foreign currency translation                                   (657)                              (657)             (657) 
                                           ---------        ---------         ---------        ---------         ---------  
           Total comprehensive income                                                                            $  44,974  
                                                                                                                 =========  

Issuance of common stock                                                                          29,474                    
Stock options exercised                                                                              265                    
Foreman Additional Liability                                                                     (19,370)                   
Treasury Stock Repurchase                    (17,654)                                            (17,654)                   
                                           ---------        ---------         ---------        ---------                    
BALANCE, JUNE 30, 2001                     $ (47,865)       $  (1,174)        $      --        $ 211,497                    
                                           =========        =========         =========        =========                    

See notes to consolidated financial statements.                                 

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
Years Ended June 30, 2001, July 1, 2000, and June 26, 1999                      
(In thousands)                                                                  
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                                      2001        2000          1999    
                                                                                        
CASH FLOWS FROM OPERATING ACTIVITIES:                                                   
  Net income                                        $  46,154   $  91,816     $  34,543 
  Adjustments to reconcile net income                                                   
    to net cash from operating activities:                                              
    Imputed interest on note payable                    6,033       6,336               
    Deferred income tax provision                       1,524       1,793         4,109 
    Depreciation and amortization                      23,594      19,075         7,301 
    Loss on disposal of equipment                         423                           
    Equity in net income of investees                    (292)       (321)              
    Purchase reduction of note payable and                                              
      other noncash items                               2,777       1,662          (208)
  Changes in assets and liabilities, net                                                
      of acquisitions:                                                                  
    Accounts receivable                               (46,259)    (33,671)      (12,176)
    Inventories                                        42,757     (75,106)      (26,406)
    Prepaid expenses and other current assets             238      (3,796)       (1,365)
    Accounts payable                                   (4,977)     (5,884)       14,716 
    Taxes payable                                     (23,448)      4,578        (4,290)
    Accrued expenses                                   (4,451)       (837)       (1,032)
                                                    ---------   ---------     --------- 
           Net cash from operating activities          44,073       5,645        15,192 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                   
   Capital expenditures                                (9,557)    (13,976)       (5,390)
   Increase in other non-current assets               (13,422)                          
   Acquisition of George Foreman Trademark                        (22,750)              
   Additional payment for patents and trademarks       (2,043)                          
   Additions to patents and trademarks                 (9,382)       (737)              
   Equity investment                                               (9,615)              
   Acquisition of businesses, net of cash acquired    (63,561)                 (108,126)
                                                    ---------   ---------     --------- 
           Net cash from investing activities         (97,965)    (47,078)     (113,516)

CASH FLOWS FROM FINANCING ACTIVITIES:                                                   
   Net (repayment) proceeds from revolving line of                                      
      credit and other debt                           (48,065)     36,367       (20,475)
   Repayment of long-term debt                        (73,624)       (625)      (90,125)
   Proceeds from long-term debt                        75,000                   260,000 
   Repayment of other debt                                                         (125)
   Proceeds from senior subordinated debt             148,284                           
   Costs associated with refinancing                   (7,798)       (616)       (8,065)
   Common stock issued                                    265       2,669         1,489 
   Preferred stock issued                                                        40,000 
   Purchase of treasury stock                         (17,654)                  (70,799)
   Costs associated with preferred stock issuance                                (2,999)
                                                    ---------   ---------     --------- 
           Net cash from financing activities          76,408      37,795       108,901 
                                                    ---------   ---------     --------- 
  The effect of exchange rate changes on cash             (25)          4             2 
                                                    ---------   ---------     --------- 
NET CHANGE IN CASH                                     22,491      (3,634)       10,579 

CASH, BEGINNING OF YEAR                                 7,606      11,240           661 
                                                    ---------   ---------     --------- 
CASH, END OF YEAR                                   $  30,097   $   7,606     $  11,240 
                                                    =========   =========     ========= 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                       
  Cash paid during the year for:                                                        
    Interest                                        $  28,039   $  22,257     $  14,046 
    Income taxes                                       50,716      50,509        25,022 

                                                                            (Continued) 

See notes to consolidated financial statements.                                 

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SALTON, INC.                                                                    

CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
Years Ended June 30, 2001, July 1, 2000, and June 26, 1999                      
(In thousands except share data)                                                
--------------------------------------------------------------------------------

Supplemental Disclosure of Noncash Investing and Financing Activities:          

In the quarter ended June 30, 2001, the company authorized the issuance of      
167,229 shares of common stock out of treasury 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" 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 addition, the Company  
  agreed to satisfy the $20.0 million guarantee to George Foreman by taking back
456,175 of the 546,075 shares issued to him on September 30, 2000 and paying
him cash less 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 30, 2001, the
guarantee liability to George Foreman and the other venture participants was
$19.4 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"
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 30, 2001, has a face amount of $48,250, and
is recorded at its present value of $43,245.                                

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.                                                    

In the quarter ended September 26, 1998, the Company repurchased 6,535 shares of
the Company's common stock from Applica, Inc. (formerly known as            
Windmere-Durable Holdings Inc.) ("Applica") for a total purchase price of   
$90,804. The purchase price included the issuance of six and one-half year  
$15,000 subordinated promissory note which bears interest at 4% per annum   
which is recorded at its fair value of $9,864 as of June 30, 2001 and the   
effective repayment of Applica's promissory note to the Company for the     
principal amount of $10,544.                                                

See notes to consolidated financial statements.                      (Concluded)

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SALTON, INC.                                                                    

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
YEARS ENDED JUNE 30, 2001, JULY 1, 2000, AND JUNE 26, 1999                      
--------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES                               

    Salton, Inc. ("Salton" or the "Company") is a domestic 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), Toastmaster(R), Breadman(R), Juiceman(R), JuiceLady(R),
    Calvin Klein(R), George Foreman(TM), White-Westinghouse(R), Farberware(R),
Melitta(R), Welbilt(R), Aircore(R) , Russell Hobbs(R), Carmen(R),     
    Hi-Tech(R), Tower(R), Haden(R), Mountain Breeze(R), Pifco(R), Westclox(R),
  Big Ben(R), Spartus(R) , Block(R) China, Atlantis(R) Crystal, Sasaki(R),
Rejuvenique(R), Marilyn Monroe(TM), Looney Tunes(R), Stiffel(R),      
Ingraham(R), Timex(R), Westclox(R), Big Ben(R), Ultrasonex(R), and    
Relaxor(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 30, 2001 consisted of 52 weeks and
  is referred to as "fiscal 2001." The fiscal years ended July 1, 2000 and
    June 26, 1999 consisted of 53 and 52 weeks, respectively, and are referred
to as "fiscal 2000" and "fiscal 1999", respectively.                  

   INVENTORIES - Inventories are stated at the lower of cost or market. Cost
     is determined by the last-in, first-out (LIFO) method for approximately 30%
    and 29% of the Company's inventories as of June 30, 2001 and July 1, 2000.
All remaining inventory cost is determined on the first-in, first-out 
basis. See Note 3 "Inventories."                                      

     PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
  cost. Expenditures for maintenance costs and repairs are charged against
income. Depreciation is provided on the straight-line basis over the  
estimated useful lives of the assets, which range from three to forty 
    years. For tax purposes, assets are depreciated using accelerated methods.

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 INTANGIBLES AND OTHER NON-CURRENT ASSETS - Intangible assets, which are
   amortized over their estimated useful lives, and other non-current assets
consist of:                                                           

                                                                [Download Table]


                                                     USEFUL LIFE  JUNE 30   JULY 1, 
(IN THOUSANDS)                                        (In Years)    2001      2000  
                                                                                    
Patents and trademarks, net                              5-20     $132,128  $127,074
                                                                  ========  ========

Goodwill                                                 10-40      43,317    12,807
Financing costs                                           2-7       14,625     9,152
Other non-current assets                                            29,436    10,055
                                                                  --------  --------

Other intangibles, net, and other noncurrent assets               $ 87,378  $ 32,014
                                                                  ========  ========

  Accumulated amortization of intangible assets and patents and trademarks
was $30.8 million and $17.3 million at June 30, 2001 and July 1, 2000,
respectively.                                                         

    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.                                                        

  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 does not expect 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 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

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  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 - During the first quarter of fiscal 2001, the
   Company adopted Statement of Financial Accounting Standards Statement No.
   133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS
   No. 133"). SFAS No. 133 sets forth accounting and reporting standards for
     derivative instruments and hedging activities, requiring recognition of all
 derivative instruments (including certain derivatives embedded in other
     contracts) as either assets or liabilities in the balance sheet measured at
fair value. SFAS No. 133 also establishes criteria for a derivative to
  qualify as a hedge for accounting purposes. The adoption of SFAS No. 133
did not affect the Company's consolidated financial statements.       

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

 The Company has approximately $43.3 million in goodwill recorded in its
 consolidated balance sheet as of June 30, 2001. Under the provisions of
SFAS No. 142, goodwill will cease to be amortized for fiscal years    
   beginning after December 15, 2001 (fiscal year 2003 for the Company.) The
     Company recorded $.7 million in amortization expense related to goodwill in
   fiscal 2001. The Company will also assess the useful lives of its patents
    and trademarks for indefinite economic useful lives, which will also cease
to be amortized under SFAS No. 142. The Company has $132.1 million of 
 patents and trademarks as of June 30, 2001 and recorded $9.8 million of
   related amortization expense in fiscal 2001. The Company intends to adopt
SFAS No. 142 for the 2003 fiscal year.                                

2.   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 kitchen and
     small appliances, personal care and wellness products, 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. 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 and is being amortized on a straight-line basis over
    forty years. The Company is completing the review and determination of the
  fair values of the assets acquired and liabilities assumed. Accordingly,
  the allocation of the purchase price is subject to revision based on the
final determination of the appraised and other fair values.           

    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 30, 2001. The notes bear
  interest at 1% below LIBOR per annum, payable semi-annually, and are due
June 30, 2006. The Loan Notes have been                               

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    recorded at their net present value, or $11.3 million as of June 30, 2001.
    The Loan Notes may be prepaid, at the option of the holder, after June 30,
2002.                                                                 

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 $.3 million

On January 7, 1999, the Company acquired the stock of Toastmaster Inc.
  ("Toastmaster"), a Columbia, Missouri based manufacturer and marketer of
  kitchen and small household electrical appliances and time products (the
     "Toastmaster Acquisition"). The Company paid Toastmaster shareholders $7.00
per share in cash, for a total purchase price of approximately $53.2  
   million. In addition, Toastmaster's outstanding debt of $57.8 million was
     paid by the Company in connection with the acquisition. The acquisition was
  accounted for as a purchase. The purchase price has been allocated based
     upon estimated fair market values at the date of acquisition. The excess of
     the purchase price over the fair values of the net assets acquired has been
   recorded as goodwill and is being amortized on a straight-line basis over
forty years.                                                          

     The operating results of Toastmaster have been included in the consolidated
statements of earnings from the date of acquisition. The following    
   unaudited pro forma results of operations assume the transaction occurred
at the beginning of the period presented:                             

                                                                [Download Table]


(IN THOUSANDS)                        JUNE 26, 1999
                                                   
Net sales                               $597,140   
Operating income                          67,350   
Net income                                27,052   
Net income per share:                              
  Basic                                     2.51   
  Diluted                                   1.86   

The pro forma results are for informational purposes only and do not  
  purport to represent what the Company's results of operations would have
actually been had the transaction been consummated for the period     
indicated.                                                            

 On March 31, 1999, the Company bought certain assets of Sasaki, Inc., a
    well-known designer and manufacturer of high-quality tabletop products and
     accessories for the home, from Sasaki Glass Company Ltd. Under the terms of
the transaction, Salton purchased Sasaki's inventory, except for the  
Christian Dior tabletop product line, in addition to licensing the    
    Sasaki(R) brand name for a period of twenty years, with an option to renew
     on mutually agreed upon terms. As part of the transaction, Salton agreed to
assume certain minor liabilities.                                     

   On October 6, 1999, Salton purchased approximately 21% 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, for approximately $6 million.
In the quarter ended December 30, 2000, the Company increased its     
   investment to approximately 31% by issuing 109,000 shares of Salton, Inc.
     common stock. The investment is being accounted for under the equity method
    of accounting, and is included in the consolidated financial statements in
other assets. 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.                                     

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    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" 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 $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 30, 2001, has a face amount of $48.3 million, and is 
     recorded at its present value of $43.2 million and $80.8 million as of June
30, 2001 and July 1, 2000, respectively.                              

The following pro forma results of operations assumed the transaction 
occurred at the beginning of the period presented:                    

                                                                [Download Table]


(IN THOUSANDS)                        JUNE 26, 1999
                                                   
Net sales                               $506,116   
Operating income                          99,409   
Net income                                47,310   
Net income per share:                              
  Basic                                     4.40   
  Diluted                                   3.25   

     The proforma results are for informational purposes only and do not purport
   to represent what the Company's results of operations would have actually
been had the transaction been consummated for the period indicated.   

   In the quarter ended September 30, 2000, the Company reached an agreement
 to satisfy $22.75 million of payment obligations incurred in connection
     with its acquisition of the "George Foreman" name by issuing 621,161 shares
  of Salton common stock to George Foreman and other venture participants.
The Company determined, in the quarter ended March 31, 2001, that it  
  intends to pay George Foreman and other venture participants in cash for
 the stock price guarantee related to the 621,161 shares. As of June 30,
     2001, this liability was $19.4 million. See Note 18, Subsequent Events, for
satisfaction of the guarantee obligation.                             

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

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3.    INVENTORIES                                                               

A summary of inventories is as follows:                               

                                                                [Download Table]


(In thousands)                        JUNE 30, 2001     JULY 1, 2000
                                                                    
Raw materials                           $  5,986          $  6,392  
Work-in-process                            1,293               447  
Finished goods                           185,223           212,391  
                                        --------          --------  
Total                                   $192,502          $219,230  
                                        ========          ========  

  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 30,
    2001 and July 1, 2000, they would have been approximately $ .5 million and
    $2.9 million lower than reported. During the fourth quarter of fiscal year
   2001, the Company recorded a reduction in inventory of approximately $8.2
 million for inventory losses and an additional $5.1 million in LIFO and
other valuation adjustments.                                          

4.   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 has a term of six and one-half
    years and bears interest at 4.0% per annum payable annually, is subject to
offsets of 5% of the total purchase price paid by Salton for product  
purchases from Applica and its affiliates during the term of the note.
During fiscal 2001 and fiscal 2000, the Company reduced this debt and 
    interest by approximately $.3 and $1.5 million , respectively, for related
purchases of products from Applica. The principal amount of the Junior
 Subordinated Note is also subject to cancellation in the event Salton's
  supply agreement with Kmart is terminated for any reason. 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.                                                   

5.   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 30,
     2001, 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                   

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 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 125 basis points or, at the    
company's election, a Eurodollar rate plus an applicable margin of 225
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 30, 2001, the Company was in compliance with all of the covenants
described above. At June 30, 2001, the Eurodollar rate plus applicable
  margin on the Term Loan was 7.0% and the Eurodollar rate plus applicable
margin on the Revolving Credit Facility was 6.66%.                    

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

(IN THOUSANDS)                                       JUNE 30, 2001  JULY 1, 2000

Balance at end of fiscal period                         $ 20,000      $ 68,000  
Interest rate at end of fiscal period                       6.66%         8.96% 
Maximum amount outstanding at any month-end              153,000        93,000  
Average amount outstanding                                91,607        52,974  
Weighted average interest rate during fiscal period         8.79%         8.73% 
Outstanding letters of credit at end of fiscal period      4,632        17,863  
Unused letters of credit at end of the fiscal period      20,368         7,137  

On April 23, 2001, the Company issued $150 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 2). The 2008 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 2008 Subordinated Notes, the Company is required to
    comply with a specified fixed charge coverage ratio. At June 30, 2001, the
Company was in compliance with all the covenants described above.     

     Notes payable consist of the Junior Subordinated Note to Applica, Inc. (see
Note 4), the long term portion of the note payable associated with the
 acquisition of the George Foreman trademarks (see Note 2), and the long
term portion of the Term Loan.                                        

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Long-term debt matures as follows:                                    

                                                        [Enlarge/Download Table]

FISCAL                                                         JUNIOR      OTHER    FOREMAN            
YEAR                    SUBORDINATED    TERM    PIFCO LOAN  SUBORDINATED   NOTES     NOTE              
ENDED                      NOTES        LOAN       NOTES        NOTE      PAYABLE   PAYABLE     TOTAL  
                                                                                                       
2002                                  $ 18,750                            $     30  $  2,750  $ 21,530 
2003                                    18,750                                   5    21,037    39,792 
2004                                    18,750                 $  9,864               19,459    48,073 
2005                      $125,000       9,375                                                 134,375 
2006                                             $ 11,271                                       11,271 
Thereafter                 148,325                                                             148,325 
                          --------    --------   --------      --------   --------  --------  -------- 
                          $273,325    $ 65,625   $ 11,271      $  9,864   $     35  $ 43,246   403,366 
                          ========    ========   ========      ========   ========  ========           
Less current maturities                                                                        (21,530)
                                                                                              -------- 
                                                                                              $381,836 
                                                                                              ======== 

     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. All required payments have been made.                

6.   DERIVATIVE FINANCIAL INSTRUMENTS                                           

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

   At 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 million notional amount of      
indebtedness. This resulted in approximately 70% of the Company's     
    underlying debt being subject to variable interest rates. The $150 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 30, 2001, the Company's
   balance sheet included approximately $376,000 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.                                                      

7.   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 give effect
to the split.                                                         

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   On July 28, 1998, the Company issued $40 million of convertible preferred
  stock in connection with a Stock Purchase Agreement dated July 15, 1998.
    The convertible preferred stock is non-dividend bearing and is 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 issuance, two individuals
    representing the purchasers of the preferred stock were appointed to serve
on the Company's Board of Directors.                                  

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.                                        

8.   EARNINGS PER SHARE                                                         

(IN THOUSANDS, EXCEPT              YEAR ENDED       YEAR ENDED       YEAR ENDED 
EARNINGS PER SHARE)              JUNE 30, 2001     JULY 1, 2000    JUNE 26, 1999

Net Income*                           $ 46,154         $ 91,816         $ 34,543
Average common shares outstanding       11,750           11,221           10,760
Earnings per share-basic              $   3.93         $   8.18         $   3.21
Dilutive stock equivalents               4,315            4,305            3,802
Average common and common equivalent                                            
shares outstanding                      16,065           15,526           14,562
Earnings per share-diluted            $   2.87         $   5.91         $   2.37

* 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 30, 2001 and July 1, 2000, but were not included in the
    computation of diluted EPS because the options are contingent upon certain
   external factors. Options to purchase 486,293 shares of common stock were
   outstanding at June 30, 2001, 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.                                    

9.   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 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 $585,000, $307,000, and $95,000, in fiscal
     2001, 2000, and 1999, 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 $287,000 was made in fiscal 2000.                       

 The Company has two defined benefit plans that were assumed in the 1999
    acquisition of Toastmaster and cover substantially all of the employees of
Toastmaster as of the date the plans were curtailed. The plans' assets
consist of a balanced 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              

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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:                     

                                                                [Download Table]

(IN THOUSANDS)                                    JUNE 30, 2001  JULY 1, 2000

                                                                             
Change in benefit obligation:                                                
  Benefit obligation at beginning of year            $  9,806      $ 11,748  
  Service cost                                             --           322  
  Interest cost                                           737           788  
  Actuarial (gain)/loss                                   814        (1,217) 
  Curtailment gain                                         --        (1,009) 
  Benefits paid and expenses                           (1,222)         (826) 
                                                     --------      --------  

  Benefit obligation at end of year                  $ 10,135      $  9,806  
                                                     ========      ========  

Change in plan assets:                                                       
  Fair value of plan assets at beginning of year     $ 12,694      $ 11,050  
  Actual return on plan assets                         (1,564)        1,792  
  Employer contribution                                   285           678  
  Benefits paid from plan assets                       (1,222)         (826) 
                                                     --------      --------  

  Fair value of plan assets at end of year           $ 10,193      $ 12,694  
                                                     ========      ========  

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                             JUNE 30, 2001  JULY 1, 2000 

                                                                                       
Funded status                                                $       58     $    2,888 
Unrecognized net actuarial (gain)/loss                            1,666         (1,896)
Unrecognized transitional asset                                      --                
Unrecognized prior service cost                                      --                
Additional pension liability in excess of                                              
  unrecognized prior service cost                                  (837)            -- 
                                                             ----------     ---------- 
Prepaid pension cost recorded in prepaid                                               
  expenses in the accompanying consolidated balance sheet    $      887     $      992 
                                                             ==========     ========== 
Weighted average assumptions:                                                          
  Discount rate                                                    7.50%          7.75%
  Rate of increase in compensation                                 5.00%          5.00%
  Expected return on plan assets                                   9.00%          9.00%

Components of net periodic pension cost:                                               
  Service cost benefits earned during the year               $       --     $      323 
  Interest cost on projected benefit obligation                     737            788 
  Actuarial return on plan assets                                (1,136)        (1,021)
  Curtailment gain                                                   --         (1,009)
  Net amortization and deferral                                     (49)            -- 
                                                             ----------     ---------- 

Net pension benefit                                          $     (448)    $     (919)
                                                             ==========     ========== 

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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 one plan, representing the excess of accumulated benefits over
   the plan assets and accrued pension costs, was recognized at June 30, 2001,
  with the balance recorded as a separate reduction of stockholders' equity,
net of deferred tax effect.                                             

10. 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:        

                                                                [Download Table]

(IN THOUSANDS, EXCEPT PER SHARE DATA)     2001        2000        1999   

                                                                         
Net income:                                                              
  As reported                          $   46,154  $   91,816  $   34,543
  Pro forma                                40,647      85,266      33,241
Net income per common share: Basic                                       
  As reported                          $     3.93  $     8.18  $     3.21
  Pro forma                                  3.46        7.60        3.09
Net income per common share: Diluted                                     
  As reported                                2.87        5.91        2.37
  Pro forma                                  2.53        5.49        2.28

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.                 

   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:

                                                                [Download Table]

                             2001        2000        1999   

                                                            
Dividend yield                 0.00%       0.00%       0.00%
Expected volatility           64.15%      61.45%      60.60%
Risk-free interest rate        5.07%       6.50%       6.16%
Expected life of options  7.56 years  7.98 years  7.81 years

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 A summary of the Company's fixed stock options for the fiscal years ended
June 30, 2001, July 1, 2000, and June 26, 1999, is as follows:          

                                                        [Enlarge/Download Table]

                                           2001                 2000                  1999         
                                               WEIGHTED              WEIGHTED              WEIGHTED
                                               AVERAGE               AVERAGE               AVERAGE 
                                   SHARES      EXERCISE  SHARES      EXERCISE  SHARES      EXERCISE
                                    (000)       PRICE     (000)       PRICE     (000)       PRICE  

                                                                                                   
Outstanding at                                                                                     
  beginning of year                  1,688      $ 17.88    1,101      $  7.83    1,126      $  6.06
Granted                                501        17.18      745        30.36      337        16.74
Exercised                              (24)       10.91     (158)        6.64     (270)        5.47
Expired or Canceled                     (1)                                       (459)            
                                   -------               -------               -------             
Outstanding at                                                                                     
  end of year                        2,164        17.77    1,688        17.88      734        11.75
                                   =======               =======               =======             
Options exercisable at                                                                             
  end of year                        1,599        16.12    1,038         9.39      461         5.99
Weighted-average fair value of                                                                     
  options granted during the year                 11.37                 24.05                 12.09

   The shares outstanding at the beginning of the year for fiscal 2000 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
30, 2001:                                                               

                                                                [Download Table]

                          OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                   WEIGHTED-                                  
                                    AVERAGE     WEIGHTED-            WEIGHTED-
                                   REMAINING     AVERAGE              AVERAGE 
                          SHARES  CONTRACTUAL   EXERCISE   SHARES    EXERCISE 
RANGE OF EXERCISE PRICES  (000)   LIFE (YEARS)    PRICE     (000)      PRICE  

                                                                              
$0.583  - $1.667             234      3.86       $ 1.63       234      $ 1.63 
$2.292  - $5.833              38      5.94         5.23        38        5.23 
$6.333  - $8.167             378      5.54         7.73       378        7.73 
$13.917 - $17.50             758      8.77        15.64       488       15.35 
$27.375 - $37.00             756      8.47        31.01       461       32.06 
                          ------                           ------      ------ 

$0.583 - $37.00            2,164       N/A       $17.77     1,599      $16.12 
                          ======                           ======             

11. RELATED PARTY TRANSACTIONS                                                  

The Company purchased inventory from Applica, Inc. of approximately     
$6,953,000, $26,408,000, and $32,340,000, in fiscal years ended June 30,
    2001, July 1, 2000, and June 26, 1999, respectively. Applica owned shares of
 Salton common stock until July 1998 at which time the Company repurchased
the shares (see Note 4).                                                

The Company purchased inventory from Markpeak, Ltd. ("Markpeak"), a Hong
Kong company, including commissions, of approximately $3,579,000,       
$184,955,000, and $187,925,000, in fiscal years 2001, 2000, and 1999,   
 respectively. The Company had a receivable from Markpeak of approximately
   $19,117,000 and $9,881,000 at June 30, 2001 and July 1, 2000, respectively.
   The Company owed Markpeak approximately $3,683,000 and $473,000 at June 30,
2001 and July 1, 2000, respectively. Markpeak acted as a buying agent   

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   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 $502,000, $413,000, and
$498,000 in fiscal 2001, 2000, and 1999, respectively. A director of the
   Company was a co-founder of SDC. The Company owed approximately $81,000 and
$90,000 for current commissions at June 30, 2001 and July 1, 2000,      
respectively.                                                           

12. COMMITMENTS AND CONTINGENCIES                                               

The Company leases certain facilities and equipment under long-term     
operating leases. Rental expense under all leases was approximately     
  $8,386,000, $5,769,000, and $3,474,000 for the fiscal years ended June 30,
2001, July 1, 2000, and June 26, 1999, respectively.                    

  The future minimum rental commitments as of June 30, 2001 were as follows:

                                                                [Download Table]

FISCAL YEAR ENDED                                         
(DOLLARS IN THOUSANDS)                                    

                                                          
2002                                               $ 7,017
2003                                                 5,050
2004                                                 4,034
2005                                                 2,968
2006                                                 2,674
Thereafter                                           8,201
                                                   -------
Total                                              $29,944
                                                   =======

   The Company has employment agreements with its four executive officers that
  are in effect until December 30, 2002. 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 Company's aggregate annual commitment for future
   salaries at June 30, 2001, excluding bonuses, was approximately $1,870,000.

   The Company has license agreements with White Consolidated Industries, Inc.
  ("White Consolidated"), which require minimum royalty payments through the
    year 2011. In fiscal 2001, 2000 and 1999, royalty payments were in excess of
 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 $8,012,000 in fiscal
  2001, $24,779,000 in fiscal 2000 and $43,918,000 in fiscal 1999. Royalties
    paid in fiscal 2000 decreased from fiscal 1999 due to the acquisition of the
George Foreman Trademark (see Note 2).                                  

13. LEGAL PROCEEDINGS                                                           

LITIGATION - In September 1999, Linda Evans Fitness Centers, Inc. (the  
"Fitness Centers"), Mark Golub and Thomas Gergley filed suit against the
Company and its principal executive officers alleging that the Company  
 tortuously interfered with a contract between the Fitness Centers and Ms.
  Evans by hiring Ms. Evans to act as a spokesperson for the Rejuvenique(TM)
facial toning system. Before Ms. Evans was                              

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    hired by the Company, Ms. Evans had brought suit against the Fitness Centers
   seeking a determination that her contract with the Fitness Centers had been
  terminated on the basis of fraud and the failure of the Fitness Centers to
make certain payments. The Company believes that it has valid defenses  
against the claims made against it by the Fitness Centers. Ms. Evans has
   agreed to indemnify the Company against matters relating to her services to
the Company.                                                            

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

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 our "George Foreman Jr."
rotisserie grills were infringing two of AdVantage's patents. AdVantage 
sought a permanent injunction against sale of George Foreman rotisserie 
grills utilizing the inventions claimed by those patents and unspecified
monetary damages including a request for treble damages. These patents  
relate to accessory products for rotisserie ovens including spit rod and
   basket assemblies. The Company filed an answer and counterclaim denying the
   allegations of the complaint and asserting a number of affirmative defenses
 and request for declaratory relief. AdVantage had also sought preliminary
    injunctive relief; however, on August 24, 2001, the court denied AdVantage's
  motion. On August 28, 2001, AdVantage filed a notice of appeal to the U.S.
Court of Appeals for the Federal Circuit to review the preliminary      
injunction.                                                             

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

 ENVIRONMENTAL - The Company is participating in environmental remediation
 activities at four sites, which it owns or operates. As of June 30, 2001,
   the Company has accrued approximately $150,000 for the anticipated costs of
  investigation, remediation and/or operation and maintenance costs at these
 sites. Although such costs could exceed that amount, 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 its normal business operations. The Company believes that the
 outcome of such litigation will not have a material adverse effect on the
financial condition or annual results of operations of the Company. The 
   Company also has product liability and general liability insurance policies
    in amounts it believes to be reasonable given its current level of business.

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14. OPERATING SEGMENTS                                                          

    The Company consists of a single operating segment that designs, markets and
distributes housewares, including small 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 -                                       

                                                                [Download Table]

(IN THOUSANDS)                       JUNE 30, 2001  JULY 1, 2000  JUNE 26, 1999

                                                                               
Small appliances                      $   714,125    $   742,774   $   459,621 
Salton at Home                             59,793         60,709        34,875 
Personal care and wellness products        18,196         33,819        11,620 
                                      -----------    -----------   ----------- 

Total                                 $   792,114    $   837,302   $   506,116 
                                      ===========    ===========   =========== 

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 11%,
 12%, and 16%, of total net sales of the Company in fiscal 2001, 2000, and
1999, respectively.                                                     

On March 30, 1999, the Company 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 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 30, 2001, July 1, 2000, and June 26, 1999
    were 47%, 46%, and 50% of total net sales in these periods, respectively. In
   addition to Kmart, one customer accounted for 12%, 13%, and 9% of total net
 sales during the fiscal years ended June 30, 2001, July 1, 2000, and June
26, 1999, respectively, while another customer accounted for 9%, 7%, and
10%, 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 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 2001, 2000 and 1999, one supplier located in China accounted
for approximately 35%, 38.0% and 57.3% of our product purchases.        

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15. INCOME TAXES                                                                

Federal, state and foreign taxes were approximately as follows:         

                                                                [Download Table]

                             FISCAL YEARS ENDED             
                --------------------------------------------
(In Thousands)  JUNE 30, 2001   JULY 1,2000     JUNE 26,1999
                                                            
Federal                                                     
  Current        $    19,039     $    44,514     $     9,778
  Deferred             1,271           1,521           3,605

State                                                       
  Current              3,999           7,954           2,529
  Deferred               253             272             504

Foreign                                                     
  Current              3,130             826           2,904
  Deferred                                                  
                 -----------     -----------     -----------
Total            $    27,692     $    55,087     $    19,320
                 ===========     ===========     ===========

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

                                                                [Download Table]

(IN THOUSANDS)                           JUNE 30, 2001    JULY 1,2000  

                                                                       
Allowance for doubtful accounts           $     2,015      $     1,945 
Interest                                        1,452                  
Depreciation and amortization                  (2,388)          (2,529)
Other deferred items, net                        (780)              53 
Net operating loss carry-forward                    0            1,109 
Accrued liabilities                             3,063              317 
Inventory reserves and capitalization          (1,359)              64 
AMT credit carryforward                           123              225 
                                          -----------      ----------- 

Net deferred tax asset                    $     2,126      $     1,184 
                                          ===========      =========== 

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

                                                                [Download Table]

                                                  FISCAL YEARS ENDED                
                                   -------------------------------------------------
(IN THOUSANDS)                     JUNE 30, 2001     JULY 1, 2000      JUNE 26, 1999

                                                                                    
Statutory federal income tax rate          35.0%             35.0%             35.0%
Effective state tax rate                    4.2               3.9               3.5 
Permanent differences                       1.2               0.4               0.2 
Effect of foreign tax rate                 (3.8)             (1.4)             (1.9)
Other                                       0.9              (0.4)             (0.9)
                                    -----------       -----------       ----------- 

Effective income tax rate                 37.50%            37.50%            35.90%
                                    ===========       ===========       =========== 

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    U.S. income taxes were not provided on certain unremitted earnings of Salton
    Hong Kong, Ltd. which the Company considers to be permanent investments. The
   cumulative amount of U.S. income taxes which have not been provided totaled
approximately $7,354,000.                                               

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)                                 

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

                                                                [Download Table]

                              FIRST     SECOND      THIRD     FOURTH   
                             QUARTER    QUARTER    QUARTER    QUARTER  

                                                                       
2001                                                                   
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                                                                   
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 

*   During the fourth quarter of fiscal year 2001, the Company recorded a       
 reduction in inventory of approximately $8.2 million for inventory losses
and an additional $5.1 million in LIFO and other valuation adjustments. 

17. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION                            

    The payment obligations of the Company under the 12 1/4% senior subordinated
  notes (see Note 5) 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 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 BALANCE SHEET AS OF JULY 1, 2000                                  
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                      GUARANTOR       OTHER                                  CONSOLIDATED
                                                     SUBSIDIARIES  SUBSIDIARIES  SALTON, INC.  ELIMINATIONS     TOTALS   
                                                     ------------  ------------  ------------  ------------  ------------
                                                                                                                         
                        ASSETS                                                                                           
Current Assets:                                                                                                          
  Cash                                                 $     125     $     951    $   6,530             --     $   7,606 
  Accounts receivable                                     27,038        12,224       90,588             --       129,850 
  Inventories                                             62,569         7,313      149,348             --       219,230 
  Prepaid expenses and other current assets                3,088           262        6,796                       10,146 
  Intercompany                                           (17,506)       41,023      (23,517)            --            -- 
  Deferred income taxes                                    1,985            --        1,728                        3,713 
                                                       ---------     ---------    ---------      ---------     --------- 
     Total current assets                                 77,299        61,773      231,473             --       370,545 
Property, Plant and Equipment, Net of                                                                                    
   Accumulated Depreciation                               17,463         2,899       14,281             --        34,643 
Investments in Subsidiaries                                 (225)           --       49,524        (49,299)           -- 
Patents and Trademarks, Net of                                                                                           
  Accumulated Amortization                                12,025            --      115,049             --       127,074 
Other Intangibles, Net of Accumulated Amortization,                                                                      
  and Other Non-current Assets                            12,935         6,348       12,731             --        32,014 
                                                       ---------     ---------    ---------      ---------     --------- 
Total Assets                                           $ 119,497     $  71,020    $ 423,058      $ (49,299)    $ 564,276 
                                                       =========     =========    =========      =========     ========= 

         LIABILITIES AND STOCKHOLDERS' EQUITY                                                                            
Current Liabilities:                                                                                                     
  Revolving line of credit and other current debt      $  68,437     $      --    $  43,718      $      --     $ 112,155 
  Accounts payable                                         5,904         7,382       21,827             --        35,113 
  Accrued expenses                                        10,540         1,548        8,940             --        21,028 
  Income taxes payable                                    (5,705)        8,419        1,864             --         4,578 
                                                       ---------     ---------    ---------      ---------     --------- 
     Total current liabilities                            79,176        17,349       76,349             --       172,874 
Non-current Deferred Income Taxes                            779            --        1,750             --         2,529 
Senior subordinated notes due 2005                            --            --      125,000             --       125,000 
Other notes payable                                       43,914            --       46,151             --        90,065 
                                                       ---------     ---------    ---------      ---------     --------- 
     Total liabilities                                   123,869        17,349      249,250             --       390,468 
Stockholders' Equity                                      (4,372)       53,671      173,808      $ (49,299)      173,808 
                                                       ---------     ---------    ---------      ---------     --------- 
Total Liabilities and Stockholders' Equity             $ 119,497     $  71,020    $ 423,058      $ (49,299)    $ 564,276 
                                                       =========     =========    =========      =========     ========= 

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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 
                                                =========     =========     =========     =========     ========= 

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 EARNINGS FOR THE YEAR ENDED JUNE 26, 1999            
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                               GUARANTOR       OTHER                                  CONSOLIDATED
                                              SUBSIDIARIES  SUBSIDIARIES  SALTON, INC.  ELIMINATIONS     TOTALS   
                                              ------------  ------------  ------------  ------------  ------------
                                                                                                                  

Net Sales                                       $  53,513     $  35,528    $ 433,865      $ (16,790)    $ 506,116 
Cost of Goods Sold                                 41,060        12,196      243,060        (10,790)      285,526 
Distribution Expenses                               4,158           173       17,290             --        21,621 
                                                ---------     ---------    ---------      ---------     --------- 
    Gross Profit                                    8,295        23,159      173,515         (6,000)      198,969 
Selling, General and Administrative expenses       10,493         4,483      120,612         (6,000)      129,588 
                                                ---------     ---------    ---------      ---------     --------- 
    Operating Income (Loss)                        (2,198)       18,676       52,903             --        69,381 
Interest Expense, Net                                  14           114      (15,646)            --       (15,518)
Equity in Earnings of Subsidiaries                      9            --       14,324        (14,333)           -- 
                                                ---------     ---------    ---------      ---------     --------- 
    Income (Loss) Before Income Taxes              (2,175)       18,790       51,581        (14,333)       53,863 
Income Tax Expense (Benefit)                         (622)        2,904       17,038             --        19,320 
                                                ---------     ---------    ---------      ---------     --------- 
    Net Income (Loss)                           $  (1,553)    $  15,886    $  34,543      $ (14,333)    $  34,543 
                                                =========     =========    =========      =========     ========= 

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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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CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JUNE 26, 1999              
(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                                GUARANTOR       OTHER                                 CONSOLIDATED
                                                               SUBSIDIARIES  SUBSIDIARIES  SALTON, INC. ELIMINATIONS      TOTALS  
                                                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                             
   Net income (loss)                                           $   (1,553)   $   15,886    $   34,543    $  (14,333)   $   34,543 
   Adjustments to reconcile net income (loss) to net cash                                                                         
     used in operating activities                                                                                                 
      Imputed interest on note payable                                 --            --                          --            -- 
      Deferred income tax provision                                 3,209            --           900            --         4,109 
      Depreciation and amortization                                 2,283            75         4,943            --         7,301 
      Equity in net income of investees and                                                                                       
       consolidated subsidiaries                                       (9)           --       (14,324)       14,333            -- 
      Purchase reduction of note payable                                                                                          
       and other non cash items                                        --            --          (208)           --          (208)
      Changes in assets and liabilities, net of acquisitions:                                                                     
        Accounts receivable                                        14,605       (14,208)      (12,573)           --       (12,176)
        Inventories                                                (5,807)         (222)      (20,377)           --       (26,406)
        Prepaid expenses and other current assets                     (52)          (64)       (1,249)           --        (1,365)
        Intercompany                                               13,687           586       (14,273)           --            -- 
        Accounts payable                                           (3,928)          959        17,685            --        14,716 
        Taxes payable                                              (3,853)        3,317        (3,754)           --        (4,290)
        Accrued expenses                                           (3,519)         (116)        2,603            --        (1,032)
                                                               ----------    ----------    ----------    ----------    ---------- 
            NET CASH FROM OPERATING ACTIVITIES                     15,063         6,213        (6,084)           --        15,192 
                                                               ----------    ----------    ----------    ----------    ---------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                             
        Capital expenditures                                         (895)          (28)       (4,467)           --        (5,390)
        Acquisition of business, net of cash acquired               6,119            65      (114,310)           --      (108,126)
                                                               ----------    ----------    ----------    ----------    ---------- 
           NET CASH FROM INVESTING ACTIVITIES                       5,224            37      (118,777)           --      (113,516)
                                                               ----------    ----------    ----------    ----------    ---------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                             
        Net (repayments) of revolving line of credit              (20,000)           --          (475)           --       (20,475)
        Repayment of long-term debt                                  (125)           --       (90,000)           --       (90,125)
        Proceeds from long-term debt                                   --            --       260,000            --       260,000 
        Repayment of other debt                                      (125)           --            --                        (125)
        Costs associated with refinancing                              --            --        (8,065)           --        (8,065)
        Common stock issued                                            --            --         1,489            --         1,489 
        Preferred stock issued                                         --            --        40,000                      40,000 
        Costs associated with preferred stock issuance                 --            --        (2,999)                     (2,999)
        Treasury stock purchase                                        --            --       (70,799)           --       (70,799)
                                                               ----------    ----------    ----------    ----------    ---------- 
        NET CASH FROM FINANCING ACTIVITIES                        (20,250)           --       129,151            --       108,901 
                                                               ----------    ----------    ----------    ----------    ---------- 
The effect of exchange rate changes on cash                            --             2            --            --             2 
Cash, beginning of the period                                          --           498           163            --           661 
Net Change in Cash                                                     37         6,252         4,290            --        10,579 
                                                               ----------    ----------    ----------    ----------    ---------- 
Cash, end of period                                            $       37    $    6,750    $    4,453    $       --    $   11,240 
                                                               ==========    ==========    ==========    ==========    ========== 

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18.    SUBSEQUENT EVENTS                                                        

     WESTCLOX, BIG BEN AND SPARTUS BRANDS - On Aug. 7, 2001 Salton announced
     that it acquired the trademarks, other intellectual property assets and
      molds, intellectual property, rights and patents related to these brands
    for $9.8 million 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.                                                          

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

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 PART II

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 2001 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 2001    
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 2001
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 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 2001 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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                                                                [Download Table]

                                                                            Page
SALTON                                                                          
                                                                                
Independent Auditors' Report                                                  45
Consolidated Balance Sheets as of June 30, 2001 and July 1, 2000              46
Consolidated Statements of Earnings for the Years Ended                         
         June 30, 2001, July 1, 2000 and June 26, 1999                        47
Consolidated Statements of Stockholders' Equity for the Years Ended             
         June 30, 2001, July 1, 2000 and June 26, 1999                        48
Consolidated Statements of Cash Flows for the Years Ended                       
         June 30, 2001, July 1, 2000 and June 26, 1999                        49
Notes to the Consolidated Financial Statements                                51

(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                             80

   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                                       

        (i)      Current Report on Form 8-K dated September 13, 2001 reporting
                 under Item 5 Other Events the announcement of our fiscal 2001
financial results.                          

        (ii)     Current Report on Form 8-K dated June 4, 2001 reporting under
          Item 5 Other Events the Company's acquisition of Pifco
                  Holdings PLC and our execution of a $150 million interest rate
swap agreement                              

        (iii)    Current Report on Form 8-K dated May 10, 2001 reporting under
             Item 5 Other Events the announcement of our third quarter
results.                                    

       (iv)     Current Report on Form 8-K dated May 2, 2001 reporting under
                 Item 5 Other Events our recommended cash offer to acquire the
entire issued capital of Pifco Holdings PLC.

         (v)      Current Report on Form 8-K dated April 9, 2001 reporting under
               Item 5 Other Events our preliminary third quarter estimates
                  and our intention to issue $150 million of senior subordinated
notes.                                      

      (vi)     Current Report on Form 8-K dated February 6, 2001 reporting
               under Item 5 Other Events the announcement of our financial
results for second quarter.                 

     (vii)    Current Report on Form 8-K dated January 8, 2001 reporting
                 under Item 5 Other Events the announcement of our preliminary
expectations for the second quarter.        

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      (viii)   Current Report on Form 8-K dated November 8, 2000 reporting
                 under Item 5 Other Events the announcement of our fiscal 2001
first quarter earnings 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 25th day of      
September, 2001.                                                                

                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 25, 2001.                              

                                                        [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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  The following pages contain the Financial Statement Schedules as
specified by 12(a) and 14(a)(2) of Part IV of Form 10-K. The report of Deloitte 
& Touche LLP with respect to the schedule required by 14(a)(2) appears at page  
45 of this Form 10-K                                                            

 EXHIBIT 12(a)

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

                                                        [Enlarge/Download Table]

                                                                          YEAR ENDED                    
(THOUSANDS, EXCEPT RATIOS)                               2001      2000       1999      1998      1997  
                                                       --------  --------   --------  --------  --------
                                                                                                        
Fixed Charges                                                                                           
  Interest and amortization of debt issuance costs on                                                   
  all indebtedness                                     $ 39,043  $ 31,102   $ 15,864  $  7,336  $  4,967
  Add interest element implicit in rentals                3,724     1,923      1,158       521       394
                                                       --------  --------   --------  --------  --------
   Total fixed charges                                 $ 42,767  $ 33,025   $ 17,022  $  7,857  $  5,361
Income                                                                                                  
  Income before income taxes                           $ 73,846  $146,903   $ 53,863  $ 32,186  $  6,400
  Add fixed charges                                      42,767    33,025     17,022     7,857     5,361
                                                       --------  --------   --------  --------  --------
  Income before fixed charges and income taxes         $116,613  $179,928   $ 70,885  $ 40,043  $ 11,761
                                                       ========  ========   ========  ========  ========
Ratio of earnings to fixed charges                         2.73      5.45       4.16      5.10      2.19

 VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JUNE 30, 2001

SALTON, INC.

                                                        [Enlarge/Download Table]

                                                          CHARGED TO                                     
                                                          NET SALES,                                     
                                          BEGINNING       COSTS AND                            ENDING    
                                           BALANCE        EXPENSES           DEDUCTIONS        BALANCE   
                                      ---------------  ---------------  ---------------   ---------------
                                                                                                         
Year Ended June 27, 1998:                                                                                
  Allowance for returns,                                                                                 
    allowances and doubtful accounts  $     2,400,000  $    21,752,000  $   (21,152,000)  $     3,000,000
Year Ended June 26, 1999:                                                                                
  Allowance for returns,                                                                                 
    allowances and doubtful accounts  $     3,000,000  $    31,606,000  $   (28,504,000)  $     6,102,000
Year Ended July 1, 2000:                                                                                 
  Allowance for returns,                                                                                 
    allowances and doubtful accounts  $     6,102,000  $    45,593,000  $   (44,584,000)  $     7,111,000
Year Ended June 30, 2001:                                                                                
  Allowance for returns,                                                                                 
    allowances and doubtful accounts  $     7,111,000  $    47,854,000  $   (45,742,000)  $     9,223,000

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EXHIBIT NUMBER  DESCRIPTION OF DOCUMENT                                                               
--------------  -----------------------                                                               
                                                                                                      
     3.1        Amended and Restated Certificate of Incorporation of Registrant. Incorporated         
                by reference to the Registrant's Registration Statement on Form S-1                   
                (Registration No. 33-42097).                                                          

     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).                                                      

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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.                                                                    

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.                                                  

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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.                                                                                    

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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.                                 

10.25  Agreement effective January 12, 2000, between Salton, Inc. and William B.                    
       Rue.  Incorporated by reference to Registrant's Quarterly Report on Form 10-Q                
       for the fiscal quarter ended March 28, 2000.                                                 

10.26  Agreement effective January 12, 2000, between Salton, Inc. and Leonard                       
       Dreimann.  Incorporated by reference to Registrant's Quarterly Report on Form                
       10-Q for the fiscal quarter ended March 28, 2000.                                            

10.27  Agreement effective January 12, 2000, between Salton, Inc. and David Sabin.                  
       Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for                  
       the fiscal quarter ended March 28, 2000.                                                     

10.28  Agreement effective January 12, 2000, between Salton, Inc. and John E.                       
       Thompson.  Incorporated by reference to Registrant's Quarterly Report on Form                
       10-Q for the fiscal quarter ended March 28, 2000.                                            

10.29  Agreement dated as of September 7, 2000 between Salton and George Foreman.                   
       Incorporated by reference to the Current Report on Form 8-K dated September 7, 2000.         

10.30  Agreement dated as of September 7, 2000 between Salton and Sam Perlmutter.                   
       Incorporated by reference to Registrant's Current Report on Form 8-K dated September 7, 2000.

10.31  Agreement dated as of September 7, 2000 between Salton and Michael Srednick.                 
       Incorporated by reference to Registrant's Current Report on Form 8-K dated September 7, 2000.

10.32  The Salton, Inc. 1999 Employee Stock Option Plan. Incorporated by reference to               
       the Registrant's Definitive Proxy Statement on Schedule 14A filed December 9, 1999.          

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10.33  Salton, Inc. 2001 Employee Stock Option Plan                                  

10.34  Third amended and restated credit agreement among Salton, as borrower, the    
       several lenders from time to time parties thereto, Lehman Brothers, Inc., as  
       arranger, Firstar Bank, N.A. as syndication agent, Lehman Commercial Paper    
       Inc., as syndication agent, and Fleet National Bank, as documentation agent   
       dated as of September 26, 2000.  Incorporated by reference to the Quarterly   
       Report on Form 10-Q for the fiscal quarter ended September 30, 2001.          

10.35  First Amendment, dated as of April 13, 2001, to the third amended and restated
       credit agreement, dated as of September 26, 2000 among the Registrant, the    
       several banks and financial institutions or entities parties thereto, Lehman  
       Brothers Inc., as advisor and book runner, Firstar Bank, N.A., as syndication 
       agent, Lehman Commercial Paper Inc., as administrative agent, and Fleet       
       National Bank, N.A., as documentation agent.  Incorporated by reference to    
       Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001.    

21.1   Subsidiaries of the Company. Incorporated by reference to the Registrant's    
       Registration Statement on Form S-4 (Registration No. 333-63296).              

23.1   Consent of Deloitte & Touche LLP                                              

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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		9/30/11		26
		9/15/08		31
		4/15/08		81
		10/31/07		27
		10/30/07		26
		9/30/07		27
		11/30/06		26
		6/30/06		53
		12/15/05		42
		4/30/05		27
		10/31/04		26
		8/31/04		27
		6/30/04		21
		5/31/04		27
		1/7/04		39		57
		7/28/03		30
		7/15/03		31
		12/30/02		63
		10/31/02		26
		6/30/02		21		54
		6/29/02		38					10-K
		5/31/02		26
		4/30/02		27
		3/14/02		26
		2/28/02		16
		12/31/01		27
		12/15/01		41		53
		10/15/01		26
		9/30/01		85
Filed on:		9/28/01
		9/25/01		1		79			SC 13D/A
		9/21/01		31
		9/20/01		30
		9/17/01		1
		9/13/01		77					8-K
		9/10/01		45
		8/28/01		28		64
		8/24/01		28		64
		8/9/01		28		64
		8/8/01		16		33
		8/7/01		18		75
		7/9/01		34
		7/2/01		17		75
For Period End:		6/30/01		1		80
		6/4/01		34		77			8-K
		6/1/01		10		34
		5/10/01		77					8-K
		5/2/01		53		77			8-K
		4/23/01		57		81
		4/13/01		85
		4/9/01		77					8-K
		3/31/01		40		85			10-Q
		2/6/01		77					8-K
		1/28/01		8
		1/23/01		28		64
		1/12/01		18
		1/8/01		77					8-K
		12/30/00		50		54			10-Q
		11/8/00		78					8-K
		9/30/00		40		56			10-Q
		9/26/00		85
		9/21/00		12
		9/8/00		18
		9/7/00		17		84			8-K
		7/20/00		18
		7/19/00		12
		7/1/00		10		80			10-K405
		3/28/00		84
		3/25/00		50					10-Q
		1/12/00		84					424B3
		12/25/99		39		84			10-Q
		12/10/99		84					8-K,  RW,  S-3
		12/9/99		17		84			8-K,  DEF 14A
		12/6/99		59
		11/9/99		17					10-Q
		10/31/99		60
		10/30/99		60
		10/6/99		54
		7/28/99		29		58
		7/14/99		37		58
		7/1/99		17		84
		6/28/99		52		58
		6/26/99		10		80			10-K405
		4/5/99		11
		3/31/99		54
		3/30/99		65
		3/26/99		39
		2/26/99		29
		2/25/99		29					S-8
		1/7/99		10		54
		12/16/98		56
		12/2/98		83					DEF 14A
		9/26/98		50					10-Q
		7/28/98		30		83			8-K
		7/27/98		83
		7/15/98		59		83			8-K
		6/27/98		31		83			10-K,  10-K/A
		5/6/98		56		83			8-K
		12/19/97		82		83
		6/28/97		31					10-K
		1/31/97		65
		1/27/97		82
		12/28/96		82					10-Q,  10-Q/A
		7/1/96		82					8-K
		5/21/96		82
		2/1/96		82
		12/30/95		82
		12/15/95		61
									List all Filings