UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

OR

COMMISSION FILE NUMBER 0-19557

SALTON, INC.

(954) 883-1000(Registrant’s Telephone Number, Including Area Code)

Former Name, If Changed Since Last Report:
Not Applicable

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last day of the second fiscal quarter ended December 31, 2007 was approximately $12.2 million based on the closing stock price of $0.21 on December 31, 2007.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s Definitive Proxy Statement for its 2008 Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to General Instruction G(3) of the Form 10-K. Information from such Definitive Proxy Statement will be incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 hereof.

 

          As used in this Annual Report on Form 10-K, “we”, “our”, “us”, the “Company” and “Salton” refer to Salton, Inc. and our subsidiaries, unless the context otherwise requires.

          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. Such statements are indicated by words or phrases such as “anticipates”, “projects”, “management believes”, “Salton believes”, “intends”, “expects”, and similar words or phrases. Such forward-looking statements are subject to certain risks, uncertainties or assumptions and may be affected by certain other factors, including the specific factors set forth in Item 1A. “Risk Factors” below. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or our achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 in this paragraph. We disclaim any intention or obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Overview

          Based in Miramar, Florida, we are a leading marketer and distributor of a broad range of branded small household appliances. We market and distribute small kitchen and home appliances, pet and pest products, water products and personal care products. We have a broad portfolio of well recognized brand names, including Black & Decker^®, George Foreman^®, Russell Hobbs^®, Toastmaster^®, LitterMaid^® and Farberware^®. Our customers include mass merchandisers, specialty retailers and appliance distributors primarily in North America, South America, Europe and Australia.

          We manage our operations through one business segment.

          Our business strategy includes the following:

          Maximizing utility of our brand assets. We have a stable of world-class brands that we position against distinctive consumer segments. Our product strategies and marketing plans are tailored to the unique needs of our consumers allowing us to surpass their expectations.

          Leveraging innovation and strategic marketing to drive profitability. We drive revenues through innovation within our core appliance categories, using new technologies and new marketing platforms. We also intend to create new categories or grow categories through distinctive products and brand development.

          Creating long-term cost and quality advantages for our customers. We maintain a value chain for our customers that meets their cost and quality objectives by leveraging our growing competency in sourcing.

          Pursuing acquisitions. We seek to identify acquisitions that have the potential to enhance our range of product offerings and market reach.

          On December 28, 2007, our stockholders approved all matters necessary for the merger of SFP Merger Sub, Inc., a Delaware corporation and a wholly owned direct subsidiary of Salton (“Merger Sub”), with and into APN Holding Company, Inc, a Delaware corporation (“APN Holdco”) and the parent of Applica Incorporated, a Florida corporation (“Applica”). As a result of the merger, APN Holdco became a wholly-owned subsidiary of Salton. The merger was consummated pursuant to an Agreement and Plan of Merger dated as of October 1, 2007 by and among Salton, Merger Sub and APN Holdco.

          Immediately prior to the merger, Harbinger Capital Partners Master Fund I, Ltd. (the “Master Fund”) owned 75% of the outstanding shares of common stock of APN Holdco and Harbinger Capital Partners Special Situations Fund, L.P. (together with the Master Fund, “Harbinger Capital Partners”) owned 25% of the outstanding shares of common stock of APN Holdco. Pursuant to the merger agreement, all of the outstanding shares of common stock of APN Holdco held by Harbinger Capital Partners were converted into an aggregate of 595,500,405 shares of our common stock.

          In connection with the consummation of the merger, we amended the terms of our Series A Voting Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and the terms of our Series C Nonconvertible (Non-Voting) Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”), to provide for the automatic conversion immediately prior to the effective time of the merger of each share of Series A Preferred Stock into 2,197.49 shares of our common stock and of each share of Series C Preferred Stock into 249.56 shares of our common stock.

          Immediately prior to the effective time of the merger, Harbinger Capital Partners owned an aggregate of 30,000 shares of Series A Preferred Stock and 47,164 shares of Series C Preferred Stock. All of the outstanding shares of Series A Preferred Stock were converted at the effective time of the merger into an aggregate of 87,899,600 shares of our common stock (65,924,700 of which were issued to Harbinger Capital Partners). In addition, all of the outstanding shares of Series C Preferred Stock were converted at the effective time of the merger into an aggregate of 33,744,755 shares of our common stock (11,770,248 of which were issued to Harbinger Capital Partners).

          In connection with the consummation of the merger, and pursuant to the terms of a Commitment Agreement dated as of October 1, 2007 by and between us and Harbinger Capital Partners, Harbinger Capital Partners purchased from us 110,231.336 shares of a new series of our preferred stock, the Series D Nonconvertible (Non Voting) Preferred Stock (the “Series D Preferred Stock”), having an initial liquidation preference of $1,000 per share. Pursuant to the Commitment Agreement, Harbinger Capital Partners paid for the Series D Preferred Stock by surrendering to us $14,989,000 principal amount of our 12 ¹/4 % Series Subordinated Notes due 2008 (the “2008 Notes”) and $89,606,859 principal amount of our Second Lien Notes, together with all applicable change of control premiums and accrued and unpaid interest thereon through the closing of the merger.

          As of June 30, 2008, Harbinger Capital Partners beneficially owns approximately 94% of the outstanding shares of our common stock.

          Immediately prior to the effective time of the merger, we filed with the Secretary of State of Delaware an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock to one billion.

     See Note 2, Mergers and Acquisitions, of the consolidated financial statements included in Schedule I of this Annual Report on Form 10-K for further information on the merger.

          In connection with the consummation of the merger, we repaid in full all obligations and liabilities owing under: (i) that certain Amended and Restated Credit Agreement, dated as of May 9, 2003 and amended and restated as of June 15, 2004 (the “Wells Fargo Credit Agreement “), by and among the financial institutions identified on the signature pages thereof (the “Lenders”), Wells Fargo Foothill, Inc., as administrative agent and collateral agent for the Lenders, Silver Point Finance, LLC, as the co-agent, syndication agent, documentation agent, assigner and book runner, Salton, Inc., each of our subsidiaries identified on the signature pages thereof as Borrowers and each of our subsidiaries identified on the signature pages thereof as Guarantors; and (ii) that certain second lien Credit Agreement dated as of August 26, 2005 among the financial institutions named therein, as the lenders, The Bank of New York, as the agent, Salton, Inc. and each of our that were signatories thereto, as the borrowers, and each of our other subsidiaries that are signatories thereto, as guarantors.

          The pay-off of the Wells Fargo Credit Agreement included a make-whole fee of $14 million.

          In connection with the consummation of the merger, we entered into:

          We primarily distribute five categories of products: kitchen products, home products, pet products, personal care products and pest control products. The table below sets forth the approximate amounts and percentages of our consolidated net sales by product category during the periods shown.

          Although in legal form we acquired APN Holdco, after consummation of the merger, APN Holdco’s former stockholders held a majority of the outstanding common stock of the combined company. Accordingly, for accounting and financial statement purposes, the merger was treated as a reverse acquisition of our company by APN Holdco under the purchase method of accounting pursuant to U.S. generally accepted accounting principles. Pursuant to the requirements of SFAS No. 141, the information presented below represents the sales of APN Holdco for the periods presented and only includes the sales of Salton from the date of the consummation of the merger, which was December 28, 2007.

          The kitchen products group includes cooking, beverage and food preparation products and constitutes our largest product category. We provide customers with a broad product line in the small kitchen appliances market, primarily at mid to high-tier price points. Our products in this category include grills, kettles, toaster ovens, toasters,

blenders, can openers, coffee grinders, coffee makers, electric knives, jar openers, skillets, deep fryers, food choppers, food processors, hand mixers, rice cookers and steamers and other similar products. Significant brands for this category include Black & Decker®, George Foreman®, Russell Hobbs®, Juiceman® and Breadman®.

          The home products group includes garment care products, such as hand-held irons. Significant brands for this category include Black & Decker® and Russell Hobbs®. Home products also include water filtration devices under the Clear₂O® brand. We also distribute vacuum cleaners under the Black & Decker ® brand in Latin America.

          The pet product group includes the LitterMaid® Classic patented self-cleaning cat litter box and the newer LitterMaid ® Elite litter box, which contains innovative, consumer-driven features such as a sleep timer and a built-in ionic air cleaner. The LitterMaid ® product line also delivers a recurring revenue stream from consumable accessories, including privacy tents, litter carpets, charcoal filters, corn-based litter and replaceable waste receptacles, all specially designed for use with the LitterMaid ® automatic litter box.

          Our pest control products group includes pest control and repelling devices that use ultra-sonic or sub-sonic sound waves to control insects and rodents, primarily in homes. The core of the business is the ultrasonic direct plug-in pest repellers marketed under the Black & Decker ® brand name.

          Our personal care products group offers a broad range of personal care and wellness products including hair care, beauty and oral health care items. Significant brands for this category include Carmen®, Orva™ and Ultrasonex®.

          Our product development process is designed to better serve consumer needs and maximize our available resources. The process is focused on quality, design, appropriate performance characteristics and speed-to-market. We have product development teams dedicated to creating innovative products in and outside of our core categories. This internal process also helps us manage the improvement of quality, performance and cost of existing products.

          We also 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 marketplace requirements and changing consumer preferences. We design the style, features and functionality of our products to meet customer requirements for quality, performance, product mix and pricing.

          New products are those that require a new mold, have a new feature or benefit, or those that have not been in our product line in the previous 12 months. Adding features or providing a “fresh” look to existing products, either through design upgrades or creative packaging, is a necessity for maintaining consumer preferences, protecting existing retailer shelf space and maintaining acceptable price points. Some of the new products for the 2008 fiscal year included:

          Our portfolio contains many time-honored traditional brands, as well as recently established names, within the world-wide housewares industry. We believe this brand portfolio contains many brands with strong consumer recognition throughout the world. Our significant brands include:

          In addition, we own certain other brands, such as Salton®, Windmere®, Orva™, Star Academy™, Haden™, Ultrasonex® and Tower™, and sub-brands, including Gizmo ^TM , SmartBrew ^TM, Digital Advantage ^TM , Toast R Oven ^TM and Quick N’ Easy ^TM . We license the Spacemaker ^TM brand for under the cabinet kitchen appliances. We continue to develop new brands and sub-brands for product differentiation at the retail level.

          We license the Black & Decker® brand for use in marketing small household appliances in North America, Latin America (excluding Brazil) and the Caribbean. The major portion of our revenue is generated through the sale of Black & Decker® branded products, which represented approximately 67% of our total consolidated revenue in the 2008 fiscal year, 90% for the six months ended June 30, 2007, and 84% for the year ended December 31, 2006. (Pursuant to the requirements of SFAS No. 141, the information presented above represents the sales of APN Holdco for the periods presented and only includes the sales from the consummation of the merger, which was December 28, 2007.) We also license certain other brands for use in our product categories, including Farberware®.

          We continue to enhance our portfolio through licensing agreements and strategic alliances.

          We continue to pursue strategic alliances to further differentiate our products and to create growth opportunities. Such alliances may include brand development and product development alliances. Our current alliance with The Black & Decker Corporation encompasses brand development. We have worked closely with The Black & Decker Corporation to ensure that the Black & Decker ^® brand representation is seamless to the consumer.

          Substantially all of our finished products are acquired from third party suppliers, primarily in Asia. We purchase a significant amount of our finished products from two suppliers which accounted for approximately 47% of total purchases for the fiscal year ended June 30, 2008, 35% for the six months ended June 30, 2007 and 53% for the year ended December 31, 2006. We maintain supply contracts with many of our third party suppliers, which include standard terms for production, delivery, quality and indemnification for product liability claims. Specific production amounts are ordered by separate purchase orders.

          We manufacture and distribute products with features for which we have filed or obtained licenses for trademarks, patents and design registrations in the United States and in several foreign countries. Our right to these patents and trademarks is a significant part of our business and our ability to create demand for our products is dependent to a large extent on our ability to capitalize on them. We own the following significant brand names:

          We license the Black & Decker® brand in North America, Latin America (excluding Brazil) and the Caribbean for four core categories of household appliances: beverage products, food preparation products, garment care products and cooking products. In December 2007, we and The Black & Decker Corporation extended the trademark license agreement for a third time through December 2012, with an automatic extension through December 2014 if certain milestones are met regarding sales volume and product return. Under the agreement as extended, we agreed to pay The Black & Decker Corporation royalties based on a percentage of sales, with minimum annual royalty payments as follows:

          The agreement also requires us to comply with minimum annual return rates for products.

          If The Black & Decker Corporation does not agree to renew the license agreement, we have 18 months to transition out of the brand name. No minimum royalty payments will be due during such transition period. The Black & Decker Corporation has agreed not to compete in the four core product categories for a period of five years after the termination of the license agreement. Upon request, The Black & Decker Corporation may elect to extend the license to use the Black & Decker® brand to certain additional product categories. Black & Decker has approved several extensions of the license to additional categories including home environment and pest products.

          We license the Farberware® brand from the Farberware Licensing Company in the United States, Canada and Mexico for several types of household appliances, including beverage products, food preparation products, garment care products and cooking products. The term of the license is through 2010 and can be renewed for additional periods upon the mutual agreement of both parties. Under the agreement, we agreed to pay Farberware Licensing Company royalties based on a percentage of sales, with minimum annual royalty payments as follows:

          We own the LitterMaid® trademark for self-cleaning litter boxes and have extended the trademark for accessories such as litter, a litterbox privacy tent and waste receptacles. We own two patents and have exclusive licenses to three other patents covering the LitterMaid® litter box, which require us to pay royalties based on a percentage of sales. The license agreements are for the life of the applicable patents and do not require minimum royalty payments. The patents have been issued in the United States and a number of foreign countries.

          We maintain various other licensing and contractual relationships to market and distribute products under specific names and designs. These licensing arrangements generally require certain license fees and royalties. Some of the agreements contain minimum sales requirements that, if not satisfied, may result in the termination of the agreements.

          We market our products primarily through mass merchandisers, but also distribute to home improvement warehouses, specialty retailers, catalogers, warehouse clubs, drug and grocery stores, department stores, television shopping channels, pet supply retailers, and independent distributors, as well as through e-commerce websites. Our top two customers are Wal-Mart Stores, Inc., and Target Corporation, which accounted for approximately 35% of consolidated net sales in fiscal 2008, 43% for the six months ended June 30, 2007 and 44% for the calendar year ended December 31, 2006. Wal-Mart accounted for approximately 24% of our consolidated net sales for fiscal year ended June 30, 2008, 28% for the six months ended June 30, 2007, and 33% for the calendar year 2006. Target Corporation accounted for approximately 11% of our consolidated net sales for fiscal year ended June 30, 2008, 15% for the six months ended June 30, 2007, and 11% for the calendar year ended 2006. No other customer accounted for more than 10% of consolidated net sales during fiscal year ended June 30, 2008, six months ended June 30, 2007 or calendar year 2006.

          Our products are sold principally by an internal sales staff located in North America, Latin America, Europe, Australia and New Zealand. We also use independent sales representatives, primarily in Central America and the Caribbean. In addition to directing our marketing efforts toward retailers, we sell certain of our products directly to consumers through infomercials and our internet website.

          We use media advertising, cooperative advertising and other promotional materials to promote our products and develop brand awareness. We enhance the equity of key brands through design, promotion and product functionality based on consumer feedback. We provide promotional support for our products with the aid of 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. The level of promotional effort targeted toward sales velocity and brand building is determined by the profitability of the category, the strategic importance of the brand and retailer plans.

          We distribute most of our products to retailers, including mass merchandisers, department stores, home improvement stores, warehouse clubs, drug chains, catalog stores and discount and variety stores.

          Our policy is to maintain our inventory at levels reasonably necessary to service the rapid delivery requirements of our customers. Because of manufacturing lead times and our seasonal sales, it is necessary that we purchase products and thereby increase inventories based on anticipated sales and forecasts provided by our customers and our sales personnel.

          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 acceptances 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. We do not believe that the amount of backlog orders is a significant predictor of our business.

          Our business is highly seasonal, with operating results varying from quarter to quarter. We have historically experienced higher revenues in the second half of the calendar year, primarily due to increased demand by customers in late summer for “back-to-school” sales and in the fall for the holiday season. The majority of our sales occur during the first half of our fiscal year (July through December).

          The sale of small household appliances is characterized by intense competition. Competition is based on price and quality, as well as access to retail shelf space, product design, brand names, new product introductions, marketing support and distribution strategies. We compete with various domestic, foreign and international marketers and distributors, some of which have substantially greater financial and other resources than we do. We believe that our future success will depend upon our ability to develop and distribute reliable products that incorporate developments in technology and satisfy customer tastes with respect to style and design. It will also depend on our ability to market a broad offering of products in each category at competitive prices.

          Primary competitive brands in the household appliance market include Hamilton Beach, Procter Silex, Sunbeam, Mr. Coffee, Oster, General Electric, Rowenta, DeLonghi, Kitchen Aid, Cuisinart, Krups, Braun, Rival, Delonghi, Kenwood, Philips, Group SEB, Morphy Richards, Breville and Tefal. In addition, we compete with retailers who use their own private label brands for household appliances. Primary competitive brands in the pet and pest market include Petmate, Sunbeam and Coleman.

          As a marketer and distributor of consumer products in the United States, we are subject to the Consumer Products Safety Act, which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the Consumer Products Safety Commission could require us to repurchase or recall one or more of our products. In March 2008, we, in cooperation with the Consumer Products Safety Commission, voluntarily recalled approximately 12,000 units of two-slice electric toasters sold under various brands.

          Throughout the world, most federal, state, provincial and local authorities require safety regulation certification prior to marketing electrical appliances in those jurisdictions. Within the United States, Underwriters Laboratory, Inc. (“UL”) is the most widely recognized certification body for electrical appliances. UL is an independent, not-for-profit corporation engaged in the testing of products for compliance with certain public safety standards. We also use the ETL SEMKO division of Intertek for certification and testing of compliance with UL

standards, as well as other national and industry-specific standards. We endeavor to have our products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold.

          Laws regulating certain consumer products also exist in some cities and states, as well as in other countries in which we sell our products. We believe that we are in substantial compliance with all of the laws and regulations applicable to us and our products.

          Certain of the products sold by us in the United States are also subject to the Fair Packaging and Labeling Act. We believe that in addition to complying with the Fair Packaging and Labeling Act, we comply with the applicable rules and regulations of the Federal Trade Commission and other federal and state agencies with respect to the content of advertising and other trade practices.

          Our pest control products are subject to various regulations, including regulations promulgated by the U.S. Environmental Protection Agency, as well as laws and regulations of the states and applicable state agencies. Additionally, certain of our water filtration products are certified by NSF International, an independent, not-for-profit organization which develops national standards for public health and safety.

          As of September 15, 2008, we had approximately 325 full-time employees in North America, approximately 150 full-time employees in Hong Kong and mainland China, approximately 260 full-time employees in Europe, approximately 125 full-time employees in Latin America and the Caribbean and approximately 45 employees located in other parts of the world. From time to time, we also use the services of seasonal employees.

          None of our employees are covered by a collective bargaining agreement. We believe that we have satisfactory working relations with our employees.

          We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may obtain and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our SEC filings are accessible through the Internet at that website.

          Our reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, are available for download, free of charge, as soon as reasonably practicable after these reports are filed with the SEC, at our website at http://www.saltoninc.com. The content of our website is not a part of this report. You may request a copy of our SEC filings, at no cost to you, by writing or telephoning us at: Salton, Inc., 3633 S. Flamingo Road, Miramar, Florida 33027, attention: Corporate Secretary, telephone: (954)883-1000. We will not send exhibits to the documents, unless the exhibits are specifically requested and you pay our fee for duplication and delivery. In addition, we have our Code of Business Conduct and Ethics available free of charge through our website at http://www.saltoninc.com.

          You 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 making an investment decision regarding our securities. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. The risks listed below are not the only risks that we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations.

Our margins may be adversely impacted by increases in raw material prices.

          The cost of our products may be impacted by global increases in the price of petroleum-based plastic materials, steel, aluminum, copper and corrugated materials (for packaging). Although we may increase the prices of certain of our goods to our customers, we cannot assure you that we will be able to pass all of these cost increases on to our customers. As a result, our margins may be adversely impacted by such cost increases.

The costs of the products purchased by us could increase as a result of fluctuations in the Chinese currency.

          In 1994, China pegged the renminbi (also called the yuan) at an exchange rate of 8.28 to the U.S. dollar. However, U.S. groups argued that the peg made China’s exports to the U.S. cheaper, and U.S. exports to China more expensive, thus greatly contributing to China’s trade surplus with the U.S. In July 2005, China ended its peg to the dollar and let the renminbi fluctuate versus a basket of currencies. Immediately, the new renminbi rate revalued the currency by 2.1% to 8.11 to the dollar. At September 15, 2008, the renminbi exchange rate was 6.85 to the dollar. Because a substantial number of our products are imported from China, the floating currency could result in significant fluctuations in our product costs. If we are unable to pass on the cost increases to customers, our gross profit would decline. An increase in product prices might lead to a decrease in demand for our products.

The bankruptcy or financial difficulty of any major customer or fluctuations in the financial condition of the retail industry in general could adversely affect our results of operations.

          We sell our products to distributors and retailers, including mass merchandisers, department stores and wholesale clubs. The financial difficulties of our customers or the loss of, or a substantial decrease in, the volume of purchases by a major customer could have a material adverse effect on us. Additionally, a significant deterioration in the financial condition of the retail industry in general could have a material adverse effect on our sales and profitability.

We purchase a large number of products from two suppliers. Production-related risks with these suppliers could jeopardize our ability to realize anticipated sales and profits until alternative supply arrangements are secured.

          Our top two suppliers are Elec-Tech International (H.K.) Company, Ltd. and Tsann Kuen Enterprises. In order for us to realize sales and operating profits at anticipated levels, these suppliers must deliver high quality products in a timely manner. Both suppliers are expected to remain significant suppliers for us.

The failure of our business strategy could seriously hurt our financial condition and results of operations.

          As part of the post-merger business strategy, we plan to:

          Our strategic objectives may not be realized or, if realized, may not result in increased revenue, profitability or market presence. Executing our strategy may also place a strain on our suppliers, information technology systems and other resources. To manage growth effectively, we must maintain a high level of quality, properly manage our third-party suppliers, continue to enhance our operational, financial and management systems and expand, train and manage our employee base. We may not be able to effectively manage our growth in any one or more of these areas, which could cause our financial condition and results or operations to suffer.

Our international operations subject us to additional business risks and may cause our profitability to decline due to increased costs.

          A significant amount of our sales are recorded outside of North America. 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:

These factors may have a material adverse effect on our ability to increase or maintain our supply of products, our financial condition or the results of our operations.

Harbinger Capital Partners has effective control over the outcome of actions requiring the approval of our stockholders.

          Harbinger Capital Partners beneficially owns approximately 94% of our outstanding shares of voting capital stock. Therefore, it (a) has the ability to exert substantial influence and actual control over our management policies and affairs, (b) controls the outcome of any matter submitted to our stockholders, including amendments to our certificate of incorporation and bylaws, any proposed merger or other business combinations, our financing, consolidation or sale of all or substantially all of our assets and other corporate transactions and (c) has the ability to elect or remove all of our directors. There is a risk that the interests of Harbinger Capital Partners will not be consistent with the interest of other holders of our common stock.

          Harbinger Capital Partners has significant control over our business and significant transactions and our other stockholders do not have the same corporate governance protection that they would otherwise have if we were not a controlled company. In addition, Harbinger Capital Partners’ control could make it more difficult for us to raise capital by selling stock or for us to use our stock as currency in acquisitions. This concentrated ownership also might delay or prevent a change in control and may impede or prevent transactions in which stockholders might otherwise receive a premium for their shares.

          We currently have four members of our Board of Directors, three of which are affiliates of Harbinger Capital Partners.

We depend on consumer spending, which fluctuates for a variety of reasons, including seasonality, which may cause our results of operations to fluctuate.

          Sales of our products are related to consumer spending. Any downturn in the general economy or a shift in consumer spending away from small household appliances would adversely affect our business. In addition, the market for small household appliances is highly seasonal in nature. We often recognize a substantial portion of our sales in the last half of the calendar year. Any economic downturn, decrease in consumer spending or a shift in consumer spending away from small household appliances could materially adversely impact our results of operations.

Our net operating loss carryforwards are limited as a result of the merger and are dependant upon us achieving profitable results.

          As a consequence of the merger between us and APN Holdco, as well as earlier business combinations and issuances of common stock consummated by both companies, use of the tax benefits of each company’s loss carryforwards is subject to limitations imposed by Section 382 of the Internal Revenue Code. The determination of the limitations is complex and requires significant judgment and analysis of past transactions. We have completed an analysis to determine what portion of these carryforwards are restricted or eliminated by that provision and, pursuant to such analysis a significant portion of these carryforwards will not be available to offset future taxable income, if any. In addition, use of our net operating loss and credit carryforwards is dependent upon us achieving profitable results following the merger.

If the household appliance sector of the retail industry experiences an economic slowdown, our results of operations will suffer.

          The strength of the retail economy in the United States has a significant impact on our performance. Weakness in consumer confidence and poor financial performance by mass merchandisers, warehouse clubs, department stores or any of our other customers would result in lost sales. A general slowdown in the retail sector, as happened in 2002 and 2003, would result in additional pricing and marketing support pressures on us.

Our ability to obtain products may be adversely impacted by changes in worldwide supply of or demand for raw materials.

          Our products are predominantly made from petroleum-based plastic materials, steel, aluminum, copper and corrugated materials (for packaging). Our suppliers contract separately for the purchase of such raw materials. We can provide no assurance that our sources of supply will not be interrupted should our suppliers not be able to obtain these materials due to changes in worldwide supply of or demand for raw materials or other events that interrupt material flow.

We depend on third party suppliers for the manufacturing of substantially all of our products and if we fail to develop and maintain relationships with a sufficient number of qualified suppliers, our ability to timely and efficiently source products that meet our standards for quality could be adversely affected.

          We currently buy products and supplies from suppliers located primarily in Asia. Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our ability to access products also can be adversely affected by political instability, the financial instability of suppliers, suppliers’ noncompliance with applicable laws, trade restrictions, tariffs, currency exchange rates, transport capacity and cost and other factors beyond our control. Any inability of our suppliers to timely deliver products or any unanticipated changes in our suppliers could be disruptive and costly to us. Our ability to select reliable suppliers who provide timely deliveries of quality products will impact our success in meeting customer demand. Any significant failure to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply could disrupt customer relationships and have a material adverse effect on our business and results of operations.

We are subject to significant international business risks that could hurt our business and cause our results of operations to fluctuate.

          A significant amount of our revenues are from customers outside of the United States. In addition, substantially all of the products we sell are manufactured by unaffiliated third party foreign suppliers. International operations are subject to risks including, among others:

          The foregoing factors may have a material adverse effect on our ability to increase or maintain our supply of products, our financial condition or the results of our operations.

A deterioration in trade relations with China could lead to a substantial increase in tariffs imposed on goods of Chinese origin, which potentially could reduce demand for and sales of our products.

          Most all of our products are imported from The Peoples’ Republic of China. China gained Permanent Normal Trade Relations with the United States when it acceded to the World Trade Organization, effective January 2002. The United States imposes the lowest applicable tariffs on exports from PNTR countries to the United States. In order to maintain its WTO membership, China has agreed to several requirements, including the elimination of caps on foreign ownership of Chinese companies, lowering tariffs and publicizing its laws. China may not meet these requirements, it may not remain a member of the WTO, and its PNTR trading status may not be maintained. If China’s WTO membership is withdrawn or if PNTR status for goods produced in China were removed, there could be a substantial increase in tariffs imposed on goods of Chinese origin entering the United States which could hurt our sales and gross margin.

Significant fluctuations in the exchange rate between the U.S. dollar and the currencies in which our costs are denominated may reduce our sales or profits.

          While we will report financial results in U.S. dollars, a portion of our costs, such as payroll, rent and indirect operational costs, are denominated in other currencies, such as Australian dollars, British pounds, Canadian dollars and Mexican pesos. In addition, while a portion of our revenues are collected in foreign currencies, a significant portion of the related cost of goods sold is denominated in U.S. dollars. Changes in the relation of these and other currencies to the U.S. dollar will affect our cost of goods sold and operating margins and could result in exchange losses. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted.

We may not be able to realize expected benefits and synergies from future acquisitions of businesses or product lines.

          We may acquire partial or full ownership in businesses or may acquire rights to market and distribute particular products or lines of products. The acquisition of a business or of the rights to market specific products or use specific product names may involve a financial commitment by us, either in the form of cash or stock consideration. In the case of a new license, such commitments are usually in the form of prepaid royalties and future minimum royalty payments. There is no guarantee that we will acquire businesses and develop products that

will contribute positively to our earnings. Anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations, and acquired businesses may carry unexpected liabilities.

If we were to lose one or more of our major customers, or suffer a major reduction of orders from them, our financial results would suffer.

          Our success depends on our sales to our significant customers. Although we have long-established relationships with many of our customers, we do not have long-term agreements with them 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. In addition, failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could have a material adverse effect on us.

Any reduction in trade credit from our suppliers could seriously harm our operations and financial condition.

          We depend on the continuing willingness of our suppliers to extend credit to us to finance our inventory purchases. If suppliers experience financial constraints or if they become concerned about our ability to generate liquidity and service our debt, they may delay shipments to us or require payment in advance. Any such actions by our suppliers could materially harm our ability to continue our business.

The small household appliance industry is consolidating, which could reduce our ability to successfully secure product placements at key customers and limit our ability to sustain a cost competitive position in the industry.

          Over the past several years, the small household appliance industry has undergone substantial consolidation, and further consolidation is likely. As a result of this consolidation, the small household appliance industry could primarily consist of a limited number of large distributors. To the extent that we do not continue to be a major participant in the small household appliance industry, our ability to compete effectively with these larger distributors could be negatively impacted. As a result, this condition could reduce our ability to successfully secure product placements at key customers and limit our ability to sustain a cost competitive position in the industry.

The small household appliance industry is highly competitive and we may not be able to compete effectively, causing us to lose market share and sales.

          The small household appliance is highly competitive and does not have onerous entry barriers. We believe that competition is based upon several factors, including:

          We compete with established companies, a number of which have substantially greater facilities, personnel, financial and other resources than we have. In addition, we compete with our retail customers, who use their own private label brands, and distributors and foreign manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete with us. As a result of this competition, we

could lose market share and sales, or be forced to reduce our prices to meet competition. Significant new competitors or increased competition from existing competitors may adversely affect our business, financial condition and results of operations.

Our future success requires us to develop new and innovative products on a consistent basis in order to increase revenues and we may not be able to do so.

          We believe that our future success is heavily dependent upon our ability to continue to make innovations in our existing products and to develop and market new products, which generally carry higher margins. We may not be successful in the introduction, marketing and manufacture of any new products or product innovations and we may not be able to develop and introduce in a timely manner innovations to our existing products that satisfy customer needs or achieve market acceptance.

Long lead times, potential material price increases and customer demands may cause us to purchase more inventory than necessary, which may lead to increased obsolescence and adversely affect our results of operations.

          Due to (a) manufacturing lead times, (b) a strong concentration of our sales occurring during the first half of our fiscal year and (c) the potential for material price increases, we may purchase products and thereby increase inventories based on anticipated sales and forecasts provided by our customers and our sales personnel. We cannot assure you that our customers will order these inventories as anticipated.

          Changes in customer inventory management strategies could also make inventory management more difficult for us. If retailers significantly change their inventory management strategies, we may encounter difficulties in filling customer orders or in liquidating excess inventories, or may find that customers are cancelling orders or returning products. Distribution difficulties may have an adverse effect on our business by increasing the amount of inventory and the cost of warehousing inventory.

Our financing arrangements could subject us to various restrictions that could limit our operating flexibility.

          Our credit facilities and other financing arrangements contain covenants and other restrictions that, among other things, require us to satisfy certain financial tests and maintain certain financial ratios and restrict our ability to incur additional indebtedness. The restrictions and covenants in our credit facilities and other financing arrangements limit our ability to respond to market conditions, provide for capital investment needs or take advantage of business opportunities by limiting the amount of additional borrowings we may incur. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition” for more information on our financial arrangements.

Our leverage is substantial, which may have an adverse effect on our available cash flow, our ability to obtain additional financing if necessary in the future, our flexibility in reacting to competitive and technological changes and our operations.

          As of June 30, 2008, we had total indebtedness of approximately $399.5 million, which includes redeemable preferred stock of $119.5 million. This high degree of leverage could have important consequences for us, including the following:

Sales of our common stock by Harbinger Capital Partners could cause the trading price of our common stock to decline.

          Harbinger Capital Partners owns approximately 94% of our outstanding common stock. We have entered into a registration rights agreement with Harbinger Capital Partners requiring us, under certain circumstances, to register all of the shares of our common stock and Series D and E Preferred Stock beneficially owned by it. The exercise of these registration rights, or sales by Harbinger Capital Partners in the public market pursuant to any such registration, could cause the market price of our common stock to decline.

The market price of our common stock could decline if we fail to achieve the expected benefits of the merger with APN Holdco.

          The market price of our common stock could decline as a result of the merger for a number of reasons, including the following:

If we are unable to renew the Black & Decker^® trademark license agreement, our business could suffer.

          We license the Black & Decker^® brand for use in marketing certain small household appliances in North America, Latin America (excluding Brazil) and the Caribbean. Sales of Black & Decker^® branded products represent a significant portion or our total revenue. The sale of such products represented approximately 67% of our total consolidated revenue in the 2008 fiscal year. In December 2007, The Black & Decker Corporation extended the license agreement through December 2012, with an automatic extension through December 2014 if certain milestones are met regarding sales volume and product return. Our failure to renew the license agreement with The Black & Decker Corporation or to enter into a new agreement on acceptable terms would have a material adverse effect on our financial condition, liquidity and results of operations.

Our actual liabilities relating to environmental matters may exceed our expectations.

          Prior to 2003, we manufactured certain of our products at facilities that we owned in the United States and Europe. Our manufacturing operations were subject to laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances. If we failed to comply with these laws or the terms of our environmental permits, then we could incur substantial costs, including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require us to incur significant additional expense.

          We are investigating or remediating historical contamination at certain of our former sites related to our manufacturing operations. The discovery of additional contamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on our financial conditions and results of operations.

Product recalls or lawsuits relating to defective products could adversely impact our results of operations.

          As distributors of consumer products in the United States, we are subject to the Consumer Products Safety Act, which empowers the U.S. Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the U.S. Consumer Products Safety Commission could require us to repair, replace or refund the purchase price of one or more of our products, or we may voluntarily do so. For example, in March 2008, we, in cooperation with the Consumer Products Safety Commission, voluntarily recalled approximately 12,000 units of two-slice electric toasters sold under various brands.

          Any additional repurchases or recalls of combined company products could be costly to us and could damage our reputation of the value of our brands. If we were required to remove, or we voluntarily remove, our products from the market, our reputation or brands could be tarnished and we might have large quantities of finished products that could not be sold. Furthermore, failure to timely notify the U.S. Consumer Product Safety Commission of a potential safety hazard can result in fines being assessed against us. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in the future.

          We also face exposure to product liability claims if one of our products is alleged to have caused property damage, bodily injury or other adverse effects. We are self-insured to specified levels of those claims and maintain product liability insurance for claims above the self-insured levels. We may not be able to maintain such insurance on acceptable terms, if at all, in the future. In addition, product liability claims may exceed the amount of insurance coverage. Additionally, we do not maintain product recall insurance.

          Our results of operations are also susceptible to adverse publicity regarding the quality and safety of our products. In particular, product recalls or product liability claims challenging the safety of our products may result in a decline in sales for a particular product. This could be true even if the claims themselves are ultimately settled for immaterial amounts. This type of adverse publicity could occur and product liability claims could be made in the future.

The infringement or loss of our proprietary rights could harm our business.

          We regard our trademarks, patents 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 and patents in the United States and elsewhere. These registrations could be challenged by others or invalidated through administrative process or litigation. The costs associated with protecting intellectual property rights, including litigation costs, may be material. If any of these rights were infringed or invalidated, our business could be materially adversely affected.

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

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 our products are infringing their intellectual property rights or that we do not in fact infringe those intellectual property rights. If someone claimed that our 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 products. A claim of patent or other intellectual property infringement against us could harm our financial condition and results of operations.

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 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.

          Additionally, many of our pest control products are subject to laws and regulations by state and federal environmental agencies. A determination that we are not in compliance with such rules and regulations could result in the prohibition of sales or our products and the imposition of fines.

The requirements of complying with the Sarbanes-Oxley Act may strain our resources, and our internal control over financial reporting may not be sufficient to ensure timely and reliable external financial reports.

          We are subject to various regulatory requirements, including the Sarbanes-Oxley Act of 2002. We expect to incur substantial costs related to our compliance with the Sarbanes-Oxley Act. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, corporate governance standards and internal control over financial reporting. Due to market capitalization levels, we are required to comply with Section 404(a) of the Sarbanes-Oxley Act, which requires management’s assessment of the effectiveness of our internal controls over financial reporting. Under the current SEC rules, our auditors will be required to provide an attestation report regarding the effectiveness of our internal control over financial reporting beginning in the fiscal year ending June 30, 2010.

          In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight is required. We devote additional financial resources, time and personnel to legal, financial and accounting activities to ensure our ongoing compliance with public company reporting requirements. In the future, if our management identifies one or more material weaknesses in our internal control over financial reporting, we may be unable to assert that our internal control over financial reporting is effective as of the end of the preceding year or our auditors may be unable to express an unqualified opinion on the effectiveness of our internal controls. If the auditors are unable to provide an unqualified opinion on the effectiveness of our internal controls over financial reporting, it could result in a loss of investor confidence in our financial reports, adversely affect our stock price and our ability to access the capital markets or borrow money, and may subject us to sanctions or investigation by regulatory authorities.

Our stock price may continue to be volatile.

          The trading price of our common stock is subject to significant fluctuations in response to variations in quarterly operating results, changes in earnings estimates by analysts, announcements of new products by us or our competitors, changes in the domestic and international economic, political and business conditions, general conditions in the housewares industry, the lack of liquidity in our trading market and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market prices for many companies that have been unrelated to their operating performance. These market fluctuations have adversely affected and may continue to adversely affect the market price of our common stock.

Our common stock was delisted from the New York Stock Exchange and now is an over-the-counter security quoted on The Pink Sheets Electronic Quotation Service.

          In August 2007, the New York Stock Exchange delisted our common stock. Our common stock is currently quoted on the “pink sheets” in the over-the-counter market under the trading symbol SFPI.PK. No assurance can be given that our common stock will continue to be traded on any stock exchange or market, that any broker will make a market in our common stock, or that any active trading market in our common stock will continue. Broker-dealers often decline to trade in “pink sheet” stocks given that the market for such securities is often limited, the stocks are more volatile, and the risk to investors is greater. Consequently, selling our common stock can be difficult because smaller quantities of shares can be bought and sold, transactions can be delayed and securities analyst and news media coverage of our company is reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our common stock as well as lower trading volume. We

cannot assure you that, even if our common stock continues to be listed or quoted on the Pink Sheets or another market or system, the market for our common stock will be as liquid as we had been prior to delisting from the NYSE and the market price for our common stock may be adversely effected and become more volatile than the stock has been historically. This relative lack of liquidity also could make it more difficult for us to raise capital in the future.

Companies quoted on the Pink Sheets are not subject to corporate governance requirements in order for their shares to be quoted, and we have more limited protections against conflicts of interest, related party transactions and similar matters.

          Our common stock currently trades as an over-the-counter security on the Pink Sheets Electronic Quotation Service. Corporate governance requirements are not imposed on companies quoted on the Pink Sheets. As a result of our delisting from the NYSE, we are not required to comply with any, and our stockholders no longer have the protection of, various NYSE corporate governance requirements, including among others:

We do not anticipate paying dividends.

          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 financings contain restrictions on our ability to pay dividends on our capital stock.

* * * * *

          Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, our actual results, performance, or achievements may vary materially from any future results, performance or achievements expressed or implied by our forward-looking statements. 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 listed above. You are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances that arise after the filing of this Annual Report on Form 10-K.

None

          The following table sets forth our principal operating facilities:

          We lease additional warehouse and office space in the United States, Hong Kong, Canada, Europe, New Zealand and Latin America pursuant to long and short-term contracts. We also contract with third party distribution providers that provide full service warehousing and shipping services. We have such arrangements in North America, South America, Asia, Europe, Australia and New Zealand. Service contracts are typically short-term in nature, with fixed pricing, and provide for specific performance requirements related to customer service.

          We believe our current facilities are adequate to meet our needs in the foreseeable future. If necessary, we may, from time to time, downsize current facilities or lease additional facilities for warehousing and/or other activities.

          NACCO Litigation. We are a defendant in NACCO Industries, Inc. et al. v. Applica Incorporated et al., Case No. C.A. 2541-N, which was filed in the Court of Chancery of the State of Delaware on November 13, 2006.

          The original complaint in this action alleged a claim for breach of contract against Applica Incorporated, a subsidiary of Salton, and a number of tort claims against certain entities affiliated with Harbinger Capital Partners. The claims related to the termination of the merger agreement between Applica and NACCO Industries, Inc. and one of its affiliates following Applica’s receipt of a superior merger offer from Harbinger. On October 22, 2007, the plaintiffs filed an amended complaint asserting claims against Applica for breach of contract and breach of the implied covenant of good faith relating to the termination of the NACCO merger agreement and asserting various tort claims against Harbinger Capital Partners. The original complaint initially sought specific performance of the NACCO merger agreement or, in the alternative, damages. The amended complaint, however, seeks only damages. In light of the consummation of Applica’s merger with affiliates of Harbinger Capital Partners in January 2007, we believe that any claim for specific performance is moot. We filed a motion to dismiss the amended complaint on December 21, 2007. Rather than respond to the motion to dismiss the amended complaint, NACCO filed a motion for leave to file a second amended complaint, which was granted in May 2008.

          We believe that the action is without merit and intend to defend vigorously, but may be unable to resolve this matter successfully without incurring significant expenses.

          Brown Litigation. Individual plaintiffs Ray C. Brown and Helen E. Brown, who allegedly own 671,000 shares of our common stock, filed a complaint in the Court of Chancery of the State of Delaware on August 5, 2008. The complaint names as defendants Harbinger Capital Partners, as well as Salton and the following former officers or directors: Leonhard Dreimann, Lester C. Lee, William M. Lutz, David M. Maura, Jason B. Mudrick, Steven Oyer, William B. Rue, David C. Sabin, Daniel J. Stubler, and Bruce J. Walker.

          According to the complaint, Harbinger Capital Partners acquired control of Salton through a series of events beginning in June 2006 and, that as a result, it owed fiduciary duties to Salton’s shareholders. The complaint further alleges that Harbinger Capital Partners breached its purported fiduciary duties in connection with our merger with APN Holdco. Through these alleged breaches of fiduciary duty, Harbinger Capital Partners purportedly sought to depress the price of our common stock prior to the merger and to facilitate completion of the merger on terms that

were favorable to it and unfavorable to our other shareholders. The complaint alleges, among other things, that Harbinger Capital Partners breached its fiduciary duties by arranging for (i) short sales of our stock; (ii) the appointment of persons loyal to it as directors and as interim chief executive officer; (iii) the resignation of certain of our officers and directors; (iv) the preparation of documents related to the merger by its counsel; (v) alleged misrepresentations by or attributable to Harbinger Capital Partners respecting our company; and (vi) a delay in completion of the merger. The complaint further states that certain of our former officers and directors breached their fiduciary duties by accommodating and capitulating to the allegedly wrongful conduct of Harbinger Capital Partners, rather than protecting the interests of our other shareholders.

          Based on these allegations, plaintiffs assert claims for breach of fiduciary duty against all defendants. Plaintiffs seek declaratory relief, compensatory damages in the amount that is not less than $4,030,200 and punitive damages in an amount that is at least nine times the amount of compensatory damages awarded to plaintiffs.

          We believe that the action is without merit and intend to defend vigorously, but may be unable to resolve this matter successfully without incurring significant expenses.

          George Foreman Distributor Litigation. We and our Hong Kong subsidiary, Salton Hong Kong Limited, are defendants in a lawsuit brought by Carmel District Limited, one of our distributors for the George Foreman^® product line in Israel. The case was filed in Israel in October 2007. The complaint alleges that the plaintiff was appointed as the exclusive distributor in Israel for products bearing the George Foreman^® trademarks. We strongly dispute this allegation. The plaintiff has obtained an ex-parte attachment order preventing one of our customers from paying any monies to us. The attachment order was recently reduced to approximately $575,000. We have challenged the attachment order, which remains pending.

          We believe that the action is without merit and intend to defend vigorously, but may be unable to resolve this matter successfully without incurring significant expenses.

          Asbestos Matters. We are a defendant in three asbestos lawsuits in which the plaintiffs have alleged injury as the result of exposure to asbestos in hair dryers distributed by Applica over 20 years ago. Although Applica never manufactured such products, asbestos was used in certain hair dryers sold by it prior to 1979. There are numerous defendants named in these lawsuits, many of whom actually manufactured asbestos containing products. We believe that the action is without merit and intends to defend vigorously, but may be unable to resolve this matter successfully without incurring significant expenses. At this time, we do not believe we have coverage under our insurance policies for the asbestos lawsuits.

          Environmental Matters. Prior to 2003, we manufactured certain of our products at facilities that we owned in the United States and Europe. We are investigating or remediating historical contamination at the following sites:

          The discovery of additional contamination at these or other sites could result in significant cleanup costs. These liabilities may not arise, if at all, until years later and could require us to incur significant additional expenses, which could materially adversely affect our results of operations and financial condition. At June 30, 2008, we had accrued $6.3 million for environmental matters.

          Other Matters. We are subject to legal proceedings, products liability claims and other claims that arise in the ordinary course of our business. In the opinion of management, the amount of ultimate liability, if any, in excess of applicable insurance coverage, is not likely to have a material effect on our financial condition, results of operations or liquidity. However, as the outcome of litigation or other claims is difficult to predict, significant changes in the estimated exposures could occur.

          As a distributor of consumer products, we are also subject to the Consumer Products Safety Act, which empowers the Consumer Products Safety Commission (CPSC) to exclude from the market products that are found to be unsafe or hazardous. We receive inquiries from the CPSC in the ordinary course of our business.

          We may have certain non-income tax-related liabilities in a foreign jurisdiction. Based on the advice of outside legal counsel, we believe that it is possible that the tax authority in the foreign jurisdiction could claim that such taxes are due, plus penalties and interest. Currently the amount of potential liability cannot be estimated, but if assessed, it could be material to our financial condition, results of operations or liquidity. However, if assessed, we intend to vigorously pursue administrative and judicial action to challenge such assessment, however, no assurances can be made that we will ultimately be successful.

None

          Our common stock is currently quoted on the “pink sheets” in the over-the-counter market under the trading symbol SFPI.PK. Prior to August 6, 2007 our common stock was traded on the New York Stock Exchange (“NYSE”) under the symbol “SFP”.

          The following table sets forth, for the periods indicated, the high and low sales prices or bid and asked prices, as applicable, for the common stock as reported on the respective markets:

          We did not paid dividends on our common stock for the 2008 fiscal year 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. The Series D and E Preferred Stock prohibit us from declaring or paying any cash dividends on the common stock unless all accrued and unpaid dividends on such preferred stock have been paid in full. In addition, our credit facilities contain restrictions on our ability to pay dividends on our capital stock.

          Securities Authorized for Issuance Under Equity Compensation Plans. The following table summarizes our equity compensation plans as of June 30, 2008. We have not granted any warrants or stock appreciation rights.

This item is not required. We are a smaller reporting company, as such term is defined under regulations promulgated by the SEC.

          Merger with APN Holdco. On December 28, 2007, SFP Merger Sub, Inc., a Delaware corporation and a wholly owned direct subsidiary of Salton, Inc. (“Merger Sub”), merged with and into APN Holding Company, Inc. (“APN Holdco”), a Delaware corporation and the parent of Applica Incorporated, a Florida corporation.

          Statement of Financial Accounting Standard (“SFAS”) No. 141 “Business Combinations” requires the use of the purchase method of accounting for business combinations. In applying the purchase method, it is necessary to identify both the accounting acquiree and the accounting acquiror. In a business combination effected through an exchange of equity interests, such as the merger, the entity that issues the interests (Salton in this case) is normally the acquiring entity. However, in identifying the acquiring entity in a combination effected through an exchange of equity interests, all pertinent facts and circumstances must be considered, including the following:

          While Salton, Inc. was the legal acquiror and surviving registrant in the merger, APN Holdco was deemed to be the accounting acquiror based on the facts and circumstances outlined above. Accordingly, for accounting and financial statement purposes, the merger was treated as a reverse acquisition of Salton, Inc. by APN Holdco under the purchase method of accounting.

          Harbinger Acquisition of Applica. In January 2007, Applica Incorporated (a wholly owned subsidiary of APN Holdco) was acquired by Harbinger Capital Partners. (For more information, see Note 2, Mergers and Acquisitions, of the consolidated financial statements included in Schedule I of this Annual Report on Form 10-K.) For purposes of financial reporting, the acquisition was deemed to have occurred on January 1, 2007. References to “Successor” in the financial statements contained herein refer to reporting dates on or after January 1, 2007 and references to “Predecessor” in the financial statements refer to reporting dates through December 31, 2006 to indicate two different bases of accounting presented (1) the period prior to the acquisition (January 1, 2006 through December 31, 2006, labeled “Predecessor”) and (2) the period after the acquisition, including, the acquisition date (January 1, 2007 — June 30, 2008 labeled “Successor”).

          Change in Fiscal Year End. Effective with the merger with APN Holdco, we changed our fiscal year end to June 30 and the end of our interim quarterly periods to the last day of the respective quarter. Our fiscal year end previously ended on the Saturday closest to June 30^th and the interim quarterly period ended on the Saturday closest to the last day of the respective quarter.

          Note: Our results of operations for the periods presented below have been adjusted to reflect discontinued operations of the Professional Personal Care segment of APN Holdco. As a result, the discussion below reflects operations without the discontinued operations for such periods.

          Our operating results expressed as a percentage of sales are set forth in the table below:

          Pursuant to the requirements of SFAS No. 141, the information presented below for the fiscal year ended June 30, 2008 represents a full year of the operations of APN Holdco and the operations of Salton from the consummation of the merger, which was December 28, 2007. The information for the fiscal year ended June 30, 2007 represents only the operations of APN Holdco.

          Net Sales. Consolidated net sales for the year ended June 30, 2008 increased by $206.0 million to $676.4 million, an increase of 43.8% as compared to year ended December 31, 2006. Approximately $177.0 million of the increase was attributable to the merger with APN Holdco.

          For the year ended June 30, 2008, sales in our three geographical regions were as follows:

           For the year ended June 30, 2008, sales by brand were as follows:

          Gross Profit. Gross profit margins increased to 31.1% for the year ended June 30, 2008, as compared to 27.7% for the year ended December 31, 2006. The increase was partially attributable to a favorable product mix. Additionally, gross profit for the year ended December 31, 2006 was negatively impacted by:

          Operating Expenses. Operating expenses increased by approximately $60.6 million to $193.6 million for the year ended June 30, 2008, compared to the year ended December 31, 2006. The increase was primarily attributable to the merger with APN Holdco. As a percentage of sales, operating expenses increased to 28.6% for the year ended June 30, 2008 compared to 28.3% for the year ended December 31, 2006. Included in the year ended June 30, 2008 were legal expenses of approximately $5.0 million related to our pursuit of patent infringement matters on certain patents related to the LitterMaid^® automatic cat litter box.

          Integration and Transition Expenses. In connection with the merger with APN Holdco, we incurred approximately $17.9 million in integration and transition-related costs that were expensed in the year ended June 30, 2008. These costs were primarily related to the integration and transition of the North American operations of Salton and Applica. The integration of the North American operations was substantially completed in June 2008.

          Acquisition Related Expenses. In connection with a proposed acquisition of a global pet supply business, which ultimately was not consummated, we incurred approximately $7.1 million in acquisition-related expenses. In

accordance with the purchase agreement, we were reimbursed $3.0 million for such expenses in July 2008, which were accrued as of June 30, 2008.

          Interest Expense. Interest expense increased $15.0 million to $26.1 million for the year ended June 30, 2008, as compared to $11.1 million for the year ended December 31, 2006. The increase was primarily the result of the new financial arrangements executed in connection with the merger with APN Holdco. Interest expense is expected to increase due to the issuance of the shares of Series E Preferred Stock in August 2008.

          Interest and Other Income. Interest and other income for the year ended June 30, 2008 included the following:

          Taxes. Our tax provision is based upon an annual calculation of taxes on earnings in our foreign and domestic operations. For the year-end June 30, 2008, our effective tax rate was approximately (50)%, as compared to approximately (16)% for the year ended December 31, 2006. The change in the effective tax rate from December 31, 2006 to June 30, 2008 was primarily due to an increase in the valuation allowance and the adoption of FIN 48. Our effective tax rate was different from the U.S. statutory rate primarily as the result of:

          Pursuant to the requirements of SFAS No. 141, the information presented below represents only the operations of APN Holdco, as the merger was not consummated until December 28, 2007.

          Net Sales. Consolidated net sales for the six months ended June 30, 2007 increased by $18.5 million to $209.0 million, an increase of 9.7% as compared to the 2006 period.

          For the six months ended June 30, 2007:

          The increase in sales of Black & Decker^® branded products was driven by increased sales throughout the U.S., Canadian and Latin American marketplaces.

          Gross Profit. Our gross profit margin improved to 30.7% for the six months ended June 30, 2007 as compared to 26.4% for the same period in 2006. Gross profit for the six month period in 2007 was positively impacted by improved product mix and improvements in product warranty returns and related expenses compared to the 2006 period. Additionally, gross profit for the 2006 period was negatively impacted by the following:

          Operating Expenses. Operating expenses increased by $2.1 million, or 3.2%, to $65.7 million for the six months ended June 30, 2007 compared to the same period in 2006. As a percentage of sales, operating expenses decreased to 31.4% in the six month period in 2007 compared to 33.4% in the 2006 period. The following expenses decreased in the six months ended June 30, 2007:

          The above decreases were offset by increases in the following expenses for the six months ended June 30, 2007:

          In July 2005, we made the decision to close our manufacturing facility in Mexico. The manufacturing operations ceased production in October 2005. At December 31, 2006 and 2005, the land and building were classified as assets held for sale and included in prepaid expenses and other in our consolidated balance sheet at a net realizable value of approximately $5.3 million. In March 2007, we reclassified the land and building as asset held and used as the sale of the land and building was not consummated and, as a result of the reclassification, we recorded approximately $0.5 million in depreciation expense in the three month period ended March 31, 2007. In October 2007, we sold the property for $5.2 million, which is net of broker commissions. The sale resulted in a gain of $0.6 million, which was recorded in the quarter ended December 31, 2007. The land and building was classified as assets held for sale at June 30, 2007 in the accompanying consolidated balance sheet at its book value of $4.7 million.

          Interest Expense. Interest expense decreased by $3.2 million, or 71.2%, to $1.3 million for the six months ended June 30, 2007, as compared to $4.4 million for the same period in 2006. The decrease was a result of the repayment of a $20 million term loan in January 2007 and the redemption of the remaining $55.75 million of Applica’s 10% notes in February 2007 as a result of the acquisition of Applica by Harbinger Capital Partners.

          Taxes. Our tax provision is based on an estimated annual aggregation of the taxes on earnings of each of its foreign and domestic operations. For the six months ended June 30, 2007, we had an effective tax rate of 66% before valuation allowances on deferred tax assets, as compared to 9% for the same period in 2006 before valuation allowances on deferred tax assets. The increase in the effective tax rates is primarily attributable to a taxable gain on the sale of our Professional Personal Care segment in May 2007.

          Discontinued Operations. In May 2007, Applica sold its professional care segment to an unrelated third party for $36.5 million. For the six months ended June 30, 2007, income from discontinued operations was $2.7 million as compared to $0.1 million for the six months ended June 30, 2006. The increase in income for discontinued operations was attributable to (a) certain reversals of accrued expenses and sales incentives would be paid by the purchaser and (b) increased sales and improved product mix compared to the same period in 2006.

     Our material short-term cash requirements are the funds necessary to maintain current operations and achieve our business strategy, including purchasing inventory, financing accounts receivable and paying operating

expenses, including royalty payments related to licensing arrangements, lease payments and interest costs. In addition, we require funds for capital expenditures for tooling for new products, information technology improvements and other improvements. Our interest costs will fluctuate based upon interest rates, as well as our ability to generate cash flow to pay down debt.

          We finance our short-term cash requirements primarily through cash flows from operations, borrowings under our credit facilities, other short-term borrowings, and the sale of certain assets.

          Our material long-term cash requirements consist mainly of the $140 million term loan agreement due in December 2012 and the mandatory redemption of the Series D and E Preferred Stock in December 2013. In addition, our ongoing future cash requirements include future operating expenses, payments under our Black and Decker^® trademark license agreement and other license agreements, capital expenditures, interest expense, lease payments and payments under our credit facilities.

          We expect to have sufficient liquidity from cash flow from operations and borrowings under our credit facilities to finance our cash requirements over the next 12 months.

          Operating Activities. For the year ended June 30, 2008, our operations used cash of $32.4 million, compared with a use of cash of $5.3 million in the year ended December 31, 2006. The increased use of cash was attributable to (1) integration and transition-related costs as a result of the merger with APN Holdco and (2) working capital requirements of the combined company.

          Investing Activities. For the year ended June 30, 2008, investing activities generated cash of $25.9 million compared to a use of cash of $0.5 million in the year ended December 31, 2006. The cash generated in the year ended June 30, 2008 was primarily attributed to cash of $17.3 million acquired as a result of the merger with APN Holdco and the proceeds from the sale of the land in Mexico and Europe.

          Financing Activities. For the year ended June 30, 2008, financing activities generated cash of $26.5 million, compared to $6.2 million of cash generated in the year ended December 31, 2006. Proceeds from term debt of $30 million and borrowings under our lines of credits were used for (a) the redemption in January 2008 of all of the outstanding 12 1/4% Senior Subordinated notes due April 15, 2008 (except for the notes held by Harbinger Capital Partners, which were converted to Series D Preferred Stock effective upon the merger) at a price of 101% plus accrued and unpaid interest of $43.4 million and (b) increased working capital requirements of the combined company.

          North American Credit Facility. We have a $200 million senior revolving credit facility that is secured by a lien on our North American inventory and receivables. The facility includes an accordion feature which permits us to request an increase in the aggregate revolver amount by up to $75,000,000. On February 28, 2008, in connection with the syndication by Bank of America, N.A. of the North American credit facility, we entered into an amendment to such facility that, among other things, increased the applicable borrowing margins by 50 basis points.

          At our option, interest accrues on the loans made under the North American credit facility at either:

          Management expects LIBOR borrowing margins under the North American credit facility to remain between 2.0% and 2.75% through June 30, 2009.

          Advances under the North American credit facility are governed by our collateral value, which is based upon percentages of eligible accounts receivable and inventories of our North American operations. Under the credit facility, we must comply with a minimum monthly cumulative EBITDA covenant through December 31, 2008. Thereafter, if availability is less than $30,000,000, we must maintain a minimum fixed charge coverage ratio of 1.0 to 1.0. We were in compliance with all covenants as of June 30, 2008.

          As of June 30, 2008, we had outstanding borrowings of approximately $104.0 million and $30.2 million available for future borrowings under our North American credit facility. As of September 15, 2008, we had outstanding borrowings of approximately $101.3 million and $50.1 million available for future borrowings under the facility.

          At June 30, 2008 and September 15, 2008, we had letters of credit of $175,000 and $2.7 million, respectively, outstanding under the North American credit facility.

          Harbinger Term Loan. We have a $140 million term loan due December 2012 with Harbinger Capital Partners. The term loan is secured by a lien on our North American assets, which is subordinate to our North American credit facility. In April 2008, we entered into an amendment to the term loan, which, among other things:

          The term loan bears interest at the LIBOR rate plus 800 basis points, which was set at 10.64% at June 30, 2008 and 10.49% at September 15, 2008. The term loan amortizes in thirteen equal installments of $5.0 million each, on the last day of each September, December, March and June, commencing on September 30, 2009 with all unpaid amounts due at maturity. As of June 30, 2008, the outstanding balance and accrued interest of the term loan was approximately $145.3 million and as of September 15, 2008, the outstanding principal balance and accrued interest was approximately $148.7 million.

          European Credit Facility. Salton Holdings Limited, Salton Europe Limited and certain European subsidiaries have a £40.0 million (approximately $79.7 million as of June 30, 2008) credit facility with Burdale Financial Limited. The facility agreement consists of a revolving credit facility (which is based upon percentages of eligible accounts receivable and inventories of our European operations) with an aggregate notional maximum availability of £30.0 million (approximately $59.8 million as of June 30, 2008)and two term loan facilities (one related to real property and the other to intellectual property of the European subsidiary group) of £3.5 million and £5.8 million (approximately $7.0 million and $11.6 million, respectively, as of June 30, 2008).

          The credit agreement matures on December 31, 2012 and bears a variable interest rate of Bank of Ireland Base Rate (the “Base Rate”) plus 1.75% on the property term loan, the Base Rate plus 3% on the intellectual property term loan and the Base Rate plus 1.875% on the revolving credit loan (the “revolver loan”), in each case plus certain mandatory costs, payable on the last business day of each month. On each of June 30, 2008 and

September 15, 2008, these rates for borrowings were approximately 6.75%, 8.0% and 6.875% for the property term loan, the intellectual property term loan and the revolver loan, respectively.

          As of June 30, 2008, under the revolver loan, we had outstanding borrowings of £5.9 million (approximately $11.8 million) and £5.3 million (approximately $10.7 million) available for future borrowings. As of September 15, 2008, under the revolver loan, we had outstanding borrowings of £9.65 million (approximately $17.4 million) and £2.2 million (approximately $3.9 million) available for future borrowings. Under the term loans, we had a total of £9.345 million (approximately $18.6 million) of borrowings outstanding as of June 30, 2008 and September 15, 2008. No principal amounts are due on the term loans until December 31, 2012.

          The facility agreement contains a number of significant covenants that, among other things, restrict the ability of certain of our European subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness, pay dividends, repurchase or redeem capital stock, enter into certain investments, make certain acquisitions, engage in mergers and consolidations, create liens, or engage in certain transactions with affiliates and otherwise restrict corporate and business activities. In addition, we are required to comply with a fixed charge coverage ratio. We were in compliance with all covenants as of June 30, 2008.

          Series D Redeemable Preferred Stock. On December 28, 2007 in connection with the merger with APN Holdco, we issued 110,231.336 shares of a new series of our preferred stock, the Series D Nonconvertible (Non Voting) Preferred Stock (the “Series D Preferred Stock”), to Harbinger Capital Partners.

          Ranking. The Series D Preferred Stock ranks with respect to dividends and distributions of assets and rights upon the liquidation, winding up or dissolution of Salton (a “Liquidation”) or a Sale Transaction (defined below) senior to all classes of our common stock and each other class or series of our capital stock which does not expressly rank pari passu with or senior to the Series D Preferred Stock (collectively, referred to as the “Junior Stock”).

          Liquidation Preference. Upon the occurrence of a Liquidation, the holders of shares of Series D Preferred Stock will be paid, prior to any payment or distribution to the holders of Junior Stock, for each share of Series D Preferred Stock held thereby an amount in cash equal to the sum of (x) $1,000 (as adjusted for stock splits, reverse stock splits, combinations, stock dividends, recapitalizations or other similar events of the Series D Preferred Stock, the “Series D Liquidation Preference”) plus, (y) all unpaid, accrued or accumulated dividends or other amounts due, if any, with respect to each share of Series D Preferred Stock.

          “Sale Transaction” means (i) any merger, tender offer or other business combination in which the stockholders owning a majority of our voting securities prior to such transaction do not own a majority of our voting securities of the surviving person, (ii) the voluntary sale, conveyance, exchange or transfer of our voting stock if, after such transaction, the stockholders of Salton prior to such transaction do not retain at least a majority of the voting power, or a sale of all or substantially all of the assets of Salton; or (iii) the replacement of a majority of our board of directors if the election or the nomination for election of such directors was not approved by a vote of at least a majority of the directors in office immediately prior to such election or nomination.

          Dividends. The holders of Series D Preferred Stock are entitled to receive when, as and if declared by the board of directors, out of funds legally available therefore, cumulative dividends at an annual rate equal to 16%, compounded quarterly, of the Series D Liquidation Preference. To the extent not paid, such dividends accrue on a daily basis and accumulate and compound on a quarterly basis from the original date of issuance, whether or not declared. As of June 30, 2008, accrued dividends totaled approximately $9.2 million. As of September 15, 2008, accrued dividends totaled approximately $13.4 million.

          We cannot declare or pay any dividends on, or make any other distributions with respect to or redeem, purchase or otherwise acquire (other than a redemption, purchase or other acquisition of common stock made for purposes of, and in compliance with, requirements of an employee benefit plan or other compensatory arrangement) for consideration, any shares of any Junior Stock unless and until all accrued and unpaid dividends on all outstanding on all outstanding shares of Series D Preferred Stock have been paid in full.

          Voting Rights. The Series D Preferred Stock generally is not entitled or permitted to vote on any matter required or permitted to be voted upon by our stockholders, except as otherwise required under the Delaware General Corporation Law or as summarized below. The approval of the holders of at least a majority of the

outstanding shares of Series D Preferred Stock would be required to (i) authorize or issue any class of Senior Stock or Parity Stock, or (ii) amend the Certificate of Designations authorizing the Series D Preferred Stock or our certificate of incorporation, whether by merger, consolidation or otherwise, so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of Series D Preferred Stock. In those circumstances where the holders of Series D Preferred Stock are entitled to vote, each outstanding share of Series D Preferred Stock would entitle the holder thereof to one vote.

          No Conversion Rights. The Series D Preferred Stock is not convertible into our common stock.

          Mandatory Redemption. On the earlier to occur of (i) a Sale Transaction or (ii) December 28, 2013, each outstanding share of Series D Preferred Stock will automatically be redeemed (unless otherwise prevented by applicable law), at a redemption price per share equal to 100% of the Series D Liquidation Preference, plus all unpaid, accrued or accumulated dividends or other amounts due, if any, on the shares of Series D Preferred Stock. If we fail to redeem shares of Series D Preferred Stock on the mandatory redemption date, then during the period from the mandatory redemption date through the date on which such shares are actually redeemed, dividends on such shares would accrue and be cumulative at an annual rate equal to 18%, compounded quarterly, of the Series D Liquidation Preference.

          Series E Redeemable Preferred Stock. On August 22, 2008, we entered into a definitive Purchase Agreement (the “Purchase Agreement”) with Harbinger Capital Partners, pursuant to which we have the right, in our sole discretion, to cause Harbinger to purchase, from time to time on or prior to August 22, 2011, at one or more closings, and subject to the satisfaction or waiver of certain conditions set forth in the Purchase Agreement, shares of a new series of non-convertible and non-voting preferred stock, the Series E Nonconvertible (Non-Voting) Preferred Stock (“Series E Preferred Stock”). Under the terms of the Purchase Agreement, Harbinger Capital Partners is committed to purchase up to 50,000 shares of Series E Preferred Stock for a purchase price, in immediately available funds, of $1,000 per share, or an aggregate of up to $50 million. We are not required, at any time, to exercise our rights to cause Harbinger to purchase any of the Series E Preferred Stock. In connection with the initial closing of the Purchase Agreement on August 22, 2008, Harbinger Capital Partners purchased 25,000 shares of Series E Preferred Stock in cash for a purchase price of $1,000 per share.

          Ranking. The Series E Preferred Stock ranks with respect to dividends and distributions of assets and rights upon the liquidation, winding up or dissolution of us (a “Liquidation”) or a Sale Transaction (defined below) pari passu to the Series D Preferred Stock and senior to all classes of our common stock and each other class or series of our capital stock which does not expressly rank pari passu with or senior to the Series E Preferred Stock (collectively, referred to as the “Junior Stock”).

          Liquidation Preference. Upon the occurrence of a Liquidation, the holders of shares of Series E Preferred Stock will be paid, pari passu with the holder of the Series D Preferred Stock and prior to any payment or distribution to the holders of Junior Stock, for each share of Series E Preferred Stock held thereby an amount in cash equal to the sum of (x) $1,000 (as adjusted for stock splits, reverse stock splits, combinations, stock dividends, recapitalizations or other similar events of the Series E Preferred Stock, the “Series E Liquidation Preference”) plus, (y) all unpaid, accrued or accumulated dividends or other amounts due, if any, with respect to each share of Series E Preferred Stock.

          “Sale Transaction” means (i) any merger, tender offer or other business combination in which the our stockholders owning a majority of the voting securities prior to such transaction do not own a majority of the voting securities of the surviving person, (ii) the voluntary sale, conveyance, exchange or transfer of our voting stock if, after such transaction, the stockholders of Salton prior to such transaction do not retain at least a majority of the voting power, or a sale of all or substantially all of our assets; or (iii) the replacement of a majority of our board of directors if the election or the nomination for election of such directors was not approved by a vote of at least a majority of the directors in office immediately prior to such election or nomination.

          Dividends. The holders of Series E Preferred Stock are entitled to receive when, as and if declared by the board of directors, out of funds legally available therefore, cumulative dividends at an annual rate equal to 16%, compounded quarterly, of the Series E Liquidation Preference. To the extent not paid, such dividends accrue on a daily basis and accumulate and compound on a quarterly basis from the original date of issuance, whether or not declared. As of September 15, 2008, accrued dividends totaled approximately $300,000.

          We cannot declare or pay any dividends on, or make any other distributions with respect to or redeem, purchase or otherwise acquire (other than a redemption, purchase or other acquisition of common stock made for purposes of, and in compliance with, requirements of an employee benefit plan or other compensatory arrangement) for consideration, any shares of any Junior Stock unless and until all accrued and unpaid dividends on all outstanding on all outstanding shares of Series E Preferred Stock have been paid in full.

          Voting Rights. The Series E Preferred Stock generally is not entitled or permitted to vote on any matter required or permitted to be voted upon by our stockholders, except as otherwise required under the Delaware General Corporation Law or as summarized below. The approval of the holders of at least a majority of the outstanding shares of Series E Preferred Stock would be required to (i) authorize or issue any class of Senior Stock or Parity Stock, or (ii) amend the Certificate of Designations authorizing the Series E Preferred Stock or our certificate of incorporation, whether by merger, consolidation or otherwise, so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of Series E Preferred Stock. In those circumstances where the holders of Series E Preferred Stock are entitled to vote, each outstanding share of Series E Preferred Stock would entitle the holder thereof to one vote.

          No Conversion Rights. The Series E Preferred Stock is not convertible into common stock.

          Mandatory Redemption. On the earlier to occur of (i) a Sale Transaction or (ii) December 28, 2013, each outstanding share of Series E Preferred Stock will automatically be redeemed (unless otherwise prevented by applicable law), at a redemption price per share equal to 100% of the Series E Liquidation Preference, plus all unpaid, accrued or accumulated dividends or other amounts due, if any, on the shares of Series E Preferred Stock. If we fail to redeem shares of Series E Preferred Stock on the mandatory redemption date, then during the period from the mandatory redemption date through the date on which such shares are actually redeemed, dividends on such shares would accrue and be cumulative at an annual rate equal to 18%, compounded quarterly, of the Series E Liquidation Preference.

          Senior Subordinated Notes. In connection with the merger with APN Holdco, we called for redemption of all of the outstanding 12 ¹/4% Senior Subordinated notes due April 15, 2008 at a price of 101% plus accrued and unpaid interest to the redemption date (other than those notes held by Harbinger Capital Partners, which were converted to Series D Preferred Stock). On January 28, 2008, a total of $43.2 million of the notes were redeemed. The total premium paid was $0.4 million. This redemption was financed by additional borrowings under the North American credit facility.

          At June 30, 2008, debt, as a percent of total capitalization was 66.3%, as compared to 4.0% at June 30, 2007. The increase was a result of the new financial arrangements executed in connection with the merger with APN Holdco.

          We are also involved in certain ongoing litigation. See Note 4, Commitments and Contingencies, to the consolidated financial statements included in Schedule I of this Annual Report on Form 10-K for further information.

          We do not have off-balance sheet financing or unconsolidated special purpose entities, except for the standby letters of credit secured under our senior credit facility and other letters of credit, which totaled $0.9 million as of June 30, 2008.

          Our results of operations for the periods discussed have been significantly affected by inflation pressures on the price of raw materials, increases in oil prices, and 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 generally 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. From time to time, we use foreign exchange contracts, which usually mature within one year, to hedge anticipated foreign currency transactions, primarily U.S. dollar

inventory purchases by our foreign commercial subsidiaries in Canada, Latin America and Australia. There were no such contracts outstanding as of June 30, 2008.

          While we transact business predominantly in U.S. dollars and most of our revenues are collected in U.S. dollars, a portion of our costs, such as payroll, rent and indirect operational costs, are denominated in other currencies, such as Australian dollars, British pounds, Canadian dollars and Mexican pesos. In addition, while a portion of our revenues are collected in foreign currencies, a significant portion of the related cost of goods sold is denominated in U.S. dollars. Changes in the relation of these and other currencies to the U.S. dollar will affect our cost of goods sold and operating margins and could result in exchange losses. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted. The exchange rates may not be stable in the future and fluctuations in financial markets may have a material adverse effect on our business, financial condition and results of operations.

          In 1994, China pegged the renminbi (also called the yuan) at an exchange rate of 8.28 to the U.S. dollar. However, U.S. groups argued that the peg made China’s exports to the U.S. cheaper, and U.S. exports to China more expensive, thus greatly contributing to China’s trade surplus with the U.S. In July 2005, China ended its peg to the dollar and let the renminbi fluctuate versus a basket of currencies. Immediately, the new renminbi rate revalued the currency by 2.1% to 8.11 to the dollar. At September 15, 2008, the renminbi exchange rate was 6.85 to the dollar. Because a substantial number of our products are imported from China, the floating currency could result in significant fluctuations in our product costs and could have a material effect on our business.

          From time to time, we use forward exchange and option contracts to reduce fluctuations in foreign currency cash flows related to finished goods and other operating purchases. The purpose of our foreign currency management activity is to reduce the risk that anticipated cash flows and earnings from foreign currency denominated transactions may be affected by changes in exchange rates.

          Our discussion and analysis of financial condition and results of operations included in this Annual Report on Form 10-K is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we deem reasonable to the situation. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in our estimates could materially impact our results of operations and financial condition in any particular period. We believe that some of the more critical estimates and related assumptions that affect our financial condition and results of operations are in the areas of income taxes, the collectability of accounts receivable, inventory valuation reserves, product liability claims and litigation and long-lived assets.

          Management believes that the following may involve a higher degree of judgment or complexity:

          Income Taxes. We are subject to income tax laws in many countries. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements and tax returns. We provide for deferred taxes under the asset and liability method, in accordance with SFAS 109 “Accounting for Income Taxes” and Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). Under such method, deferred taxes are adjusted for tax rate changes as they occur. Significant management judgment is required in developing our provision for income taxes, including the determination of foreign tax liabilities, deferred tax assets and liabilities and any valuation allowances that might be required to be applied against the deferred tax assets. We evaluate our ability to realize our deferred tax assets on a quarterly basis and adjust the amount of our valuation allowance, if necessary. We operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions. Because of the complex issues involved, any claims can require an extended period to resolve. In management’s opinion, adequate provisions for income taxes have been made.

          We record a valuation allowance to reduce our deferred tax assets to the amount that we believe will more likely than not be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would not be

able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to tax expense in the period such determination is made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax assets would increase net income in the period such determination was made.

          In accordance with FIN 48, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax provisions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority

          Collectibility of Accounts Receivable. We record allowances for estimated losses resulting from the inability of our customers to make required payments on their balances. We assess the credit worthiness of our customers based on multiple sources of information and analyze many factors including:

          This assessment requires significant judgment. If the financial condition of our customers were to worsen, additional write-offs may be required. Such write-offs may not be included in the allowance for doubtful accounts at June 30, 2008 and, therefore, a charge to income could result in the period in which a particular customer’s financial condition worsens. Conversely, if the financial condition of our customers were to improve or our judgment regarding their financial condition was to change positively, a reduction in the allowances may be required resulting in an increase in income in the period such determination is made.

          Inventory. We value inventory at the lower of cost or market, using the first-in, first-out (FIFO) method, and regularly review the book value of discontinued product lines and stock keeping units (SKUs) to determine if these items are properly valued. If the market value of the product is less than cost, we will write down the related inventory to the estimated net realizable value. We regularly evaluate the composition of our inventory to identify slow-moving and obsolete inventories to determine if additional write-downs are required. This valuation requires significant judgment from management as to the salability of our inventory based on forecasted sales. It is particularly difficult to judge the potential sales of new products. Should the forecasted sales not materialize, it would have a significant impact on our results of operations and the valuation of our inventory, resulting in a charge to income in the period such determination was made.

          Product Liability Claims and Litigation. We are subject to lawsuits and other claims related to product liability and other matters that are being defended and handled in the ordinary course of business. We maintain accruals for the costs that may be incurred, which are determined on a case-by-case basis, taking into consideration the likelihood of adverse judgments or outcomes, as well as the potential range of probable loss. The accruals are monitored on an ongoing basis and are updated for new developments or new information as appropriate. With respect to product liability claims, we estimate the amount of ultimate liability in excess of applicable insurance coverage based on historical claims experience and current claim estimates, as well as other available facts and circumstances.

          Management believes that the amount of ultimate liability of our current claims and litigation matters, if any, in excess of applicable insurance coverage is not likely to have a material effect on our business, financial condition, results of operations or liquidity. However, as the outcome of litigation is difficult to predict, unfavorable significant changes in the estimated exposures could occur resulting in a charge to income in the period such determination is made. Conversely, if favorable changes in the estimated exposures occur, a reduction in the accruals may be required resulting in an increase in income in the period such determination is made.

          Long-Lived Assets. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of

recoverability is based on an estimate of undiscounted future cash flows resulting from the use of such asset and eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

          Intangible Assets. Identifiable intangibles with indefinite lives are not amortized. Management evaluates the recoverability of finite-lived identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. Management measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds our fair value. The fair value is measured based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires that we make assumptions about future cash flows over the life of the asset being evaluated.

          Goodwill. Management evaluates the carrying value of goodwill and other indefinite lived intangible assets annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below our carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, management compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which uses comparable companies’ data. If the carrying amount of a reporting unit exceeds our fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to our carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to our other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds our implied fair value. Our annual evaluation of goodwill and other indefinite lived intangible assets is in the second quarter of our fiscal year ending June 30.

          Other Estimates. During previous years, we have made significant estimates in connection with specific events affecting our expectations. These have included accruals relating to the consolidation of our operations, plant closings, reduction in employees and product recalls. Additionally, we make a number of other estimates in the ordinary course of business relating to sales returns and allowances, warranty accruals, and accruals for promotional incentives. Circumstances could change which may alter future expectations regarding such estimates. Historically, past changes to these estimates have not had a material impact on our financial condition, but from time to time have significantly affected operations.

          In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually), to fiscal years beginning after November 15, 2008. We do not expect the adoption of SFAS No. 157 to have a material effect on our consolidated financial statements.

          In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). This statement

permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This pronouncement is effective for fiscal years beginning after November 15, 2007. We do not expect that the adoption of SFAS No. 159 will have a material effect on our financial position, results of operations, or cash flows.

          In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS No. 160”). This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest (or minority interest) in a subsidiary and for the deconsolidation of a subsidiary. This pronouncement is effective for us beginning July 1, 2009. Upon the adoption, non-controlling interests will be classified as equity in the balance sheet and income attributed to the non-controlling interest, if any, will be included in our income. The provisions of this standard must be applied prospectively upon adoption except for the presentation and disclosure requirements. We have not yet evaluated the impact of adopting SFAS No. 160 on our financial position, results of operations, or cash flows.

          In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (SFAS No. 161), which amends and expands the disclosure requirements of FASB Statement No. 133, requiring enhanced disclosures about a company’s derivative and hedging activities. This pronouncement is effective for us beginning July 1, 2009. Upon the adoption, we are required to provide enhanced disclosures about (a) how and why we use derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and our related interpretations, and (c) how derivative instruments and related hedged items affect our financial position, results of operations, and cash flows. SFAS No. 161 is effective prospectively, with comparative disclosures of earlier periods encouraged upon initial adoption.

          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations,” which replaces SFAS No. 141 (“SFAS No. 141R”). The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition related costs as incurred. SFAS No. 141R is effective for us beginning July 1, 2009 and will apply prospectively to business combinations completed on or after that date. We have not yet evaluated the impact of adopting SFAS No. 141R on our financial position, results of operations, or cash flows.

          In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP FAS 142-3), which applies to recognized intangible assets that are accounted for pursuant to FASB Statement No. 142 “Goodwill and Other Intangible Assets”. This pronouncement is effective for us beginning July 1, 2009. Upon our adoption, FSP FAS 142-3 requires us to consider our own historical renewal or extension experience in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset. In the absence of entity specific experience, FSP FAS 142-3 requires an entity to consider assumptions that a marketplace participant would use about renewal or extension that are consistent with the highest and best use of the asset by a marketplace participant. FSP FAS 142-3 is effective prospectively for all newly acquired intangible assets after the effective date. Additional disclosures are required for all capitalizable intangible assets as of the effective date.

This item is not required. We are a smaller reporting company, as such term is defined under regulations promulgated by the SEC

Our consolidated financial statements, including the notes to all such statements and other supplementary data are included in Schedule I of this Annual Report on Form 10-K.

None

          (a) Evaluation of Disclosure Controls and Procedures

          We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

          Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of June 30, 2008, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized or reported with the time periods specified in the rules and regulations of the SEC, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

          Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

          Under the supervision and with the participation of our principal executive officer and our principal financial officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2008 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and in accordance with the interpretive guidance issued by the SEC in Release No. 34-55929. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2008.

          This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

          There have been no changes in our internal controls or in other factors that could have a material affect, or are reasonably likely to have a material affect, to the internal controls subsequent to the date of their evaluation in connection with the preparation of this Annual Report on Form 10-K.

          (d) Limitations

          Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Despite these limitations, we have concluded that our disclosure controls and procedures (1) are designed to provide reasonable assurance of achieving their objectives and (2) do provide reasonable assurance of achieving their objectives.

None

The following table sets forth certain information regarding the executive officers of the Company:

          Terry L. Polistina is our President and Chief Executive Officer. Mr. Polistina served as Chief Operating Officer of Applica Incorporated from May 2006 to December 2007 and Chief Financial Officer from January 2001 to December 2007. Mr. Polistina also served as a Senior Vice President of Applica since 1998. Prior thereto, Mr. Polistina held other senior finance positions with Applica. Mr. Polistina also currently serves as a non-executive director of Island Sky Australia Limited, an Australian public company in the water business. Mr. Polistina received his undergraduate degree in Finance from the University of Florida and holds a Masters of Business Administration from the University of Miami.

          Evanghela Hidalgo is our President and General Manager — Americas Division. Ms. Hidalgo served as Vice President, North American Marketing and General Manager — Latin America since January 2006. Ms. Hidalgo has worked in the small electrical appliances business for over a decade, holding several positions of increasing responsibility within Applica. Ms. Hidalgo holds a Master of Business Administration from the University of Miami and her undergraduate degree is from “Instituto Tecnologico de Estudios Superiores de Monterrey” in Mexico City, Mexico.

          Martin J. Burns is our President and General Manager — Europe Division. Mr. Burns served as the Chief Executive Officer of Salton Europe since joining us in 2001. Mr. Burns previously held senior positions in Glen Dimplex from 1978, most recently being Managing Director of Morphy Richards Appliances Limited and Belling Appliances Limited. Mr. Burns is a Fellow of the Institute of Chartered Accountants in Ireland and has a Bachelor of Arts Degree from Queens University, Belfast.

          John M. Silvestri is our President and General Manager — Pet Products Division and has served in such capacity since June 2007. Prior to joining us, Mr. Silvestri served as the Division President (Farnam Pet Products) at Central Garden and Pet, Inc. from December 2004 to January 2007. Prior to that time, Mr. Silvestri held various executive level sales and marketing positions with M&M/Mars Inc. and Procter and Gamble, Inc. Mr. Silvestri graduated from Fordham University with a Bachelor of Science in Marketing.

          Steven A. Trussell is our Vice President, Global Sourcing and Procurement and has served in such capacity since October 2007. Prior to joining us, Mr. Trussell served as Vice President, Global Sourcing and Procurement for World Kitchen, LLC from November 2005 until October 2007. Prior to his position at World Kitchen, Mr. Trussell served in senior management positions in strategic sourcing and global supply chain for Newell Rubbermaid, Eaton Corporation and Toyota Motor Corporation. Mr. Trussell received his undergraduate degree in Business Management from the University of Louisville and holds a Masters of Business Administration from Bellarmine University.

          Ivan R. Habibe is our Vice President and Chief Financial Officer and has served in such capacity since May 2006 and prior thereto held senior finance positions with Applica. Prior to joining Applica in June 2004, Mr. Habibe was a Senior Manager with Deloitte & Touche LLP. Mr. Habibe graduated from Florida International University with a Bachelor of Accounting. Mr. Habibe is also a Certified Public Accountant.

          Lisa R. Carstarphen is our Vice President, General Counsel and Corporate Secretary and has served in such capacity since May 2005. From April 2000 to May 2005, Ms. Carstarphen served as Vice President — Legal at Applica. Prior to joining Applica, Ms. Carstarphen was a shareholder and a senior associate at Greenberg Traurig, P.A., a national law firm. From September 1995 to January 1998, Ms. Carstarphen served as Vice President, Associate Counsel and Assistant Corporate Secretary of Capital Bancorp, a bank holding company. Ms. Carstarphen received her Juris Doctorate from the University of North Carolina at Chapel Hill, where she served as a member of the law review, and her undergraduate degree in Marine Affairs from the University of Miami.

          Additional information required by this item is incorporated by reference to the Proxy Statement for our 2008 Annual Meeting of Stockholders.

          Information required by this item is incorporated by reference to the Proxy Statement for our 2008 Annual Meeting of Stockholders.

          Information required by this item is incorporated by reference to the Proxy Statement for our 2008 Annual Meeting of Stockholders.

          Information required by this item is incorporated by reference to the Proxy Statement for our 2008 Annual Meeting of Stockholders.

          Information required by this item is incorporated by reference to the Proxy Statement for our 2008 Annual Meeting of Stockholders.

          (a)(1) Financial Statements

          The following consolidated financial statements of Salton, Inc. and its subsidiaries are included in Schedule I attached hereto:

          The Valuation and Qualifying Accounts — for the fiscal year ended June 30, 2008, the six months ended June 30, 2007 and the year ended December 31, 2006 are included in Schedule II attached hereto.

          No other schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.

          (a)(3) Exhibits

          See Item 15(a)(3) above.

          See Item 15(a)(2) above.

          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.

          Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

SALTON, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

We have audited the accompanying consolidated balance sheets of Salton, Inc. and subsidiaries as of June 30, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the year ended June 30, 2008, the six months ended June 30, 2007 and the year ended December 31, 2006. Our audits of the basic financial statements including the financial statement schedule listed in the index appearing under Item 15. These financial statements and this financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and this financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Salton, Inc. and subsidiaries as of June 30, 2008 and 2007, and the results of their operations and their cash flows for the year ended June 30, 2008, the six months ended June 30, 2007 and the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As described in Note 12 to the consolidated financial statements, effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”

Fort Lauderdale, Florida
September 25, 2008