SALTON MAXIM HOUSEWARES INC, S-3, 1999-06-25

SALTON MAXIM HOUSEWARES INC
S-3, 1999-06-25
ELECTRIC HOUSEWARES & FANS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1999

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SALTON, INC.
(Exact name of registration as specified in its charter)

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DELAWARE 36-3777824
(State or other jurisdiction of (I.R.S. Employer identification number)
incorporation or organization)
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550 BUSINESS CENTER DRIVE
MOUNT PROSPECT, ILLINOIS 60056
(847) 803-4600
(address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

WILLIAM B. RUE
PRESIDENT AND CHIEF OPERATING OFFICER
550 BUSINESS CENTER DRIVE
MOUNT PROSPECT, ILLINOIS 60056
(847) 803-4600
(name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:

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NEAL AIZENSTEIN, ESQ. EMANUEL S. CHERNEY, ESQ.
SONNENSCHEIN NATH & ROSENTHAL KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
8000 SEARS TOWER 425 PARK AVENUE
CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10022
(312) 876-8938 (212) 836-7061
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number on the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act,
registration number of the earlier effective registration statement for the same
offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES TO BE AMOUNT TO BE AGGREGATE PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $0.01 par value.... 3,358,000 shares $47.688 $160,136,304 $44,518
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</TABLE>

(1) Includes shares of common stock that may be purchased by the underwriters
pursuant to an over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933 (based on the average
high and low sales prices on June 22, 1999).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

SUBJECT TO COMPLETION , 1999
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PROSPECTUS
, 1999

[SALTON LOGO]

2,920,000 SHARES OF COMMON STOCK
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SALTON, INC.

- - We are a leading domestic designer, marketer and distributor of a broad range
of branded, high quality small appliances, tabletop products and personal
care/time products.
- - Our portfolio of well-recognized owned and licensed brand names includes
Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R), George Foreman
Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R), Block(R),
Atlantis(R), Sasaki(R), Rejuvenique(R) and Ingraham(R).

- - Salton, Inc.
550 Business Center Drive
Mount Prospect, Illinois 60056
(847) 803-4600
www.saltoninc.com

- - NYSE SYMBOL: SFP
THE OFFERING:

- - Salton is offering 2,005,000 of the shares and existing stockholders are
offering 915,000 of the shares.

- - The underwriters have an option to purchase an additional 438,000 shares from
Salton and existing stockholders to cover over-allotments.

- - There is an existing trading market for these shares. The last reported sales
price on June 23, 1999 was $49.875 per share.

- - Salton plans to use the proceeds we will receive from this offering to repay
debt and for general corporate purposes. Salton will not receive any proceeds
from the shares sold by the selling stockholders.

- - Closing: , 1999

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<CAPTION>
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to Salton:
Proceeds to selling stockholders:
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</TABLE>

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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DONALDSON, LUFKIN & JENRETTE
PAINEWEBBER INCORPORATED
DLJDIRECT INC.

WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
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[LIST OF BRAND NAMES]
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[PICTURES OF PRODUCTS]
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[PICTURES OF PRODUCTS]
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TABLE OF CONTENTS

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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 6
Use of Proceeds....................... 13
Price Range of Common Stock and
Dividend Policy..................... 14
Capitalization........................ 15
Selected Historical Financial and
Other Data.......................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
</TABLE>

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PAGE
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Business.............................. 27
Management............................ 40
Principal and Selling Stockholders.... 43
United States Federal Income Tax
Considerations to Non-U.S.
Holders............................. 45
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Where You Can Find More Information... 49
Incorporation by Reference............ 49
Index to Financial Statements......... F-1
</TABLE>

We changed our name to "Salton, Inc." from "Salton/Maxim Housewares, Inc."
in January 1999. As used in this prospectus, "we," "our," "us" and "Salton"
refer to Salton and our subsidiaries, unless the context otherwise requires.

i
<PAGE> 7

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
business information and the financial statements and related notes that appear
elsewhere in this prospectus and in the documents that we incorporate by
reference into this prospectus. You may obtain the information incorporated by
reference into this prospectus without charge by following the instructions in
the "Where You Can Find More Information" section of this prospectus. The
information contained in this prospectus assumes that the underwriters do not
exercise the over-allotment option. Unless expressly stated, the information set
forth in this prospectus does not give effect to a proposed three-for-two stock
split to be effected on July 30, 1999.

SALTON, INC.
OVERVIEW

We are a leading domestic designer, marketer and distributor of a broad
range of branded, high quality small appliances, tabletop products and personal
care/time products. We act as a marketing service provider by managing our
brands and product lines in a manner that allows our retail customers to
differentiate themselves to consumers. We have the leading domestic market share
in toasters, juice extractors, indoor grills, bread bakers, griddles, waffle
makers and buffet ranges/hotplates and a significant market share in other
product categories. We believe that our strong market share results from our
well-known brand names, the breadth, quality and innovation of our product
offerings and our strong relationships with retailers and suppliers. We
outsource most of our production to independent manufacturers, primarily in the
Far East.

Our portfolio of well-recognized owned and licensed brand names includes
Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R), George Foreman
Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R), Block(R),
Atlantis(R), Sasaki(R), Rejuvenique(R) and Ingraham(R). We are also a leading
designer and distributor of small appliances in the U.S. under such well-known
names as Kenmore(R) and Magic Chef(R).

We predominantly sell our products to mass merchandisers, department
stores, specialty stores and mail order catalogs. We also sell certain of our
products directly to consumers through paid half-hour television programs
referred to as "infomercials" and through our Internet website,
www.salton-maxim.com. Our customers include many premier domestic retailers,
including Kmart, Dayton Hudson (including Target), Sears, Wal-Mart, Federated
Department Stores, May Company Department Stores, QVC, Bed Bath & Beyond, Saks
Inc. and Costco. We market and sell our products primarily in the U.S. through
our own sales force and a network of independent commissioned sales
representatives.

Our net sales and income from operations grew from fiscal 1995 to fiscal
1998 at compound annual growth rates of approximately 58.3% and 99.7%,
respectively, driven primarily by strong internal growth in our product lines
and strategic acquisitions. Our operating income margins grew from 4.8% in
fiscal 1995 to 9.7% in fiscal 1998. We believe that the following competitive
strengths have contributed to our growth and high operating margins:

- We market diversified product lines through multiple channels of
distribution;

- We have long-standing relationships with a diversified base of suppliers
located primarily in the Far East, which provide us with competitive
manufacturing costs, strong new product introduction capabilities and
flexibility to respond to changes in consumer preferences;

- We have strong customer relationships, which enable us to obtain broad
product placement for new and existing products;

- We have strong brand management capabilities, which allow us to identify
new product trends and expand product lines; and

- Our senior management team has an average of over 20 years of industry
experience.

Our common stock is traded on the New York Stock Exchange under the symbol
"SFP." On June 23, 1999, the last reported sale price of our common stock was
$49 7/8 per share, giving us an equity market capitalization of approximately
$456.6 million based on 9,154,603 shares of our common stock
<PAGE> 8

issued and outstanding, including 2,352,941 shares of our common stock issuable
upon conversion of our convertible preferred stock.

OUR GROWTH STRATEGY

Our primary business objective is to increase sales and profits by acting
as a marketing service provider to our customers. We believe we can accomplish
this through active brand and product management. The key elements of our growth
strategy include:

Introduce New Products and Product Line Extensions. We plan to manage
our existing and new brands through strong product development initiatives,
including introducing new products, modifying existing products and
extending existing product lines. Our product designers strive to develop
new products and product line extensions which offer added value to
consumers through enhanced functionality and improved aesthetics. During
fiscal 1999, we have introduced 101 new stock keeping units, or SKUs, in
the small appliance category, 709 new SKUs in the tabletop products
category and 98 new SKUs in the personal care/time products category.

Increase Sales to New and Existing Customers. We believe that retail
merchants will continue to consolidate their vendor bases and focus on a
smaller number of suppliers that can (1) provide a broad array of
differentiated, quality products, (2) efficiently and consistently fulfill
logistical requirements and volume demands and (3) provide comprehensive
product and marketing support. We believe that we can increase sales to our
existing customers by continuing to introduce new products and new product
categories. While we currently sell to a diversified base of premier retail
customers, we believe that we can penetrate additional channels of
distribution. For example, we recently expanded our product offerings to
specialty retailing, mail order catalog, home center and drug store
channels.

Pursue Licensing Agreements and Strategic Alliances. We have entered
into licensing agreements and strategic alliances in order to further
differentiate our products and to accelerate our growth. For example, we
supply products to Kmart, Sears and Wal-Mart, which they sell under the
White-Westinghouse(R), Kenmore(R) and Magic Chef(R) brand names,
respectively. In addition, we recently obtained licensing rights to market
certain products under the Marilyn Monroe(R), LooneyTunes(R) and Melitta(R)
brands.

Continue Developing Alternative Distribution Channels. We expect to
continue selling our products through infomercials and our Internet
website. These alternative distribution channels increase our product sales
and provide us with direct contact with consumers, assist us in creating
and building brand and product awareness and stimulate traditional retail
channel demand. We currently use these alternative channels to sell certain
of our products, primarily George Foreman Grills(R), Juiceman(R) and
JuiceLady(R) fresh juice machines and the Rejuvenique(R) facial toning
system.

Enhance Growth and Profitability Through Strategic Acquisitions. We
anticipate that the fragmented small household appliance industry will
provide significant growth opportunities through strategic acquisitions. We
will focus our acquisition strategy on businesses or brands which (1) offer
expansion into related or existing categories, (2) can be marketed through
our existing distribution channels or (3) provide a platform for growth
into new distribution channels. In January 1999, we acquired Toastmaster
Inc., which has well-recognized brands in the U.S. and had 1998 sales of
approximately $146.1 million. In April 1999, we acquired certain assets of
Sasaki, Inc., a recognized designer of high-quality tabletop products.

Expand International Presence. We intend to expand international sales
of certain of our products. For example, in March 1999, we entered into a
five-year supply agreement with Zellers, the leading national chain of
discount department stores in Canada, to supply a broad range of small
appliances under the White-Westinghouse(R) brand name.

2
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THE OFFERING

Common stock offered by:

Salton, Inc................ 2,005,000 shares

Selling stockholders....... 915,000 shares

Total.............. 2,920,000 shares

Common stock to be
outstanding after the
offering................... 9,263,453 shares. This does not include 1,896,150
shares of our common stock issuable upon
conversion of our convertible preferred stock
which will be outstanding following this
offering, or 764,730 shares issuable upon
exercise of outstanding options under our various
equity plans.

Use of proceeds.............. We intend to use the estimated net proceeds of
approximately $94.4 million, based on an offering
price of $49 7/8 per share and after deducting
the estimated underwriters' discounts and
commissions and offering expenses, that we will
receive from this offering to repay a portion of
amounts outstanding under our credit agreement
and for general corporate purposes. We will not
receive any of the proceeds from the sale of our
common stock by the selling stockholders.

NYSE symbol.................. SFP

3
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following tables present our summary financial data. The summary
historical statement of income data for the fiscal years ended June 29, 1996,
June 28, 1997 and June 27, 1998 is from our audited consolidated financial
statements and related notes, which appear elsewhere in this prospectus. The
summary historical statement of income data for the thirty-nine weeks ended
March 27, 1999 and March 28, 1998 is from our unaudited interim financial
statements and, in our opinion, include all adjustments consisting only of
normal recurring adjustments, necessary for a fair presentation. Operating
results for the thirty-nine weeks ended March 27, 1999 include the operating
results of Toastmaster from its acquisition date of January 7, 1999 and do not
necessarily show what the results for a full year will be.

You should read the following information together with our historical and
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.

We have presented our summary balance sheet data as of March 27, 1999, as
adjusted, as if our offering of 2,005,000 shares of our common stock and the
application of the net proceeds had occurred on March 27, 1999 at an assumed
public offering price of $49 7/8 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
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JUNE 29, JUNE 28, JUNE 27, JUNE 27, 1998 MARCH 28, MARCH 27, MARCH 27, 1999
1996 1997 1998 PRO FORMA(1) 1998 1999 PRO FORMA(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF EARNINGS:
Net sales................. $99,202 $182,806 $305,599 $465,201 $236,025 $371,412 $462,436
Gross profit.............. 26,423 53,407 113,896 144,923 85,985 142,517 154,010
Selling, general, and
administrative
expenses................ 21,343 42,944 84,216 106,596 62,961 90,832 104,356
------- -------- -------- -------- -------- --------- --------
Operating income.......... 5,080 10,463 29,680 38,327 23,024 51,685 49,654
Interest expense, net..... (3,934) (4,063) (5,333) (15,579) (4,244) (9,899) (12,469)
Cost associated with
refinancing............. -- -- (1,133) (1,133) -- -- --
Other expense............. -- -- -- (785) -- -- --
Realized gain on sale of
marketable securities... -- -- 8,972 8,972 724 -- --
------- -------- -------- -------- -------- --------- --------
Income before income
taxes................... 1,146 6,400 32,186 29,802 19,504 41,786 37,185
Income tax expense
(benefit)............... (3,450) 2,001 12,205 11,418 7,154 14,131 14,357
------- -------- -------- -------- -------- --------- --------
Net income................ $ 4,596 $ 4,399 $ 19,981 $ 18,384 $ 12,350 $ 27,655 $ 22,828
======= ======== ======== ======== ======== ========= ========
Basic earnings per common
share(2)................ $ 0.71 $ 0.34 $ 1.53 $ 2.05 $ 0.95 $ 3.78 $ 2.52
======= ======== ======== ======== ======== ========= ========
Diluted earnings per
common share(2)......... $ 0.69 $ 0.34 $ 1.48 $ 1.66 $ 0.92 $ 2.79 $ 2.00
======= ======== ======== ======== ======== ========= ========
Weighted average shares
outstanding(2).......... 6,509 12,840 13,062 8,989 13,056 7,321 9,041
Diluted weighted average
shares outstanding(2)... 6,628 13,082 13,506 11,106 13,492 9,911 11,441
OTHER DATA:
Cash flows provided by
(used in):
Operating activities.... $.(3,571) $ (8,966) $(25,102) N/A $(18,292) $ 18,778 N/A
Investing activities.... (4,280) (6,348) 14,507 N/A (2,435) (109,428) N/A
Financing activities.... 7,849 17,922 8,643 N/A 18,887 109,805 N/A
EBITDA(3)................. 7,276 13,599 33,981 $ 47,175 25,914 56,235 $ 56,583
EBITDA margin(3).......... 7.3% 7.4% 11.1% 10.1% 11.0% 15.1% 12.2%
Capital expenditures...... $ 4,280 $ 4,608 $ 4,565 $ 8,094 $ 3,823 $ 1,436 $ 2,004
</TABLE>

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AS OF MARCH 27, 1999
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ACTUAL AS ADJUSTED
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BALANCE SHEET DATA (AT PERIOD END):
Cash...................................................... $ 19,823 $ 35,245
Working capital........................................... 153,245 202,537
Total assets.............................................. 315,775 331,197
Total debt................................................ 216,814 139,814
Stockholders' equity...................................... 42,666 136,458
</TABLE>

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(1) In July 1998, we issued $40.0 million of our convertible preferred stock to
affiliates of Centre Partners Management LLC, and we repurchased 6,535,072
shares of our common stock owned by Windmere-Durable Holdings, Inc. for $12
per share plus a $15.0 million junior subordinated note. In December 1998,
we issued $125.0 million of 10 3/4% senior subordinated notes, primarily to
repay certain indebtedness. In January 1999, we acquired Toastmaster for
aggregate consideration of approximately $53.2 million. We also repaid
approximately $57.8 million of Toastmaster's outstanding indebtedness in
connection with the acquisition. The unaudited pro forma statement of income
data set forth above gives effect to these transactions and our application
of the net proceeds from the sale of 2,005,000 shares of common stock in
this offering, at an assumed public offering price of $49 7/8 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses, as if they had occurred on June 29, 1997.

(2) After giving effect to the three-for-two stock split of Salton's common
stock to be effected on July 30, 1999, the share data would be as follows:

(3) You should consider the following when reading the summary historical
statements of income data:

- EBITDA represents operating income plus depreciation and amortization.

- EBITDA margin represents EBITDA as a percentage of net sales.

We have included EBITDA because we believe that investors find it to be a
useful tool for measuring a company's ability to generate cash. EBITDA does
not represent cash flow from operations, as defined by generally accepted
accounting principles. In addition, you should not consider EBITDA as a
substitute for net income or net loss, as an indicator of our operating
performance or cash flow or as a measure of liquidity.

5
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RISK FACTORS

Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all other information included or incorporated
by reference in this prospectus, before you decide whether to purchase shares of
our common stock.

IF WE ARE UNABLE TO INTEGRATE TOASTMASTER EFFECTIVELY, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.

We cannot assure you that we will successfully integrate Toastmaster with
our business operations. We must integrate the administrative, finance,
purchasing, product development and sales and marketing activities of Salton and
Toastmaster in order to realize the full benefits from our acquisition of
Toastmaster. The integration also requires the implementation of appropriate
operational, financial and management systems and controls. We may encounter
difficulties in expanding our financial controls and reporting systems to meet
our future needs. If we fail to successfully integrate the operations of Salton
and Toastmaster, or if anticipated revenue enhancements and cost savings are not
realized, our business, results of operations and financial condition would be
materially adversely affected.

WE DEPEND ON OUR MAJOR CUSTOMERS.

Our success depends on our sales to our significant customers. Our total
net sales to our five largest customers during the thirty-nine weeks ended March
27, 1999 were approximately 55% of net sales, with our largest customer, Kmart,
representing approximately 18% of our net sales. Our total net sales to our five
largest customers during fiscal 1998 were approximately 47% of net sales, with
our largest customer, Kmart, representing approximately 19% of our net sales.
Except for our supply agreements with Kmart and Zellers, we do not have
long-term agreements with our major customers, and purchases are generally made
through the use of individual purchase orders. A significant reduction in
purchases by any of these major customers or a general economic downturn in
retail sales could have a material adverse effect on our business, financial
condition and results of operations.

THE TERMINATION OF OUR SUPPLY AGREEMENT WITH KMART COULD ADVERSELY AFFECT OUR
BUSINESS.

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

The initial term of our agreement with Kmart expires on June 30, 2004.
However, Kmart may terminate the agreement without cause after June 30, 2002, or
if the supply agreement between Kmart and Windmere relating to consumer
electronic products sold under the White-Westinghouse(R) name is terminated.
Kmart may also terminate our agreement on the basis of any claim which Kmart
reasonably believes impairs or would impair Kmart's ability to receive the
benefits of its supply agreement with Windmere or us. The trademark litigation
described in the next risk factor existed prior to the execution of our supply
agreement with Kmart. However, if Kmart were to view such litigation as a claim
which it reasonably believes would impair its ability to receive the benefits of
its agreement with Windmere or us, it could terminate our supply agreement.

During the thirty-nine weeks ended March 27, 1999, Kmart purchased
approximately $53.4 million of our products, which accounted for approximately
14% of our net sales. During fiscal 1998, Kmart purchased approximately $58.9
million of our products, which accounted for approximately 19% of our net sales.
The termination or any significant modification of our supply agreement with
Kmart could have a material adverse effect on our business, financial condition
and results of operations.

AN ADVERSE DECISION IN LITIGATION AND ARBITRATION PROCEEDINGS COULD ADVERSELY
AFFECT OUR BUSINESS.

We are a party to trademark litigation involving the White-Westinghouse(R)
name and an arbitration proceeding involving our Juiceman(R) product line. An
adverse decision in either of these proceedings could have a material adverse
effect on our business, financial condition and results of operations.

In November 1996, White Consolidated filed suit for injunctive relief and
damages against Westinghouse Electric Corporation (now known as CBS Corporation)
in the United States District Court for the Northern District of Ohio alleging
that CBS's grant of licenses to the Westinghouse(TM) name for use
6
<PAGE> 13

on lighting products, fans and electrical accessories for use in the home
violates White Consolidated's rights to the Westinghouse(TM) name and
constitutes a breach of the agreements under which CBS's predecessor sold White
Consolidated its appliance business and licensed certain trademark rights in
1975. In response to that suit, CBS filed a related action in December 1996 in
the United States District Court for the Western District of Pennsylvania,
naming White Consolidated, Windmere, Salton and certain other parties as
defendants. The two actions have now been consolidated in the Pennsylvania
court. A trial date of June 28, 1999 has been set by the court. CBS seeks an
injunction prohibiting us, Windmere and White Consolidated from using the
White-Westinghouse(R) name on products not specifically enumerated in the sale
documents between CBS's predecessor and White Consolidated, and unspecified
damages and attorneys' fees. An adverse decision in this trademark litigation
could prohibit or restrict the further use of the White-Westinghouse(R) name by
us and/or Windmere and therefore could result in the possible termination or
significant modification of our supply agreement with Kmart and our supply
agreement with Zellers.

The legal costs that may be incurred in defending against this action could
be substantial. In addition, the litigation could be protracted and result in
diversion of our management and other resources. White Consolidated is currently
defending us in this action. We cannot assure you that White Consolidated will
prevail in its lawsuit, or that White Consolidated, Salton and the other
co-defendants will prevail in the defense of CBS's lawsuit. In the event that a
favorable outcome for us is not obtained, we intend to vigorously pursue our
right to indemnification under indemnification provisions in our license
agreements with White Consolidated relating to the White-Westinghouse(R) brand
name. We cannot assure you that White Consolidated will agree on the scope of
the indemnity, or that any such indemnity payment which may become due to us
will be paid fully or in a timely fashion or at all.

Related proceedings have also been commenced before the Trademark Trial and
Appeal Board of the United States Patent and Trademark Office in opposition to
White Consolidated's and CBS's efforts to register certain uses of the
Westinghouse(TM) and White-Westinghouse(R) names. Such proceedings have been
stayed pending resolution of the trademark litigation in the Pennsylvania court.
Even if the trademark litigation is resolved in our favor, it is possible that
the proceedings before the Trademark Board will continue and could have a
material adverse effect upon our business, financial condition and results of
operations.

In April 1999, Jay Kordich filed a notice of arbitration asserting a breach
of contract claim against us due to our alleged failure to pay royalties to Mr.
Kordich for the sale of certain juice extractors and related health products.
Mr. Kordich also asserted various other causes of action for an accounting,
breach of covenant of good faith and fair dealing, trademark infringement,
unfair competition, permanent injunction, fraud, negligent misrepresentation,
age discrimination, Lanham Act violations, breach of fiduciary duty and
rescission of contract, and Mr. Kordich is seeking compensatory and punitive
damages of $15 million. An arbitration hearing has been scheduled for September
17, 1999. Although we believe that Mr. Kordich's claims are without merit, an
adverse decision in the arbitration proceeding could prohibit or restrict our
further use of the Juiceman(R) name.

A SIGNIFICANT DECLINE IN SALES OF OUR GEORGE FOREMAN GRILLS(R), JUICEMAN(R) OR
BREADMAN(R) PRODUCT LINES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our George Foreman Grills(R), Juiceman(R) and Breadman(R) product lines,
which include approximately 172 SKUs in the aggregate, have been important to
Salton's growth to date. Our total net sales of these product lines were
approximately 57% of our total net sales during the thirty-nine weeks ended
March 27, 1999 and approximately 62% of our total net sales in fiscal 1998. As a
result, a significant decline in the sales of any of these product lines would
have a material adverse effect on our business, results of operations and
financial condition.

WE DEPEND ON THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS.

We believe that our future success will depend in part upon our ability to
continue to introduce innovative designs in our existing products and to
develop, manufacture and market new products. We may not successfully introduce,
market and manufacture any new products or product innovations or develop
7
<PAGE> 14

and introduce in a timely manner innovations to our existing products which
satisfy customer needs or achieve market acceptance. If we fail to develop
products and introduce them successfully and in a timely manner, our business,
financial condition and results of operations could be materially adversely
affected.

OUR DEPENDENCE ON FOREIGN SUPPLIERS COULD ADVERSELY AFFECT OUR BUSINESS.

We depend upon unaffiliated foreign companies for the manufacture of most
of our products. During the thirty-nine weeks ended March 27, 1999, one
manufacturer located in China accounted for approximately 53% of our product
purchases. During fiscal 1998, three manufacturers located in China accounted
for approximately 13%, 12% and 10%, respectively, of our product purchases. We
believe that the loss of any one or more of our suppliers would not have a long
term material adverse effect on our business, financial condition and results of
operations, because other manufacturers with whom we do business would be able
to increase production to fulfill our requirements. However, the loss of certain
of our suppliers could, in the short term, adversely affect our business until
alternative supply arrangements were secured.

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

- import duties;

- trade restrictions;

- production delays due to unavailability of parts or components;

- increase in transportation costs and transportation delays;

- work stoppages;

- foreign currency fluctuations; and

- political instability.

These risks could adversely affect our business, financial condition and results
of operations.

China currently enjoys most-favored-nation ("MFN") trading status granted
by the United States, pursuant to which the United States imposes the lowest
applicable tariffs on Chinese exports to the United States. The United States
annually reconsiders the renewal of MFN trading status for China. We cannot
assure you that China's MFN trading status will be renewed in the future. If MFN
status for goods produced in China were removed, there would be a substantial
increase in tariffs imposed on goods of Chinese origin entering the United
States, including those manufactured for us, which could have a material adverse
impact on our business, financial condition and results of operations.

COMPETITION COULD ADVERSELY IMPACT OUR PERFORMANCE.

The markets for our products are highly competitive. We believe that
competition is based upon several factors, including:

- price;

- access to retail shelf space;

- product features and enhancements;

- brand names;

- new product introductions; and

- marketing support and distribution approaches.

We compete with established companies, a number of which have substantially
greater facilities, personnel, financial and other resources than we have.
Significant new competitors or increased

8
<PAGE> 15

competition from existing competitors may adversely affect our business,
financial condition and results of operations.

OUR PERFORMANCE CAN FLUCTUATE WITH THE FINANCIAL CONDITION OF THE RETAIL
INDUSTRY.

We sell our products to consumers through major retail channels, primarily
mass merchandisers, department stores, specialty stores and mail order catalogs.
As a result, our business and financial results can fluctuate with the financial
condition of our retail customers and the retail industry. Certain of our retail
customers, such as Service Merchandise and Caldor, have filed for bankruptcy
protection in recent years. We continually monitor and evaluate the credit
status of our customers and attempt to adjust sales terms as appropriate.
Despite these efforts, a bankruptcy filing by, or other adverse change in the
financial condition of, a significant customer could have a material adverse
effect on our business, financial condition and results of operations.

POTENTIAL FUTURE ACQUISITIONS AND ACQUISITION FINANCING COULD ADVERSELY AFFECT
OUR BUSINESS AND FINANCIAL CONDITION.

We continue to seek opportunities to acquire businesses and product lines
that fit within our acquisition strategy. We may not successfully identify
acceptable acquisition candidates or integrate any acquired operations. Any
future acquisitions may materially and adversely affect our business, financial
condition and results of operations. Opportunities for growth through
acquisitions, future operating results and the success of acquisitions may be
subject to the effects of, and changes in, United States and foreign trade and
monetary policies, laws and regulations, political and economic developments,
inflation rates, and the effect of taxes and operating conditions.

Our acquisitions of additional businesses and product lines may require
additional capital and the consent of our lenders and may have a significant
impact on our financial position and results of operations. We may finance
acquisitions with internally generated funds, bank borrowings, public offerings
or private placements of debt or equity securities, or through a combination of
these sources. This may have the effect of increasing our debt and reducing our
cash available for other purposes. In addition, if we issue shares of common
stock in connection with future acquisitions, you may experience dilution to the
net tangible book value of your stock.

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

OUR INDEBTEDNESS MAY RESTRICT OUR ABILITY TO PURSUE OUR GROWTH STRATEGY.

As of March 27, 1999, after giving pro forma effect to this offering, we
would have had total consolidated indebtedness of approximately $139.8 million
and total stockholders' equity of $136.5 million. We may incur additional
indebtedness in the future, including through additional borrowings under our
credit agreement, subject to the satisfaction of certain financial tests.

The degree to which we are leveraged could:

- make it more difficult for us to satisfy our obligations;

- make us more vulnerable to general adverse economic and industry
conditions;

- limit our ability to obtain additional financing to fund future working
capital, capital expenditures or other general corporate requirements;

- require us to dedicate a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures or other general corporate
purposes;
9
<PAGE> 16

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

- place us at a competitive disadvantage with less leveraged competitors.

The terms of our credit agreement and senior subordinated notes impose
significant restrictions on our ability to, among other things, borrow and make
investments, acquire other businesses, make capital expenditures and pay
dividends. In addition, our credit agreement requires us to satisfy specified
financial covenants. Our ability to comply with these provisions depends, in
part, on factors over which we may have no control. These restrictions could
adversely affect our ability to pursue our growth strategy. If we breach any of
our financial covenants or fail to make scheduled payments, our creditors could
declare all amounts owed to them to be immediately due and payable. We may not
have available funds sufficient to repay the amounts declared due and payable,
and we may have to sell assets to repay those amounts. Our credit agreement is
secured by substantially all of our assets. If we cannot repay all amounts that
we have borrowed under our credit agreement, our lenders could proceed against
our assets.

OUR MANUFACTURING FACILITIES EXPOSE US TO THE RISKS OF POTENTIAL RAW MATERIAL
SHORTAGES AND
ENVIRONMENTAL LIABILITIES.

We manufacture our Toastmaster(R) toasters, countertop ovens and electric
heating elements at our owned plant in Macon, Missouri. We also manufacture
Ingraham(R) time products at our owned plant in Laurinburg, North Carolina.
Although we have begun to outsource certain of our Toastmaster(R) products with
overseas vendors, we are currently continuing to manufacture certain products at
these plants. We may not be able to manufacture products successfully and in a
cost effective manner. Our manufacture of these products exposes us to
additional risks, including those relating to the price and availability of raw
materials and potential liabilities for environmental damage that our
manufacturing facilities may have caused or may cause nearby land owners. During
the ordinary course of its operations, Toastmaster has received, and we expect
that we may in the future receive, citations or notices from governmental
authorities asserting that the manufacturing facilities are not in compliance
with applicable environmental regulations. Toastmaster has generally worked
with, and we expect to generally work with, the authorities to resolve the
issues raised by the citations or notices. However, we may not always be
successful in this regard and such citations or notices could have a material
adverse effect on our business, results of operations and financial condition.

LOSS OF KEY PERSONNEL COULD IMPAIR OUR SUCCESS.

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

10
<PAGE> 17

OWNERSHIP BY A SIGNIFICANT STOCKHOLDER MAY ADVERSELY AFFECT THE MARKET FOR OUR
COMMON STOCK.

We anticipate that immediately following this offering, Centre Partners and
entities directly or indirectly controlled by Centre Partners will beneficially
own in the aggregate 19.2% of our common stock. Centre Partners will be able to
exercise significant influence with respect to the election of directors or
major corporate transactions such as a merger or sale of all or substantially
all of our assets. Centre Partners generally has the right to designate two
directors as long as it and its affiliates own at least 12.5% of the total
voting power of Salton and one director as long as it and its affiliates own at
least 7.5% of the total voting power of Salton. The interests of Centre Partners
may conflict with the interests of other stockholders.

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

Our business is highly seasonal, with operating results varying from
quarter to quarter. We have historically experienced higher sales during the
months of August through November primarily due to increased demand by customers
for our products attributable to holiday sales. This seasonality has also
resulted in additional interest expense for us during this period due to an
increased need to borrow funds to maintain sufficient working capital to finance
product purchases and customer receivables for the seasonal period. Lower sales
than expected by us during this period, a lack of availability of product, a
general economic downturn in retail sales or the inability to service additional
interest expense due to increased borrowings could have a material adverse
effect on our business, financial condition and results of operations.

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

We face exposure to product recalls and product liability claims in the
event that our products are alleged to have manufacturing or safety defects or
to have resulted in injury or other adverse effects. Although we maintain
product liability insurance in amounts that we believe are reasonable, we cannot
assure you that we will be able to maintain our product liability insurance on
acceptable terms, if at all, in the future or that product liability claims will
not exceed the amount of our insurance coverage. We do not maintain product
recall insurance. As a result, we cannot assure you that product recalls and
product liability claims will not have a material adverse effect on our
business, financial condition and results of operations.

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

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

We license various trademarks and tradenames from third parties for use on
our products. These licenses generally place marketing obligations on us in
exchange for various 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.

GOVERNMENT REGULATIONS COULD ADVERSELY IMPACT OUR OPERATIONS.

Most federal, state and local authorities require Underwriters Laboratory,
Inc. ("UL"), 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. Our products,
or additional electrical appliances which may be developed by us, may not meet
the
11
<PAGE> 18

specifications required by these authorities. A determination that we are not in
compliance with such rules and regulations could result in the imposition of
fines or an award of damages to private litigants. These and other initiatives
could have a material adverse effect on our business, financial condition and
results of operations.

YEAR 2000 ISSUES MAY DISRUPT OUR OPERATION.

We believe that all of our systems are Year 2000 compliant. However, if any
of our systems are not compliant or if our customers or suppliers fail to
achieve Year 2000 compliance, we may experience the following adverse
consequences:

- We may be unable to receive our products due to failures by our
suppliers;

- Our customers may be unable to place orders with us due either to our
system failures or those of our customers;

- We may be unable to deliver our products on a timely basis; and

- Our customers may be unable to receive and/or pay for our products on a
timely basis.

For a description of our Year 2000 compliance efforts you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Issues."

TAKEOVER DEFENSE PROVISIONS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK.

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

- a classified board of directors;

- a prohibition on stockholder action through written consents;

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

- availability of "blank check" preferred stock.

WE DO NOT ANTICIPATE PAYING DIVIDENDS.

We have not paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion of our operations and for general corporate
purposes, including future acquisitions. In addition, our credit agreement and
senior subordinated notes prohibit us from paying dividends on our capital
stock.

OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM CURRENT BELIEFS.

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation the statements under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." The words
"believes," "anticipates," "plans," "expects," "intends," "estimates" and
similar expressions are intended to identify forward-looking statements. These
forward looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements,
or

12
<PAGE> 19

industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following:

- the integration of Toastmaster, including the failure to realize
anticipated revenue enhancements and cost savings;

- our relationship and contractual arrangements with key customers,
suppliers and licensors;

- the risks relating to pending legal proceedings;

- cancellation or reduction of orders;

- the timely development, introduction and customer acceptance of our
products;

- dependence on foreign suppliers and supply and manufacturing constraints;

- competitive products and pricing;

- economic conditions and the retail environment;

- the availability and success of future acquisitions;

- our degree of leverage;

- the risks related to intellectual property rights;

- year 2000 issues; and

- other factors both referenced and not referenced in this prospectus.

USE OF PROCEEDS

We estimate the net proceeds from the sale of the 2,005,000 shares of
common stock offered by Salton will be approximately $94.4 million, at an
assumed offering price of $49 7/8 per share and after deducting estimated
underwriting discounts and commissions and offering expenses. We will not
receive any proceeds from the sale of common stock by the selling stockholders.

We will use the net proceeds of this offering to repay $45.0 million of
indebtedness incurred in connection with the acquisition of Toastmaster under
our tranche B term loan, together with a prepayment premium of approximately
$900,000, and approximately $32.0 million of indebtedness under our revolving
credit facility. The tranche B term loan bears interest at an established base
rate equivalent to the prime rate of interest plus an applicable margin of 225
basis points or, at our election, a eurodollar rate equivalent to the LIBOR rate
plus an applicable margin of 325 basis points. At March 27, 1999, the base rate
plus applicable margin on the tranche B term loan was 8.3%. The tranche B term
loan matures on March 26, 2007. The revolving credit facility, which matures in
2004, has an interest rate equal to an established base rate equivalent to the
prime rate of interest plus an applicable margin of 200 basis points or, at our
election, a eurodollar rate equivalent to the LIBOR rate plus an applicable
margin of 300 basis points based on a range of return of total debt to earnings
before interest, taxes, depreciation and amortization. On March 27, 1999, the
base rate plus applicable margin on the revolving credit facility was 7.9%. We
have used amounts outstanding under our revolving credit facility for general
working capital purposes and may reborrow any amounts that we repay under the
revolving credit facility.

We will use the remaining net proceeds, approximately $15.4 million, for
working capital and other general corporate purposes, including possible
acquisitions.

13
<PAGE> 20

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock has traded on the New York Stock Exchange under the symbol
"SFP" since February 26, 1999. From October 1991 until February 25, 1999, our
common stock traded on the Nasdaq National Market under the symbol "SALT". The
following table sets forth, for the periods indicated, the high and low sales
prices for the common stock as reported on the Nasdaq National Market prior to
February 26, 1999 and on the New York Stock Exchange after such date.

<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL 1997
First Quarter............................................. $ 8 5/8 $ 4 1/2
Second Quarter............................................ $ 8 3/4 $ 6 1/4
Third Quarter............................................. $ 9 $ 5 5/8
Fourth Quarter............................................ $ 8 1/4 $ 6 3/8
FISCAL 1998
First Quarter............................................. $10 $ 6 1/2
Second Quarter............................................ $11 $ 7 1/4
Third Quarter............................................. $11 1/4 $ 8
Fourth Quarter............................................ $13 7/8 $ 9 7/8
FISCAL 1999
First Quarter............................................. $16 3/4 $11 1/2
Second Quarter............................................ $23 1/4 $ 8 7/8
Third Quarter............................................. $34 1/4 $21
Fourth Quarter (through June 23, 1999).................... $50 3/8 $22
</TABLE>

On June 23, 1999, the reported last sales price of our common stock on the
New York Stock Exchange was $49 7/8 per share.

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

14
<PAGE> 21

CAPITALIZATION

The following table presents the capitalization of Salton as of March 27,
1999 on an actual basis and as adjusted to reflect the issuance by Salton of the
2,005,000 shares of common stock offered by this prospectus at an estimated
offering price of $49 7/8 per share, after deducting underwriting discounts and
commissions and estimated offering expenses, and the application of the net
proceeds from this offering. You should read the capitalization information set
forth in the table below together with the more detailed consolidated financial
statements and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
MARCH 27, 1999
----------------------
ACTUAL AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 19,823 $ 35,245
======== ========
Total debt:
Credit agreement:
Revolving credit facility(1).............................. 32,000 --
Tranche B term loan....................................... 45,000 --
Other current debt.......................................... 1,793 1,793
10 3/4% senior subordinated notes due 2005.................. 125,000 125,000
Junior subordinated notes payable........................... 13,021 13,021
-------- --------
Total debt........................................ 216,814 139,814
-------- --------
Stockholders' equity:
Convertible preferred stock............................... * *
Common stock.............................................. 131 131
Treasury stock............................................ (90,804) (56,585)
Accumulated other comprehensive income.................... 7 7
Paid-in capital........................................... 90,730 150,861
Retained earnings......................................... 42,602 42,044
-------- --------
Total stockholders' equity........................ 42,666 136,458
-------- --------
Total capitalization.............................. $259,480 $276,272
======== ========
</TABLE>

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

* Less than $1,000.

(1) Represents a commitment of up to $80.0 million.

15
<PAGE> 22

SELECTED HISTORICAL FINANCIAL AND OTHER DATA

The following table presents our selected historical financial data as of
and for the fiscal years ended July 2, 1994, July 1, 1995, June 29, 1996, June
28, 1997 and June 27, 1998. This data is from our audited consolidated financial
statements and related notes. This table also presents our selected historical
financial data below as of and for the thirty-nine weeks ended March 27, 1999
and March 28, 1998. This data is from our unaudited interim financial statements
and, in our opinion, includes all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation. Operating results for
the thirty-nine weeks ended March 27, 1999 include the operating results of
Toastmaster from its acquisition date of January 7, 1999 and do not necessarily
show what the results for a full year will be.

You should read the following information together with our historical
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.

<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEARS ENDED ENDED
-------------------------------------------------- ---------------------
JULY 2, JULY 1, JUNE 29, JUNE 28, JUNE 27, MARCH 28, MARCH 27,
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS:
Net sales.................................. $48,807 $76,991 $99,202 $182,806 $305,599 $236,025 $ 371,412
Cost of goods sold......................... 37,333 55,552 66,923 121,590 179,376 141,643 214,374
Distribution expenses...................... 3,412 4,569 5,856 7,809 12,327 8,397 14,521
------- ------- ------- -------- -------- -------- ---------
Gross profit............................... 8,062 16,870 26,423 53,407 113,896 85,985 142,517
Selling, general, and administrative
expenses................................. 8,470 13,142 21,343 42,944 84,216 62,961 90,832
------- ------- ------- -------- -------- -------- ---------
Operating income (loss).................... (408) 3,728 5,080 10,463 29,680 23,024 51,685
Interest expense, net...................... (2,047) (3,057) (3,934) (4,063) (5,333) (4,244) (9,899)
Cost associated with refinancing........... -- -- -- -- (1,133) -- --
Realized gain on sale of marketable
securities............................... -- -- -- -- 8,972 724 --
Class action lawsuit expense............... (489) -- -- -- -- -- --
------- ------- ------- -------- -------- -------- ---------
Income (loss) before income taxes.......... (2,944) 671 1,146 6,400 32,186 19,504 41,786
Income tax expense (benefit)............... 20 (3,450) 2,001 12,205 7,154 14,131
------- ------- ------- -------- -------- -------- ---------
Net income (loss).......................... $(2,944) $ 651 $ 4,596 $ 4,399 $ 19,981 $ 12,350 $ 27,655
======= ======= ======= ======== ======== ======== =========
Basic earnings (loss) per common
share(1)................................. $ (0.58) $ 0.12 $ 0.71 $ 0.34 $ 1.53 $ 0.95 $ 3.78
======= ======= ======= ======== ======== ======== =========
Diluted earnings (loss) per common
share(1)................................. $ (0.58) $ 0.11 $ 0.69 $ 0.34 $ 1.48 $ 0.92 $ 2.79
======= ======= ======= ======== ======== ======== =========
Weighted average shares outstanding(1)..... 5,050 5,630 6,509 12,840 13,062 13,056 7,321
Diluted weighted average shares
outstanding(1)........................... 5,050 5,901 6,628 13,082 13,506 13,492 9,911
OTHER DATA:
Cash flows provided by (used in):
Operating activities..................... $(1,369) $ 3,533 $(3,571) $ (8,966) $(25,102) $(18,292) $ 18,778
Investing activities..................... (405) (2,327) (4,280) (6,348) 14,507 (2,435) (109,428)
Financing activities..................... 1,774 (1,202) 7,849 17,922 8,643 18,887 109,805
EBITDA(2).................................. 1,142 5,714 7,276 13,599 33,981 25,914 56,235
EBITDA margin(2)........................... 2.3% 7.4% 7.3% 7.4% 11.1% 11.0% 15.1%
Capital expenditures....................... $ 405 $ 2,327 $ 4,280 $ 4,608 $ 4,565 $ 3,823 $ 1,436
BALANCE SHEET DATA (AT PERIOD END):
Cash....................................... $ 1,500 $ 5,849 $ 3,983 $ 2,613 $ 661 $ 774 $ 19,823
Working capital............................ 9,290 9,072 12,244 17,996 44,768 25,286 153,245
Total assets............................... 38,635 41,121 59,481 102,343 141,397 147,553 315,775
Total debt................................. 22,436 18,160 28,266 43,410 50,475 62,155 216,814
Stockholders' equity....................... 10,736 15,329 19,925 38,622 57,711 55,071 42,666
</TABLE>

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

(1) After giving effect to the three-for-two stock split of Salton's common
stock to be effected on July 30, 1999, the share data would be as follows:

<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEARS ENDED WEEKS ENDED
-------------------------------------------------- ---------------------
JULY 2, JULY 1, JUNE 29, JUNE 28, JUNE 27, MARCH 28, MARCH 27,
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per common share........... $(0.39) $ .08 $0.47 $ 0.23 $ 1.02 $ 0.63 $ 2.52
====== ===== ===== ====== ====== ====== ======
Diluted earnings per common share......... $(0.39) $ .07 $0.46 $ 0.22 $ 0.99 $ 0.61 $ 1.86
====== ===== ===== ====== ====== ====== ======
Weighted average shares outstanding....... 7,575 8,445 9,763 19,260 19,593 19,584 10,982
Diluted weighted average shares
outstanding............................. 7,575 8,852 9,942 19,623 20,259 20,238 14,867
</TABLE>

16
<PAGE> 23

(2) You should consider the following when reading the selected historical
statements of income data in the table below:

- EBITDA represents operating income plus depreciation and amortization.

- EBITDA margin represents EBITDA as a percentage of net sales.

17
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements,
including the notes thereto, included elsewhere in this prospectus.

OVERVIEW

Salton is a leading domestic designer, marketer and distributor of a broad
range of branded, high quality small appliances, tabletop products and personal
care/time products. Salton acts as a marketing service provider by managing its
brands and product lines in a manner that allows its retail customers to
differentiate themselves to consumers. Salton has the leading domestic market
share in toasters, juice extractors, indoor grills, bread bakers, griddles,
waffle makers and buffet ranges/hotplates and a significant market share in
other product categories. Salton outsources most of its production to
independent manufacturers, primarily in the Far East.

Salton's portfolio of well-recognized owned and licensed brand names
includes Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R), George
Foreman Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R), Block(R),
Atlantis(R), Sasaki(R), Rejuvenique(R) and Ingraham(R). Salton is also a leading
designer and distributor of small appliances in the U.S. under such well-known
names as Kenmore(R) and Magic Chef(R).

Salton predominantly sells its products to mass merchandisers, department
stores, specialty stores and mail order catalogs. Salton also sells certain of
its products directly to consumers through infomercials and its Internet
website. Salton markets and sells its products primarily in the U.S. through its
own sales force and a network of independent commissioned sales representatives.

In July 1998, Salton completed a recapitalization by issuing $40.0 million
of its convertible preferred stock to affiliates of Centre Partners and
repurchasing 6,535,072 shares of its common stock owned by Windmere-Durable for
$12 per share plus a $15.0 million junior subordinated note. In December 1998,
Salton issued $125.0 million of 10 3/4% senior subordinated notes, primarily to
repay certain indebtedness.

On January 7, 1999, Salton acquired Toastmaster, a Columbia, Missouri based
manufacturer and marketer of kitchen and small appliances and time products.
Through Toastmaster, Salton designs, manufactures, markets and services a wide
array of kitchen and small appliances and time products under the brand names
Toastmaster(R) and Ingraham(R) .

Salton is in the process of integrating Toastmaster into its operations.
Salton has identified numerous opportunities for revenue enhancements and cost
savings that it believes it will be able to realize as a result of the
acquisition of Toastmaster. Salton believes that it can use its competitive
strengths and experience in product development and marketing to improve upon
Toastmaster's product offerings, brand reputation and customer relations. For
example, Salton has begun to use its strong customer relationships to gain shelf
space for its Toastmaster(R) products with retailers where Toastmaster(R)
products do not currently have substantial shelf space presence. Salton has also
begun to expand the shelf space and sales of its Toastmaster(R) products with
existing Toastmaster retailers by introducing certain Salton(R) products into
Toastmaster(R) product lines.

Salton believes that through its proven ability to source products
overseas, it can achieve significant cost savings through more favorable product
pricing and other terms. Although Salton is currently continuing to produce
certain Ingraham(R) time products at its Laurinburg, North Carolina plant and
certain Toastmaster(R) small appliances at its Macon, Missouri plant, Salton is
implementing its strategy of outsourcing certain appliances to overseas vendors.
Other anticipated cost savings identified by Salton include advertising, ocean
freight, warehousing and corporate overhead expenses.

Salton's ability to successfully integrate Toastmaster will depend upon its
ability to achieve revenue enhancements and recognize cost savings and on other
factors, including economic conditions and the retail environment.

18
<PAGE> 25

Salton's operating results for the thirty-nine weeks ended March 27, 1999
include the operating results of Toastmaster from its acquisition date of
January 7, 1999.

The following table sets forth Salton's results of operations as a
percentage of net sales for the period indicated:

<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
------------------------------ ---------------------
JUNE 29, JUNE 28, JUNE 27, MARCH 28, MARCH 27,
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................... 67.5 66.5 58.7 60.0 57.7
Distribution expenses................. 5.9 4.3 4.0 3.6 3.9
----- ----- ----- ----- -----
Gross profit........................ 26.6 29.2 37.3 36.4 38.4
Selling, general and administrative
expenses............................ 21.5 23.5 27.6 26.7 24.5
----- ----- ----- ----- -----
Operating income.................... 5.1% 5.7% 9.7% 9.7% 13.9%
===== ===== ===== ===== =====
</TABLE>

39-WEEKS ENDED MARCH 27, 1999 COMPARED TO 39-WEEKS ENDED MARCH 28, 1998

Net Sales. Net sales in the thirty-nine weeks ended March 27, 1999 were
$371.4 million, an increase of approximately $135.4 million or 57.4%, compared
to net sales of $236.0 million in the corresponding period ended March 28, 1998.
This increase is primarily attributable to increased sales of the George Foreman
Grills(R), White-Westinghouse(R) sales under the Kmart program, sales by our
newly acquired wholly-owned subsidiary Toastmaster, and sales of our
Farberware(R) products. Net sales of White-Westinghouse(R) products to Kmart
approximated 14.4% of net sales in the first nine months of fiscal 1999 compared
to 17.2% of net sales in the same period in fiscal 1998.

Gross Profit. Gross profit in the thirty-nine weeks ended March 27, 1999
was $142.5 million or 38.4% of net sales as compared to $86.0 million or 36.4%
in the same period in fiscal 1998. Cost of goods sold during the thirty-nine
weeks ended March 27, 1999 decreased to 57.7% of net sales compared to 60.0% in
the same period in fiscal 1998. Distribution expenses were $14.5 million or 3.9%
of net sales in the thirty-nine weeks ended March 27, 1999 compared to $8.4
million or 3.6% of net sales in the same period in fiscal 1998. Gross profit and
costs of goods sold in the thirty-nine weeks ended March 27, 1999 as a
percentage of net sales were improved primarily due to lower costs on certain
Salton products, partially offset by higher costs of Toastmaster products and
due to a more favorable mix of sales with lower costs in their respective
channels of distribution when compared to the same period in fiscal 1998.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $90.8 million or 24.5% of net sales in the
thirty-nine weeks ended March 27, 1999 compared to $63.0 million or 26.7% of net
sales for the same period in fiscal 1998. Expenditures for television, certain
other media and cooperative advertising coverages, royalty expenses and trade
show expenses were $62.0 million or 16.7% of net sales in the thirty-nine weeks
ended March 27, 1999 when compared to $44.8 million or 19.0% of net sales in the
same period in fiscal 1998. The remaining selling, general and administrative
costs were $28.3 million or 7.8% of net sales in the thirty-nine weeks ended
March 27, 1999 compared to $18.1 million or 7.7% of net sales in the same period
in fiscal 1998. These increases were primarily attributable to higher costs for
additional personnel, sales commissions and various other costs related to the
higher level of sales.

Operating Income. As a result of the foregoing, operating income increased
by $28.7 million or 124.5%, to $51.7 million in the thirty-nine weeks ended
March 27, 1999 from $23.0 million in the same period in fiscal 1998. Operating
income as a percentage of net sales increased to 13.9% in the thirty-nine weeks
ended March 27, 1999 from 9.7% in the same period of fiscal 1998, primarily as a
result of higher net sales and the contribution margin of these sales that
exceeded fixed costs.

Net Interest Expense. Net interest expense was approximately $9.9 million
for the thirty-nine weeks ended March 27, 1999 compared to $4.2 million for the
same period in fiscal 1998. Salton's rate of interest

19
<PAGE> 26

on amounts outstanding was a weighted average annual rate of 8.8% in the
thirty-nine weeks ended March 27, 1999 compared to 9.4% in the same period in
fiscal 1998. The average amount of all debt outstanding was $143.0 million for
the thirty-nine weeks ended March 27, 1999 compared to $59.2 million for the
same period in fiscal 1998. This increase was used to complete Salton's
recapitalization, complete the acquisition of Toastmaster and to finance higher
net sales.

Income Tax Expense. Salton had income tax expense of $14.1 million in the
thirty-nine weeks ended March 27, 1999 as compared to income tax expense of $7.2
million in the same period in fiscal 1998.

YEAR ENDED JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997

Net Sales. Net sales for the fiscal year ended June 27, 1998 were $305.6
million, an increase of approximately $122.8 million or 67.2% compared to net
sales of $182.8 million for the fiscal year ended June 28, 1997. This increase
is primarily attributable to increased sales of the Juiceman(R) juice extractors
and George Foreman Grills(R), Farberware(R) products, and White-Westinghouse(R)
sales under the Kmart supply agreement. Net sales of White-Westinghouse(R)
products to Kmart approximated 19% and 16% of net sales in fiscal 1998 and
fiscal 1997, respectively.

Gross Profit. Gross profit in fiscal 1998 was $113.9 million or 37.3% of
net sales as compared to $53.4 million or 29.2% in fiscal 1997. Cost of goods
sold during the period decreased to 58.7% of net sales compared to 66.5% in
fiscal 1997. Distribution expenses were $12.3 million or 4.0% of net sales in
fiscal 1998 compared to $7.8 million or 4.3% of net sales in fiscal 1997. Gross
profit and costs of goods sold in fiscal 1998 as a percentage of net sales
improved primarily due to a more favorable mix of sales in their respective
channels of distribution when compared to fiscal 1997.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $84.2 million or 27.6% of net sales in
fiscal 1998 compared to $42.9 million or 23.5% of net sales in fiscal 1997.
Expenditures for television, certain media and cooperative advertising coverages
and royalty expenses were $58.3 million or 19.1% of net sales in fiscal 1998
when compared to $25.7 million or 14.1% of net sales in fiscal 1997. The
remaining selling, general and administrative costs were $25.9 million or 8.5%
of net sales in fiscal 1998 compared to $17.2 million or 9.4% of net sales in
fiscal 1997. The dollar increase was primarily attributable to higher costs for
additional personnel, trade show expenses, sales commissions and various other
costs related to the higher level of sales.

During fiscal 1998, certain of Salton's customers, namely HomePlace Stores,
Inc. and Venture Stores, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. These customers owed Salton amounts aggregating approximately
$2.4 million. A provision of approximately $1.0 million was made for the
estimated potential losses from these Chapter 11 bankruptcy filings.

Operating Income. As a result of the foregoing, operating income increased
by $19.2 million or 183.7%, to $29.7 million in fiscal 1998 from $10.5 million
in fiscal 1997. Operating income as a percentage of net sales increased to 9.7%
in fiscal 1998 from 5.7% in fiscal 1997.

Net Interest Expense. Net interest expense was approximately $5.3 million
for fiscal 1998 compared to $4.1 million in fiscal 1997. Salton's rate of
interest on amounts outstanding was a weighted average annual rate of 9.5% in
fiscal 1998 compared to 10.5% in fiscal 1997. The average amount outstanding
under Salton's revolving line of credit increased about $22.2 million when
compared to the average amount outstanding a year ago. This increase was used
primarily to finance higher net sales and a seasonal build in inventory.
Interest expense during the period was offset by interest income earned on the
promissory note from Windmere issued to Salton in July 1996.

Subsequent to the year ended June 27, 1998, Salton consummated the
recapitalization. In connection therewith, Salton used a portion of the proceeds
it received from the new credit agreement to refinance all outstanding
indebtedness under Salton's prior credit agreement. Accordingly, at June 27,
1998, Salton had incurred expense with the early termination of the prior credit
agreement of approximately $1.1 million.

20
<PAGE> 27

Salton sold shares of Windmere common stock it held as marketable
securities during the period. The sale of these shares provided a realized gain
of approximately $9.0 million.

Income Tax Expense. Salton had tax expense of $12.2 million in fiscal 1998
as compared to tax expense of $2.0 million in fiscal 1997. Net operating loss
carryforwards and resultant deferred tax assets were used in both periods to
significantly offset current income taxes payable.

YEAR ENDED JUNE 28, 1997 COMPARED TO YEAR ENDED JUNE 29, 1996

Net Sales. Net sales for fiscal 1997 were $182.8 million, an increase of
approximately $83.6 million or 84.3% compared to net sales of $99.2 million for
the fiscal year ended June 29, 1996. This increase is primarily attributable to
increased sales of the Juiceman(R) juice extractors and George Foreman
Grills(R), private label programs and the addition of Block China and
White-Westinghouse(R) sales under the Kmart supply agreement. Net sales of
White-Westinghouse(R) products to Kmart approximated 16% of net sales in fiscal
1997.

Gross Profit. Gross profit in fiscal 1997 was $53.4 million or 29.2% of net
sales as compared to $26.4 million or 26.6% in fiscal 1996. Cost of goods sold
during fiscal 1997 decreased to 66.5% of net sales compared to 67.5% in fiscal
1996. Distribution expenses were $7.8 million or 4.3% of net sales in fiscal
1997 compared to $5.9 million or 5.9% of net sales in fiscal 1996. Gross profit
and costs of goods sold in fiscal 1997 as a percentage of net sales improved
primarily due to a more favorable mix of sales of higher gross margin items when
compared to fiscal 1996.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $42.9 million or 23.5% of net sales in
fiscal 1997 compared to $21.3 million or 21.5% of net sales in fiscal 1996.
Expenditures for television, certain media and cooperative advertising coverages
and royalty expenses were $25.7 million or 14.1% of net sales in fiscal 1997
when compared to $10.9 million or 11.0% of net sales in fiscal 1996. The
remaining selling, general and administrative costs were $17.2 million or 9.4%
of net sales in fiscal 1997 compared to $10.4 million or 10.5% of net sales in
fiscal 1996. The dollar increase was primarily attributable to higher costs for
additional personnel, trade show expenses, sales commissions and various other
costs related to the higher level of sales.

Net Interest Expense. Net interest expense was approximately $4.1 million
for fiscal 1997 compared to $3.9 million for fiscal 1996. Salton's rate of
interest on amounts outstanding was a weighted average annual rate of 10.5% in
fiscal 1997 compared to 11.1% in fiscal 1996. The average amount outstanding
under Salton's revolving line of credit increased about $9.3 million when
compared to the average amount outstanding in the same period a year ago. This
increase was used primarily to finance higher net sales and a seasonal build in
inventory. Interest expense during the period was offset by interest income
earned on the promissory note from Windmere issued to Salton in July 1996.

Operating Income. As a result of the foregoing, operating income increased
by $5.4 million or 105.9%, to $10.5 million in fiscal 1997 from $5.1 million in
fiscal 1996. Operating income as a percentage of net sales increased to 5.7% in
fiscal 1997 from 5.1% in fiscal 1996.

Income Tax Expense (Benefit). Salton had tax expense of $2.0 million in
fiscal 1997 as compared to a tax benefit of $3.5 million in fiscal 1996. Net
operating loss carryforwards and resultant deferred tax assets were used in both
periods to significantly offset current income taxes payable.

LIQUIDITY AND CAPITAL RESOURCES

During the third quarter of fiscal 1999, Salton provided net cash of $18.8
million in operating activities and used $109.4 million in investing activities.
This usage was primarily to support the growth in sales, the acquisition of
Toastmaster, as well as increased investment in capital assets, primarily
tooling. For the nine months ended March 27, 1999, financing activities provided
net cash of $109.8 million. This net cash came primarily from borrowings of
$77.0 million under the credit agreement, the issuance of $125.0 million of
senior subordinated notes and the issuance of $40.0 million of convertible
preferred stock, offset by $70.8 million used for the stock repurchase, $50.5
million repayment of the revolving line of
21
<PAGE> 28

credit under the credit agreement, and approximately $10.9 million in costs paid
for the issuance of the senior subordinated notes, the credit agreement and the
issuance of the convertible preferred stock.

At March 27, 1999, Salton had debt outstanding of $216.8 million and had
the ability to borrow up to an additional $48.0 million under the revolving
credit facility. Typically, given the seasonal nature of Salton's business,
Salton's borrowings tend to be the highest in mid-summer to fall.

On July 28, 1998, Salton repurchased 6,535,072 shares of Salton common
stock owned by Windmere. Prior to this stock repurchase, Windmere owned
approximately 50% of the outstanding Salton common stock. Salton paid Windmere
$12 per share in cash plus a $15.0 million junior subordinated note. The junior
subordinated note matures on January 31, 2005 and bears interest at 4.0% per
annum payable annually. This note is subject to offsets of interest and
principal equal to 5% of the total purchase price paid by Salton for product
purchases from Windmere and its affiliates during the term of the note. During
fiscal 1998, Salton purchased approximately $27.1 million of products from
Windmere. The principal amount of the junior subordinated note is also subject
to reduction in the event Salton's supply agreement with Kmart is terminated for
any reason.

In connection with this stock repurchase:

- Windmere effectively repaid in full a promissory note in the principal
amount of approximately $10.8 million which Windmere had issued to Salton
in July, 1996;

- Salton purchased for approximately $3.3 million an option to purchase up
to 458,500 shares of Salton common stock which Salton had granted to
Windmere in July, 1996; and

- Windmere and Salton agreed to continue various commercial and other
arrangements, including a fee agreement relating to Salton's supply
agreement with Kmart, subject to certain modifications.

On July 28, 1998, Salton entered into a credit agreement among Salton,
Lehman Brothers Inc., as arranger, and Lehman Commercial Paper Inc., as
syndication agent. The credit agreement provided for $215.0 million in senior
secured credit facilities consisting of a $90.0 million tranche A term loan, a
$75.0 million delayed draw term loan and a $50.0 million revolving credit
facility.

On July 28, 1998, Salton also issued $40.0 million of Salton convertible
preferred stock to affiliates of Centre Partners Management LLC. The convertible
preferred stock is generally non-dividend bearing and is currently convertible
into 2,352,941 shares of Salton common stock, reflecting a $17 per share
conversion price.

Salton used borrowings of $90.0 million under the tranche A term loan and
the net proceeds from the issuance of the convertible preferred stock to:

- pay the $70.8 million cash portion of the purchase price for the
6,535,072 shares of Salton common stock, which amount is net of $10.8
million due and owing by Windmere under its promissory note to Salton,
which note was cancelled at the closing of the stock repurchase;

- refinance all outstanding indebtedness under Salton's prior loan
agreement in an amount equal to approximately $51.7 million; and

- pay fees and expenses of the stock repurchase and the financing of such
repurchase.

On December 16, 1998, Salton issued in a private offering $125.0 million of
10 3/4% senior subordinated notes due 2005. Salton used the aggregate gross
proceeds of this offering:

- to repay a total of approximately $110.0 million of outstanding
indebtedness under the new credit agreement, consisting of $90.0 million
under the tranche A term loan and approximately $20.0 million under the
revolving credit facility, together with accrued interest of
approximately $0.8 million with respect to the indebtedness being repaid;

- to pay fees and expenses incurred in connection with the offering; and

- for working capital and general corporate purposes.

22
<PAGE> 29

Upon the repayment of the tranche A term loan, this facility was
permanently terminated. In March 1999, Salton exchanged the $125.0 million of
10 3/4% senior subordinated notes for an equal aggregate principal amount of
publicly-registered notes.

The senior subordinated notes contain a number of significant covenants
that, among other things, restrict the ability of Salton to:

- dispose of assets;

- incur additional indebtedness;

- prepay other indebtedness;

- pay dividends;

- repurchase or redeem capital stock;

- make certain investments;

- enter into sale and lease-back transactions;

- make certain acquisitions;

- engage in mergers and consolidation;

- create liens; or

- engage in certain transactions with affiliates.

In addition, under the senior subordinated notes, Salton is required to
comply with a specified financial fixed charge coverage ratio.

On January 7, 1999, Salton amended and restated the credit agreement to,
among other things, replace the delayed draw term loan with a $45.0 million
tranche B term loan and increase the revolving credit facility from $50.0
million to $80.0 million.

The credit agreement as amended and restated provides for $125.0 million in
a senior secured credit facility consisting of a $45.0 million tranche B term
loan at an established base rate equivalent to the prime rate of interest plus
an applicable margin of 225 basis points or, at Salton's election, a eurodollar
rate equivalent to the LIBOR rate plus an applicable margin of 325 basis points
maturing in twenty-four consecutive quarterly installments commencing on March
26, 1999; and a $80.0 million revolving credit facility at an established base
rate equivalent to the LIBOR rate plus an applicable margin of 300 basis points
based on a range of ratios of total debt to earnings before interest, taxes,
depreciation and amortization maturing on January 7, 2004. The credit agreement
is secured by a first lien on substantially all Salton's assets. Credit
availability is based on a formula related to trade accounts receivable,
inventories and outstanding letters of credit.

The credit agreement contains a number of significant covenants that are
substantially the same as those in the senior subordinated notes. In addition,
Salton is required to comply with specified financial ratios and tests,
including a minimum net worth test, a minimum fixed charge coverage ratio, a
minimum interest coverage ratio and a maximum leverage ratio.

On January 7, 1999, Salton acquired all of the stock of Toastmaster and
paid Toastmaster shareholders $7.00 per share in cash, for a total purchase
price of approximately $53.2 million. In addition, Salton repaid Toastmaster's
outstanding debt of $57.8 million in connection with the acquisition. The
acquisition was accounted for as a purchase; accordingly the purchase price was
preliminarily allocated to the underlying assets and liabilities based on their
respective estimated fair value at the date of the acquisition.

Salton's ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, its indebtedness,
or to fund planned capital expenditures, will depend

23
<PAGE> 30

upon its future performance, which, in turn, is subject to general economic,
financial, competitive and other factors that are beyond its control. Based upon
the current level of operations and anticipated growth, management believes that
future cash flow from operations, together with available borrowings under the
credit agreement, will be adequate to meet Salton's anticipated requirements for
capital expenditures, working capital, interest payments and scheduled principal
payments. There can be no assurance, however, that Salton's business will
continue to generate sufficient cash flow from operations in the future to
service its debt and make necessary capital expenditures after satisfying
certain liabilities arising in the ordinary course of business. If unable to do
so, Salton may be required to refinance all or a portion of its existing debt or
to sell assets or to obtain additional financing. There can be no assurance that
any such refinancing would be available or that any such sales of assets or
additional financing could be obtained.

ACCOUNTING PRONOUNCEMENTS

During the first quarter of fiscal 1999, Salton adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement requires that Salton report the change in its net assets
during the period from non-owner sources. For the thirteen weeks ended and the
thirty-nine weeks ended March 27, 1999 and March 28, 1998, components of other
comprehensive income(loss) include foreign currency translation gains and
holding gains(losses) arising from available for sale securities, net of tax,
respectively.

<TABLE>
<CAPTION>
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
----------------------- -----------------------
MARCH 28, MARCH 27, MARCH 28, MARCH 27,
1998 1999 1998 1999
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income.......................................... $5,154 $ 2,778 $27,655 $12,350
Other comprehensive income.......................... 7 (1,527) 7 2,374
------ ------- ------- -------
Comprehensive income........................... $5,161 $ 1,251 $27,662 $14,724
====== ======= ======= =======
</TABLE>

In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employer's Disclosure about Pensions and other Post-Retirement Benefits."
This statement is effective for fiscal years beginning after December 15, 1997
and will change disclosure requirements for Pensions and other Post-Retirement
Benefits. Salton will be required to comply with the provisions of this
statement in fiscal 1999. The effect of this new statement will be limited to
the form and content of disclosures. In June 1997, the Financial Accounting
Standards Board issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Salton will be required to comply with the
provisions of this statement in fiscal 1999. The effect of this new statement
will be limited to the form and content of disclosures.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for fiscal years beginning after June 15, 1999 and will change
accounting and disclosure requirements for Derivative Instruments and Hedging
Activities. On May 19, 1999, the Financial Accounting Standards Board proposed a
twelve month delay for the implementation of SFAS No. 133. If finalized, the
proposal requires that the provisions of SFAS No. 133 be applied for fiscal
years beginning after June 15, 2000. Salton has not assessed the effect that
this new standard will have on its consolidated financial statements and/or
disclosures.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE

The results of operations for the periods discussed have not been
significantly affected by inflation or foreign currency fluctuation. Salton
generally negotiates its purchase orders with its foreign manufacturers in
United States dollars. Thus, Salton's cost under any purchase order is not
subject to change after the time the order is placed due to exchange rate
fluctuations. However, the weakening of the United States

24
<PAGE> 31

dollar against local currencies could result in certain manufacturers increasing
the United States dollar prices for future product purchases.

YEAR 2000 ISSUES

The Year 2000 issue is the result of computer programs being written to use
two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations. Salton currently uses information technology for
processing orders and tracking inventory.

Management believes that Salton's systems are Year 2000 compliant. Salton
has upgraded and substantially completed the internal testing of its information
technology systems and will continue to monitor such systems through the summer
of 1999. Salton has also specifically addressed internally its non-information
technology related systems and believes that there will be no significant
operational problems relating to the Year 2000 issue. Salton has not obtained,
and does not intend to obtain an independent verification and validation of its
Year 2000 compliance status.

Although Salton believes it has substantially completed its Year 2000
project by upgrading its systems, Salton cannot make any assurances that the
upgraded systems will be free of defects. If any such risks materialize, Salton
could experience material adverse consequences to its business, financial
condition and results of operations.

Year 2000 compliance may also adversely affect Salton's business, financial
condition and results of operations indirectly by causing complications of, or
otherwise affecting, the operations of any one or more of its suppliers and
customers. Salton has contacted its significant suppliers and certain of its
customers in an attempt to identify any potential Year 2000 compliance issues
with them. Salton currently believes that its major suppliers have made
significant progress with respect to Year 2000 compliance issues. Salton is
currently unable to anticipate the magnitude of the operational or financial
impact on it of Year 2000 compliance issues with its customers even though
Salton believes that these customers have implemented significant programs with
respect to Year 2000 compliance issues.

Notwithstanding Salton's progress to date, there are several ways in which
its systems could still be affected by the Year 2000 problem. First, the
software code Salton uses in its information systems may not in fact be Year
2000 compliant in all instances. Second, Salton may be unable to fully test and
monitor the upgrades, making it difficult for Salton to identify and remedy any
problems that might exist. Third, Salton's customers, suppliers and shippers may
be unable to achieve Year 2000 compliance in time.

The most reasonably likely worst-case scenario resulting from Salton's
inability, or the inability of its suppliers, customers or shippers, to become
Year 2000 compliant, includes the following adverse effects:

- Salton would be unable to receive products due to Year 2000-related
failure on the part of its suppliers causing Salton to be unable to
fulfill the orders of many of its customers for Salton's products.

- Salton's customers would be unable to place their orders with Salton
because of its own system failure or those of its customers resulting in
delayed or potentially lost orders for Salton's products.

- Salton would be unable to deliver ordered products to its customers on a
timely basis due to a system failure at Salton or at one of its product
shippers leading to delays in arrival of Salton's products and possibly
dissatisfied customers.

- Salton's customers would be unable to receive and/or pay for Salton
products on a timely basis.

Salton is currently reviewing the implementation of contingency plans
relating to the Year 2000 compliance problems in its own systems or those of its
suppliers, customers or shippers.

Salton has incurred approximately $900,000 to date to resolve and test
Salton's Year 2000 compliance issues. All expenses incurred in connection with
Year 2000 compliance are expensed as incurred, other

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<PAGE> 32

than acquisitions of new software or hardware, which are capitalized. Salton
currently estimates that the aggregate incremental cost of its Year 2000
compliance efforts will not exceed $250,000.

Salton's assessment of its Year 2000 compliance is based on numerous
assumptions about future events, including third party modification plans and
other factors. However, there can be no guarantee that this assessment is
corrected and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.

SEASONALITY

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

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<PAGE> 33

BUSINESS

OVERVIEW

Salton is a leading domestic designer, marketer and distributor of a broad
range of branded, high quality small appliances, tabletop products and personal
care/time products. Salton acts as a marketing service provider by managing its
brands and product lines in a manner that allows its retail customers to
differentiate themselves to consumers. Salton has the leading domestic market
share in toasters, juice extractors, indoor grills, bread bakers, griddles,
waffle makers and buffet ranges/hotplates and a significant market share in
other product categories. Salton believes that its strong market share results
from its well-known brand names, the breadth, quality and innovation of its
product offerings and its strong relationships with retailers and suppliers.
Salton outsources most of its production to independent manufacturers, primarily
in the Far East.

Salton predominantly sells its products to mass merchandisers, department
stores, specialty stores and mail order catalogs. Salton also sells certain of
its products directly to consumers through infomercials and its Internet
website. Salton's customers include many premier domestic retailers, including
Kmart, Dayton Hudson (including Target), Sears, Wal-Mart, Federated Department
Stores, May Company Department Stores, QVC, Bed Bath & Beyond, Saks Inc. and
Costco. Salton markets and sells its products primarily in the U.S. through its
own sales force and a network of independent commissioned sales representatives.

Salton's net sales and income from operations grew from fiscal 1995 to
fiscal 1998 at compound annual growth rates of approximately 58.3% and 99.7%,
respectively, driven primarily by strong internal growth in its product lines
and strategic acquisitions. Salton's operating income margins grew from 4.8% in
fiscal 1995 to 9.7% in fiscal 1998. Salton believes that the following
competitive strengths have contributed to its growth and high operating margins:

- Salton markets diversified product lines through multiple channels of
distribution;

- Salton has long-standing relationships with a diversified base of
suppliers located primarily in the Far East, which provide it with
competitive manufacturing costs, strong new product introduction
capabilities and flexibility to respond to changes in consumer
preferences;

- Salton has strong customer relationships, which enable it to obtain broad
product placement for new and existing products;

- Salton has strong brand management capabilities, which allow it to
identify new product trends and expand product lines; and

- Salton's senior management team has an average of over 20 years of
industry experience.

GROWTH STRATEGY

Salton's primary business objective is to increase sales and profits by
acting as a marketing service provider to its customers. Salton believes it can
accomplish this through active brand and product management. The key elements of
Salton's growth strategy include:

Introduce New Products and Product Line Extensions. Salton plans to
manage its existing and new brands through strong product development
initiatives, including introducing new products, modifying existing
products and extending existing product lines. Salton's product designers
strive to develop new products and product line extensions which offer
added value to consumers through enhanced functionality and improved
aesthetics. During fiscal 1999, Salton has introduced 101 new

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<PAGE> 34

SKUs in the small appliance category, 709 new SKUs in the tabletop products
category and 98 new SKUs in the personal care/time products category.

Increase Sales to New and Existing Customers. Salton believes that
retail merchants will continue to consolidate their vendor bases and focus
on a smaller number of suppliers that can (1) provide a broad array of
differentiated, quality products, (2) efficiently and consistently fulfill
logistical requirements and volume demands and (3) provide comprehensive
product and marketing support. Salton believes that it can increase sales
to its existing customers by continuing to introduce new products and new
product categories. While Salton currently sells to a diversified base of
premier retail customers, Salton believes that it can penetrate additional
channels of distribution. For example, Salton recently expanded its product
offerings to specialty retailing, mail order catalog, home center and drug
store channels.

Pursue Licensing Agreements and Strategic Alliances. Salton has
entered into licensing agreements and strategic alliances to further
differentiate its products and to accelerate its growth. For example,
Salton supplies products to Kmart, Sears and Wal-Mart, which they sell
under the White-Westinghouse(R), Kenmore(R) and Magic Chef(R) brand names,
respectively. In addition, Salton recently obtained licensing rights to
market certain products under the Marilyn Monroe(TM), LooneyTunes(R) and
Melitta(R) brands.

Continue Developing Alternative Distribution Channels. Salton expects
to continue selling its products through infomercials and its Internet
website. These alternative distribution channels increase Salton's product
sales and provide it with direct contact with consumers, assist it in
creating and building brand and product awareness and stimulate traditional
retail channel demand. Salton currently uses these alternative channels to
sell certain of its products, primarily George Foreman Grills(R),
Juiceman(R) and JuiceLady(R) fresh juice machines and the Rejuvenique(R)
facial toning system.

Enhance Growth and Profitability Through Strategic
Acquisitions. Salton anticipates that the fragmented small household
appliance industry will provide significant growth opportunities through
strategic acquisitions. Salton will focus its acquisition strategy on
businesses or brands which (1) offer expansion into related or existing
categories, (2) can be marketed through its existing distribution channels
or (3) provide a platform for growth into new distribution channels. In
January 1999, Salton acquired Toastmaster, which has well-recognized brands
in the U.S. and had 1998 sales of approximately $146.1 million. In April
1999, Salton acquired certain assets of Sasaki, Inc., a recognized designer
of high-quality tabletop products.

Expand International Presence. Salton intends to expand international
sales of certain of its products. For example, in March 1999, Salton
entered into a five-year supply agreement with Zellers, the leading
national chain of discount department stores in Canada, to supply a broad
range of small appliances under the White-Westinghouse(R) brand name.

PRODUCTS

Salton is a leading domestic designer, marketer and distributor of a broad
range of branded, high-quality small appliances, tabletop products and personal
care/time products. Salton's portfolio of strong brand names enables it to
service the needs of a broad range of retailers and satisfy the different
tastes, preferences and budgets of consumers. Salton's products include
full-featured and upscale models or designs as well as those which are marketed
to budget conscious consumers.

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<PAGE> 35

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
--------------------------------------------------------- -------------------------------------
JUNE 29, 1996 JUNE 28, 1997 JUNE 27, 1998 MARCH 28, 1998 MARCH 27, 1999(2)
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
NET SALES TOTAL NET SALES TOTAL NET SALES TOTAL NET SALES TOTAL NET SALES TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small appliances........... $91,479 92.2 $155,972 85.3 $280,607 91.8 $216,132 91.6 $342,079 92.1
Tabletop products(1)....... -- -- 16,756 9.2 18,597 6.1 14,489 6.1 18,403 5.0
Personal care/time
products................. 7,723 7.8 10,078 5.5 6,395 2.1 5,404 2.3 10,930 2.9
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
$99,202 100.0 $182,806 100.0 $305,599 100.0 $236,025 100.0 $371,412 100.0
======= ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>

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

(1) Salton entered this category of business in fiscal 1997 by acquiring
substantially all of the assets and certain liabilities of Block China
Corporation, a tabletop product company, on July 1, 1996. Salton augmented
the Block(R) product line on June 19, 1997 by acquiring the assets of Jonal
Crystal Ltd. and on April 5, 1999 by acquiring certain assets of Sasaki,
Inc.

(2) Includes the operating results of Toastmaster from its acquisition date of
January 7, 1999.

Small Appliances. Salton designs and markets an extensive line of small
appliances under the Salton(R), Toastmaster(R), Maxim(R), Breadman(R),
Juiceman(R), George Foreman Grills(R), White-Westinghouse(R), Farberware(R) and
Melitta(R) brand names. As of March 27, 1999, Salton marketed approximately 918
SKUs under its brand names in this category. Growth within this product category
has historically been driven primarily by the introduction of new or enhanced
products and the development of the White-Westinghouse(R), Farberware(R) and
other product lines.

Salton's small appliances product category includes:

- products for health conscious consumers, including thermal indoor grills,
juicers, juice extractors, rice cookers, vegetable steamers, ice cream
makers and yogurt makers;

- thermal products, including bread bakers, sandwich makers, toasters,
waffle makers, countertop ovens and irons;

- coffee and tea related products, including combination
espresso/cappuccino/drip coffee makers, coffee makers, coffee urns,
coffee percolators, iced tea/iced coffee makers and a broad range of
coffee related accessories; and

- food preparation and serving products, including electric woks, crepe
makers, mixers, can openers, blenders, hand-held blenders, choppers and
warming trays.

Tabletop Products. As of March 27, 1999, Salton marketed approximately
2,927 SKUs under its brand names in this product category. Salton entered this
business category in fiscal 1997 to add a complementary product line to its
small appliances. Salton designs and markets tabletop products including china,
crystal and glassware. Salton augmented the Block(R) product line on June 19,
1997 by acquiring the assets of Jonal Crystal Ltd. Jonal products include the
Crystal Kiss(R) line of glassware and giftware featuring the famous shape of the
Hershey's Chocolate Kiss.

Salton enhanced its tabletop product offerings on April 5, 1999 by
acquiring certain assets of Sasaki, Inc., a leading designer of high-quality
tabletop products and accessories for the home. The Sasaki product lines which
Salton acquired include dinnerware, barware, flatware and crystal giftware
designed by well-known tabletop and domestic designers.

Tabletop products include crystal products offered under the Block(R),
Atlantis(R), Sasaki(R) and Jonal(R) brand names, fine china and basic dinnerware
in various designs and patterns under the Block(R) brand name and ceramic
products under the Block(R) brand name. In addition, Salton markets the Gear(R)
line of products including Father Christmas(R) Country Farm(TM), Country
Orchard(TM), and Country Village(TM) .

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<PAGE> 36

Personal Care/Time Products. As of March 27, 1999, Salton marketed
approximately 810 SKUs in the personal care/time products category. Salton
Creations(R) hair dryers feature high quality materials, long life motors and
high air flow systems. Salton markets hair dryers in various sizes, shapes and
colors that are designed to mix form and function to enable consumers to
correctly address power and heat to hair type and styling needs.

Salton designs and markets a variety of other personal and beauty care
appliances under the Salton Creations(R) brand name, including curling irons and
brushes, make-up mirrors, massagers, manicure systems and shower radios. The Wet
Tunes(R) series of shower radios, introduced under the Salton(R) brand name in
1984, features an AM/FM radio with waterproof mylar speakers and wall mount
brackets. Wet Tunes(R) radios are offered in several different shapes, sizes and
colors. Also included in this series are Wet Reflections(R), which has a light
and fog-free mirror, Wet Cassette(R) and Wet Lantern(R). In addition to Salton
Creations(R), Salton began offering these appliances under the
White-Westinghouse(R) brand name in fiscal year 1997.

Salton's personal and beauty care appliances also include the
Rejuvenique(R) system, which Salton began marketing through infomercials in
early 1999. This system includes a facial mask with 26 contact areas that
receive electrical light impulses designed to exercise and tone the skin.

Salton also has a "gifts" program designed for department stores. Under
this program, Salton provides department stores with practical, special occasion
and small gift products. Salton's gifts programs include the mini tool kit,
calcutape, travel smoke alarm, emergency auto flasher, deluxe art kit and the
7-piece gardening kit.

Salton's time products are comprised of electric analog alarm clocks,
electric and quartz wall clocks with plastic, wood and/or metal cases, imported
key-wound clocks and L.E.D. digital clocks. Salton also manufactures household
(electromechanical) timers, which are used for, among other purposes, switching
electric lights and other appliances on and off at pre-determined times.

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<PAGE> 37

The following chart provides additional information about Salton's
products:

<TABLE>
<CAPTION>
RETAIL PRICE
PRODUCT CATEGORIES RANGE MAJOR PRODUCT LINES MAJOR BRAND(S)
- ------------------ --------------- ------------------- --------------
<S> <C> <C> <C>
SMALL APPLIANCES
Products for Health $ 39.99-159.99 Thermal Household Grills George Foreman Grills(R),
Conscious Consumers.. Toastmaster(R)
99.99-229.99 Fruit & Vegetable Juicers Juiceman(R), JuiceLady(R)
19.99-119.99 Rice Cookers, Soy Milk Makers, Nutritionist(R)
Flax Seed Grinders
Thermal Products....... $ 59.99-229.99 Bread Bakers Breadman(R), Breadman Plus(R),
Breadman(R) Ultimate(R),
Toastmaster(R), White-
Westinghouse(R),
Farberware(R), Kenmore(R)
8.88-200.00 Toasters/Countertop Ovens Salton(R), Toastmaster(R),
Maxim(R),
White-Westinghouse(R),
Farberware(R) and Kenmore(R)
12.35-50.00 Waffle Makers Salton(R), Toastmaster(R),
White-Westinghouse(R),
Farberware(R), Looney Tunes(R)
9.99-99.00 Irons Maxim(R), Toastmaster(R),
White-Westinghouse(R)
Coffee and Tea $ 19.99-264.99 Cappuccino/Espresso Makers 123 Spresso(R), Three For
Products............. All(R), Cafe Salton(R), White-
Westinghouse(R), Melitta(R),
Toastmaster(R)
14.99-249.99 Coffee Makers/Tea Makers/ Farberware(R), White-
Tea Kettles Westinghouse(R), Melitta(R),
Toastmaster(R), Kenmore(R),
Living Color(R), Coffee To
Go(R)
Food Preparation and $ 19.99-129.99 Electric Woks/Crepe Salton(R), Maxim(R), White-
Serving Products..... Makers/Warming Trays/Slow Westinghouse(R),
Cookers Farberware(R), Toastmaster(R),
Taco Bell(R)
9.99-39.99 Mixers/Blenders/ Maxim(R),
Choppers/Knives/Slicers/ White-Westinghouse(R),
Farberware(R), Toastmaster(R),
Kenmore(R), Looney Tunes(R),
Taco Bell(R)
TABLETOP PRODUCTS........ $ 3.99-3,000.00 China/Crystal/Glassware Block(R), Block(R) China,
Flatware/Decorative Art Glass Atlantis(R), Sasaki(R),
Jonal(R), Gear(R)
PERSONAL CARE/TIME $11.99-4,000.00 Hair Dryers/ Makeup Salton Creations(R), Marilyn
PRODUCTS............... Mirrors/Massage Monroe(TM), Looney Tunes(R)
Products/Travel
Accessories/Aroma Therapy
Products
6.00-250.00 Facial Products Rejuvenique(R)
11.99-24.99 Shower Radios Wet Tunes(TM)
3.00-200.00 Clocks/Timers Salton Time(R), Ingraham(R),
Timex(R), Indiglo(R)
</TABLE>

NEW PRODUCT DEVELOPMENT

Salton believes that the enhancement and extension of its existing products
and the development of new products are necessary for its continued success and
growth. Salton designs the style, features and functionality of its products to
meet customer requirements for quality, performance, product mix and pricing.
Salton works closely with both retailers and suppliers to identify consumer
needs and preferences and to generate new product ideas. Salton's product design
and engineering department evaluates new

31
<PAGE> 38

ideas and seeks to develop new products and improve existing products to satisfy
industry requirements and changing consumer preferences.

During fiscal 1999, Salton has introduced 101 new SKUs in the small
appliances product category, 709 new SKUs in the tabletop products category and
98 new SKUs in the personal care/time products category. These new products and
product extensions include:

- The Taco Bell(R) product line;

- The Marilyn Monroe(TM) personal care product line;

- The George Foreman Fusion Grill(R) and the Big George Rotisserie Grill;

- Toastmaster(R) ovens with removable liners;

- The Rejuvenique(R) facial toning system;

- The Melitta(R) range of small electric coffee preparation products;

- The Sasaki(R) line of dinnerware, barware, flatware and crystal giftware;
and

- The Advantage 2000, a database Internet module for use in the kitchen.

During fiscal 1998, Salton introduced 175 new SKUs in the small appliances
product category, 635 new SKUs in the tabletop products category and 65 new SKUs
in the personal care/time products category.

MARKETING AND DISTRIBUTION

Salton markets its products under owned and licensed brand names including
Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R), George Foreman
Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R), Block(R),
Atlantis(R), Sasaki(R), Rejuvenique(R) and Ingraham(R). Salton also designs and
distributes small appliances under such well-known names as Kenmore(R) and Magic
Chef(R). Salton predominantly sells its products to mass merchandisers,
department stores, specialty stores and mail order catalogs. Salton is also
expanding its product offerings to specialty retailing, mail order catalog, home
center and drug store channels.

In addition to directing its marketing efforts toward retailers, Salton
sells certain of its products, primarily George Foreman Grills(R), Juiceman(R)
and JuiceLady(R) fresh juice machines and the Rejuvenique(R) facial toning
system, directly to consumers through infomercials and its Internet website.
Salton provides promotional support for its products with the aid of national
television, radio and print advertising, cooperative advertising with retailers,
and in-store displays and product demonstrations. Salton believes that these
promotional activities are important to strengthening its brand name
recognition.

Salton relies on its management's ability to determine the existence and
extent of available markets for its products. Salton's management has extensive
marketing and sales backgrounds and devotes a significant portion of its time to
marketing-related activities. Salton markets its products primarily through its
own sales force and approximately 290 independent sales representatives.
Salton's representatives are located throughout the United States and Canada and
are paid a commission based upon sales in their respective territories. Salton's
sales representative agreements are generally terminable by either party upon 30
days' notice.

Salton directs its marketing efforts toward retailers and believes that
obtaining favorable product placement at the retail level is an important factor
in its business, especially when introducing new products. In an effort to
provide its retail customers with the highest level of customer service, Salton
has an advanced electronic data interchange system to receive customer orders
and transmit shipping and invoice information electronically. This system is
also used by management to monitor point-of-sale information at certain
accounts.

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<PAGE> 39

Salton also emphasizes the design and packaging of its products in order to
increase their appeal to consumers and to stand out among other brands on
retailers' shelves. Salton believes that distinctive packaging, designed to
answer consumers' questions concerning its products, has resulted in increased
shelf space and greater sales.

Salton's net sales to its five largest customers during the thirty-nine
weeks ended March 27, 1999 were approximately 55% of its total net sales.
Salton's net sales to its five largest customers during fiscal 1998 were 47% of
its total net sales. In 1997, Salton entered into a seven-year supply agreement
with Kmart for Kmart to purchase, distribute, market and sell a broad range of
small appliances under the White-Westinghouse(R) brand name. Kmart is the
exclusive United States discount department store to market these
White-Westinghouse(R) products. The supply agreement provides Kmart sole
distribution rights to the White-Westinghouse(R) brand name for the mass
merchandiser market, but allows distribution through other retail channels under
certain conditions. During the thirty-nine weeks ended March 27, 1999, Kmart
purchased approximately $53.4 million of Salton products pursuant to the supply
agreement, which accounted for approximately 14% of Salton's net sales. During
fiscal 1998, Kmart purchased approximately $58.9 million of Salton products from
Salton pursuant to the supply agreement, which accounted for approximately 19%
of Salton's net sales.

The supply agreement with Kmart provides for minimum purchases by Kmart,
which increase through the term of the supply agreement, and for the payment of
penalties for shortfalls. In the event that aggregate U.S. retail sales in the
consumer electronics industry for any specified category decrease by more than
10% in any year from that sold in the prior year, Kmart has the right to reduce
the minimum purchase requirements for such category to an amount not less than
80% of the minimum for such period. Salton pays Windmere a fee based upon
Salton's net sales less specified costs and expenses relating to the Kmart
supply agreement in consideration of Windmere's guarantee of Salton's
obligations under the supply agreement.

SOURCES OF SUPPLY

Most of Salton's products are manufactured to Salton's specifications by
over 45 unaffiliated manufacturers located primarily in Far East locations, such
as Hong Kong, the People's Republic of China and Taiwan, and in Europe. Many of
these suppliers are ISO 9000 certified. Salton believes that it maintains good
business relationships with its overseas manufacturers.

Salton does not maintain long-term purchase contracts with manufacturers
and operates principally on a purchase order basis. Salton believes that it is
not currently dependent on any single manufacturer for any of its products.
However, during the thirty-nine weeks ended March 27, 1999, one manufacturer
located in China accounted for approximately 53%, of Salton's product purchases.
During fiscal 1998, three manufacturers located in China accounted for
approximately 13%, 12% and 10% respectively, of Salton's product purchases.
Salton believes that the loss of any one manufacturer would not have a long term
material adverse effect on its business because other manufacturers with which
it does business would be able to increase production to fulfill its
requirements. However, the loss of a supplier could, in the short term,
adversely effect Salton's business until alternative supply arrangements were
secured.

Salton's purchase orders are generally made in United States dollars in
order to maintain continuity in its pricing structure and to limit exposure to
currency fluctuations. Salton's policy is to maintain an inventory base to
service the seasonal demands of its customers. In certain instances, Salton
places firm commitments for products from six to twelve months in advance of
receipt of firm orders from customers.

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

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<PAGE> 40

MANUFACTURING

Although most of Salton's products are outsourced to overseas vendors,
Salton is currently continuing to manufacture certain Toastmaster(R) toasters,
toaster-oven-broilers and electric heating elements at its plant in Macon,
Missouri and Ingraham(R) time products at its plant in Laurinburg, North
Carolina. Salton also manufactures and assembles woks and warming trays in its
plant located in Kenilworth, New Jersey.

Most of the component parts and raw materials purchased by Salton for its
manufacturing operations, such as finished and aluminized steels, phenolic
resins and molded parts are available from numerous suppliers. Salton does not
believe that it is dependent on any single source for any significant portion of
its component purchases or raw materials, the loss of which may have a material
adverse effect on Salton. Salton has not experienced any significant raw
material or component shortages.

COMPETITION

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

Salton competes with established companies, some of which have
substantially greater facilities, personnel, financial and other resources than
those of Salton. Salton believes that its success is dependent on its ability to
offer a broad range of existing products and to continually introduce new
products and enhancements to existing products which have substantial consumer
appeal based upon price, design, performance and features. Salton also believes
that its brand names are important to its ability to compete effectively and
give it the capability to provide consumers with appealing, well priced products
to meet competition.

EMPLOYEES

As of June 23, 1999, Salton employed approximately 1,129 persons, of whom
approximately 56 persons, who work at Salton's Kenilworth, New Jersey facility,
were covered by a collective bargaining agreement which expires on February 28,
2002. Salton generally considers its relationship with its employees to be
satisfactory and has never experienced a work stoppage.

REGULATION

Salton is subject to federal, state and local regulations concerning and
consumer products safety. In general, Salton has not experienced difficulty
complying with such regulations and compliance has not had an adverse effect on
Salton's business. Most of Salton's products are listed by UL.

BACKLOG

Salton's backlog consists of commitments to order and orders for Salton's
products, which orders are typically subject to change and cancellation until
shipment. Customer order patterns vary from year to year, largely because of
annual differences in consumer acceptance of product lines, product
availability, marketing strategies, inventory levels of retailers and
differences in overall economic conditions. As a result, comparisons of backlog
as of any date in a given year with backlog at the same date in a prior year are
not necessarily indicative of sales for that entire given year. As of June 23,
1999, Salton had a backlog of approximately $287 million. At June 27, 1998
Salton had a backlog of approximately $275.0 million compared to approximately
$83 million as of June 28, 1997. Salton does not believe that backlog is
necessarily indicative of its future results of operations or prospects.

TRADEMARKS, PATENTS AND LICENSING ARRANGEMENTS

Salton holds a number of patents and trademarks registered in the United
States and foreign countries for various products and processes. Salton has
registered certain of its trademarks with the United States

34
<PAGE> 41

Patent and Trademark Office. Salton considers these trademarks to be of
considerable value and of material importance to its business.

Salton holds numerous United States and foreign patents, including design
patents. Salton believes that none of its product lines is dependent upon any
single patent or group of patents.

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

Salton has a joint venture agreement with George Foreman Products, Inc., a
Nevada corporation, and Benjamin H., a California corporation. The joint venture
is engaged solely in the business of acquiring, selling and distributing a
thermal household grill product under the name "George Foreman's Lean Mean Fat
Reducing Grilling Machine." Mr. Foreman is both a former Olympic champion and a
former World Boxing Organization's heavyweight champion of the world.

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

Salton has a license agreement with Aesthetics, Inc. The license covers the
manufacturing, marketing and distributing of the Rejuvenique(R) facial product
lines.

In the fourth quarter of fiscal 1999, Salton obtained the exclusive right
to manufacture, market and distribute throughout the United States small
electrical coffee preparation products, including drip coffee makers,
percolators, espresso machines, coffee grinders, and coffee mills, under the
Melitta(R) brand name.

Salton has other licensing arrangements with various other companies to
market products bearing the trademark or likeness of the subject matter of the
license. These licenses include the right to market various products under
Gino's East Pizza, Gear(R), Taco Bell(R), Hershey Kiss(R), Looney Tunes(R), Andy
Warhol, Marilyn Monroe(TM), James Dean and Campbell Soup(R). Salton believes
that these other license

35
<PAGE> 42

arrangements help to demonstrate its creativity and versatility in product
design and the enhancement of existing products.

In general, Salton's joint venture and licensing arrangements place
marketing obligations on Salton in exchange for varying fees and royalties based
upon net sales or profits. Typically, each of these agreements may be terminated
if Salton does not satisfy minimum sales obligations or breaches the agreement.

WARRANTIES

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

PROPERTIES

A summary of Salton's leased properties is as follows:

<TABLE>
<CAPTION>
LEASE
LOCATION DESCRIPTION AREA (SQ. FT.) EXPIRATION
- -------- ----------- -------------- ----------
<S> <C> <C> <C>
Mt. Prospect, IL......... Executive office, 34,600 June 30, 2001
warehouse and repair
facility
Rancho Dominguez, CA..... Warehouse and 340,672 October 31, 2002
distribution facility and
retail outlet
Harrison, NJ............. Warehouse and 146,555 May 31, 2002
distribution facility and
retail outlet
Kenilworth, NJ........... Manufacturing and 97,800 March 31, 2000
warehouse/distribution
facilities
New York, NY............. Sales office 11,500 December 31, 2001
Gurnee, IL............... Retail outlet 6,141 January 31, 2000
Westend, NJ.............. Retail outlet 2,400 May 30, 2004
Troy, MI................. Sales office 1,435 May 30, 2004
Long Branch, NJ.......... Retail outlet 1,200 Month-to-month
Chicago, IL.............. Retail store 560 October 31, 2007
</TABLE>

Salton owns all of the facilities listed below, which it acquired in
connection with the acquisition of Toastmaster in January 1999. These facilities
have been pledged as collateral to secure payment of Salton's debt obligations.
The following table sets forth the location and approximate square footage of
each of Salton's significant owned facilities.

<TABLE>
<CAPTION>
LOCATION USE SQUARE FEET
- -------- --- -----------
<S> <C> <C>
Boonville, Missouri.................. Warehouse and service center 169,000
Macon, Missouri...................... Manufacturing facility 171,000
Laurinburg, NC....................... Manufacturing and warehouse facility 223,000
Columbia, Missouri................... Warehouse 107,000
Columbia, Missouri................... Warehouse 65,000
Moberly, Missouri.................... Warehouse 134,000
Columbia, Missouri................... Administrative offices 62,000
Boonville, Missouri.................. Idle facility 58,000
Kirksville, Missouri................. Warehouse 114,000
</TABLE>

Salton believes that its facilities generally are suitable and adequate for
its current level of operations and provide sufficient productive capacity for
its foreseeable needs without the need for material capital expenditures.

36
<PAGE> 43

LEGAL PROCEEDINGS

Trademark Litigation

In November 1996, White Consolidated filed suit for injunctive relief and
damages against CBS in the United States District Court for the Northern
District of Ohio alleging that CBS's grant of licenses to the Westinghouse(TM)
name for use on lighting products, fans and electrical accessories for use in
the home violates White Consolidated's rights to the Westinghouse(TM) name and
constitutes a breach of the agreements under which CBS's predecessor sold White
Consolidated its appliance business and licensed certain trademark rights in
1975. In response to that suit, CBS filed a related action in December 1996 in
the United States District Court for the Western District of Pennsylvania,
naming White Consolidated, Windmere, Salton and certain other parties as
defendants. The two actions have now been consolidated in the Pennsylvania
court. A trial date of June 28, 1999 has been set by the court. CBS seeks an
injunction prohibiting Salton, Windmere and White Consolidated from using the
White-Westinghouse(R) name on products not specifically enumerated in the sale
documents between CBS's predecessor and White Consolidated, and unspecified
damages and attorneys' fees. An adverse decision in this trademark litigation
could prohibit or restrict the further use of the White-Westinghouse(R) name by
Salton and/or Windmere and therefore could result in the possible termination or
significant modification of Salton's supply agreement with Kmart and Salton's
supply agreement with Zellers.

The legal costs that may be incurred in defending against this action could
be substantial. In addition, the litigation could be protracted and result in
diversion of Salton's management and other resources. White Consolidated is
currently defending Salton in this action. There can be no assurance that White
Consolidated will prevail in its lawsuit, or that White Consolidated, Salton and
the other co-defendants will prevail in the defense of CBS's lawsuit. In the
event that a favorable outcome for Salton is not obtained, Salton intends to
vigorously pursue its right to indemnification under indemnification provisions
in its license agreements with White Consolidated relating to the
White-Westinghouse(R) brand name. There can be no assurance that White
Consolidated will agree on the scope of the indemnity, or that any such
indemnity payment which may become due to Salton will be paid fully or in a
timely fashion or at all.

Related proceedings have also been commenced before the Trademark Trial and
Appeal Board of the United States Patent and Trademark Office in opposition to
White Consolidated's and CBS's efforts to register certain uses of the
Westinghouse(TM) and White-Westinghouse(R) names. Such proceedings have been
stayed pending resolution of the trademark litigation in the Pennsylvania court.
Even if the trademark litigation is resolved in Salton's favor, it is possible
that the proceedings before the Trademark Board will continue and could have a
material adverse effect upon Salton's business, financial condition and results
of operations.

On May 13, 1999, Whirlpool Properties, Inc. and Whirlpool Corporation
brought suit against Salton in Michigan federal court alleging trademark
infringement, false designation of origin and dilution. Whirlpool claims that
Salton's logo, which includes an elliptical shape placed at an angle around part
of the "Salton" name, infringes the Whirlpool logo which includes an elliptical
shape placed at an angle around part of the "Whirlpool" name. Whirlpool is
seeking injunctive relief and an unspecified amount of damages.

Environmental

Toastmaster is a party to environmental proceedings at two sites which are
described below and is investigating the need for remediation at two additional
facilities of the Toastmaster. Salton has accrued approximately $300,000 for the
anticipated future costs of investigation and remediation. Although such costs
could exceed that amount, Salton believes that any such excess will not be
material to Salton.

On May 30, 1991, the Missouri Department of Natural Resources submitted a
letter to Toastmaster proposing to place its Kirksville, Missouri facility on
the Missouri Registry of Confirmed Abandoned or Uncontrolled Hazardous Waste
Disposal Sites in Missouri. Toastmaster appealed the listing. A consent

37
<PAGE> 44

agreement resolving the matter was executed in February 1997 and, as a result,
the site will not be listed. A remedial action plan is currently being
developed. Toastmaster is committed to an appropriate remediation of the site.

Toastmaster is one of over 300 potentially responsible parties at the
Missouri Electric Work site in Cape Girardeau, Missouri, which has been
identified for cleanup under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). Under CERCLA, a responsible
party's liability for cleanup costs is strict, joint and several. A consent
decree has been entered into by responsible parties which includes a commitment
to pay for soil remediation and groundwater investigation at the Site. This
decree has been approved. Under the consent decree's allocation formula,
Toastmaster's fractional share of the cost of soil remediation and groundwater
investigation is approximately 0.479% of the total cost, which percentage and
therefore the portion of the remediation and investigation costs borne by
Toastmaster may vary depending upon the government's or participating
responsible parties ability to collect from non-signing responsible parties or
the failure of signing responsible parties to pay the amounts for which they are
responsible under the consent decree. The total cost for soil remediation and
groundwater investigation is currently estimated at $17 million. Based on this
estimate, and taking into account the portion agreed to be borne by de minimus
settlors, settling federal defendants and the Environmental Protection Agency,
Toastmaster's allocated share of costs under this consent decree is estimated to
be approximately $50,000.

The provisions of the consent decree to which the Toastmaster is a party do
not address groundwater remediation, the cost of which has not been determined.
Primarily because of the small volume of waste Toastmaster allegedly contributed
to the site, as well as the large number of other responsible parties and the
EPA's commitment to pay 20% of total cost of groundwater remediation,
Toastmaster does not anticipate that its share of groundwater remediation costs
will be material.

Contamination was detected at the Laurinburg, North Carolina facility of
the same types of materials as those detected at the Kirksville site described
above. Toastmaster notified the North Carolina Department of Health and
Environment of this contamination. Toastmaster was notified by letter dated
February 5, 1990 that the Laurinburg facility has been included on the Inactive
Hazardous Waste Sites Priority List. Once placed on this list, responsible
parties are encouraged to cleanup the site or, if the site endangers public
health or the environment, a remedial action can be ordered by the State. After
conducting the necessary investigative work and acquiring the approval of the
State, a remedial plan was implemented at this site consisting of a groundwater
recovery system. In addition, a former waste water treatment facility has been
closed in accordance with applicable environmental requirements.

Contamination was detected at the Macon, Missouri facility of the same type
of materials as those detected at the Kirksville site previously described.
Toastmaster has entered into a contract with a consultant to provide further
investigative and remedial work. An agreement to enter the Voluntary Cleanup
Program with the Missouri Department of Natural Resources to remediate the
Macon, Missouri facility contamination was signed in March 1996.

Arbitration

On April 20, 1999, Jay Kordich filed a notice of arbitration asserting a
breach of contract claim against Salton due to Salton's alleged failure to pay
royalties to Mr. Kordich for the sale of certain juice extractors and related
health products. Mr. Kordich also asserts various other causes of action for an
accounting, breach of covenant of good faith and fair dealing, trademark
infringement, unfair competition, permanent injunction, fraud, negligent
misrepresentation, age discrimination, Lanham Act violations, breach of
fiduciary duty and rescission of contract, and Mr. Kordich is seeking
compensatory and punitive damages of $15 million. An arbitration hearing has
been scheduled for September 17, 1999.

Salton believes that Mr. Kordich's claims are without merit, and Salton
intends to vigorously defend itself in the arbitration proceeding.

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<PAGE> 45

Other

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

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<PAGE> 46

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following tables sets forth certain information with respect to each of
Salton's directors and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH SALTON
- ---- --- -----------------------
<S> <C> <C>
David C. Sabin............ 49 Chairman of the board of directors and
Secretary
Leonhard Dreimann......... 50 Chief Executive Officer and director
William B. Rue............ 51 President, Chief Operating Officer and
director
John E. Thompson.......... 52 Senior Vice President and Chief Financial
Officer
Robert A. Bergmann........ 33 Director
Frank Devine.............. 54 Director
Bert Doornmalen........... 54 Director
Bruce G. Pollack.......... 40 Director
</TABLE>

DAVID C. SABIN has served as Chairman of Salton since September 1991 and
has served as Secretary and a director of Salton since its inception in August
1988 and is a founder of Salton. Mr. Sabin served as the president and a
director of Glacier Holdings, Inc., a publicly held company, from December 1988
through May 1994 and as a director of Salton Time Inc., a wholly-owned
subsidiary of Glacier Holdings, since 1989. Salton Time was an importer and
distributor of quartz wall and alarm clocks. From 1991 through May 1994, Mr.
Sabin was an officer and a director of Stylemaster, Inc., a wholly-owned
subsidiary of Glacier Holdings, which was engaged in the manufacture and
distribution of plastic housewares articles. Stylemaster, Inc. filed for
protection under Chapter 11 of the United States Bankruptcy Code in March 1994.
During 1994, Glacier Holdings and its subsidiaries ceased operations and were
liquidated.

LEONHARD DREIMANN has served as Chief Executive Officer and a director of
Salton since its inception in August 1988 and is a founder of Salton. From 1988
to July 1998, Mr. Dreimann served as President of Salton. From 1987 to 1988, Mr.
Dreimann served as president of Salton's predecessor Salton, Inc., a
wholly-owned subsidiary of SEVKO, Inc. Prior to 1987, Mr. Dreimann served as
managing director of Salton Australia Pty. Ltd., a distributor of Salton brand
kitchen appliances. From 1988 to December 1993, Mr. Dreimann served as an
officer and a director of Glacier Holdings, and as a director of its wholly-
owned subsidiary Glacier Water Systems, Inc. from 1987 to December 1993. Glacier
developed, manufactured and marketed an in-home water filtration system. During
1994, Glacier Holdings and its subsidiaries ceased operations and were
liquidated. From 1989 to December 1993, Mr. Dreimann served as an officer and a
director of Salton Time.

WILLIAM B. RUE has served as President of Salton since August 1998, as
Chief Operating Officer of Salton since December, 1994 and as Chief Financial
Officer and Treasurer of Salton since September, 1988. Mr. Rue became a director
of Salton in July 1999. From 1985 to 1988, he was Treasurer of SEVKO, Inc. and
from 1982 to 1984 he was Vice President -- Finance of Detroit Tool Industries
Corporation. Prior to that time, Mr. Rue had been employed since 1974 by the
accounting firm of Touche Ross & Co.

JOHN E. THOMPSON has served as Senior Vice President and Chief Financial
Officer of Salton since January 1999. Since 1987, Mr. Thompson has served as
Executive Vice President, Chief Financial Officer, Treasurer and a director of
Toastmaster, Inc. From 1970 to 1987, Mr. Thompson served in several capacities
at Toastmaster, the last of which was as Senior Vice President of Toastmaster.
Mr. Thompson currently serves as a director of Columbia, Missouri based First
National Bank & Trust Company.

ROBERT A. BERGMANN has been a director of Salton since July, 1998. Mr.
Bergmann has been a Principal of Centre Partners Management LLC since 1995. From
1989 to 1991 and from 1993 to 1995, Mr. Bergmann was an Associate of Centre
Partners L.P. Mr. Bergman serves as a director of Rembrandt Photo Services and a
number of other private corporations.

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<PAGE> 47

FRANK DEVINE has been a director of Salton since December, 1994. Mr. Devine
serves as a business consultant for various entities. He has founded or
co-founded Bachmann-Devine, Incorporated, a venture capital firm, American Home,
Inc., an importer of hand-loomed rugs and decorative accessories, World Wide
Digital Vaulting, Inc., an on-line digital data storage company and Shapiro,
Devine & Craparo, Inc., a household goods manufacturers representation company
serving the retail industry. Mr. Devine also serves on the board of directors of
these companies.

BERT DOORNMALEN has been a director of Salton since July, 1994. Mr.
Doornmalen has been the Managing Director of Markpeak Ltd., a Hong Kong company
which represents Salton in the procurement and inspection of products in the Far
East, since 1981.

BRUCE G. POLLACK has been a director of Salton since July 1998. Mr. Pollack
has been a Managing Director of Centre Partners Management LLC since 1995. Mr.
Pollack is also a Partner of Centre Partners L.P. which he joined in 1991. Mr.
Pollack serves as a director of KIK Corp. Holdings Inc., Rembrandt Photo
Services, Johnny Rockets Group, Inc. and a number of other private corporations.

The board of directors is divided into three classes, each of whose members
serve for a staggered three-year term. The board is comprised of two class I
directors (David C. Sabin and Robert A. Bergmann), three class II directors
(William B. Rue, Bert Doornmalen and Bruce G. Pollack) and two class III
directors (Leonhard Dreimann and Frank Devine).

Centre Partners has the right to designate: (1) two directors to serve on
the board of directors so long as it and its affiliates own at least 12.5% of
the total voting power of Salton, and (2) one director to serve on the board of
directors so long as it and its affiliates own at least 7.5% of the total voting
power of Salton. Centre Partners has designated Robert A. Bergmann and Bruce G.
Pollack to serve on the board of directors.

EMPLOYMENT AGREEMENTS

David C. Sabin, Chairman of the Board, Leonhard Dreimann, Chief Executive
Officer, and William B. Rue, President, Chief Operating Officer, have each
entered into employment agreements, effective as of December 19, 1997, which
provide for their continued employment in their present capacities with Salton
through December 31, 2001. Messrs. Sabin and Dreimann are entitled to annual
salaries at the rate of $425,000 through June 30, 1998 and $500,000 thereafter.
Mr. Rue is entitled to an annual salary at the rate of $285,000 through June 30,
1998 and $350,000 thereafter. In addition, commencing with calendar 1998, each
of the executives is entitled to an annual bonus each calendar year ranging from
25% of his base salary, if Salton achieves threshold performance goals, to 100%
of his salary, if Salton achieves target performance goals, to 125% of his
salary, if Salton achieves maximum performance goals.

Under the terms of the employment agreements, if an executive is terminated
without cause or resigns with good reason, he is entitled to receive a lump-sum
payment equal to his salary for the remainder of the term, plus the bonuses he
would have received if Salton achieved target performance goals for the
remainder of the term and other benefits which he would have been entitled to
for the remainder of the term. The termination without cause of an executive or
resignation for good reason by an executive constitutes good reason for the
other executives to resign under the employment agreements. In addition, if an
executive voluntarily terminates his employment within two years after a change
of control of Salton, he is entitled to receive a lump sum payment equal to his
salary and other benefits for the remainder of the term; provided that the
termination of employment by an executive during the 30 day period immediately
following the one-year anniversary of the change of control constitutes good
reason under the executive's employment agreement.

Under the employment agreements, Salton granted to each of the executives
on December 18, 1998 options to purchase 63,179 shares of Salton common stock at
an exercise price of $20 7/8 per share and has agreed to grant to each of the
executives options to purchase an additional 63,179 shares of Salton common
stock with an exercise price equal to the closing price of Salton common stock
on the NYSE on

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<PAGE> 48

December 17, 1999. Upon a change of control prior to the granting of such
options, each executive may elect to receive in lieu of the exercise of such
options a lump sum payment equal to (1) the difference between (x) the average
of the closing price of Salton common stock on the NYSE for the five trading
days immediately preceding the change of control and (y) $15.25, multiplied by
(2) the number of shares of Salton common stock subject to such options.

Mr. John E. Thompson, Chief Financial Officer, has an employment agreement
with Toastmaster which provides that he may terminate his employment, upon ten
days' prior written notice, at any time within one year after a "Change of
Control" (such as Salton's acquisition of Toastmaster) and will be entitled to
receive two years' salary plus the proportionate amount of any incentive bonus
and other compensation, payments and benefits which would otherwise have been
received by the employer with respect to the year in which employment was
terminated.

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<PAGE> 49

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information known to Salton with respect to
the beneficial ownership of its common stock (1) as of June 23, 1999 and (2)
immediately following this offering by:

- the persons known by Salton to be the beneficial owners of more than 5%
of the outstanding shares of common stock,

- each director and executive officer of Salton,

- all directors and executive officers of Salton as a group, and

- each selling stockholder.

Unless otherwise indicated, all persons listed have sole voting and
investment power with respect to their shares of common stock.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OWNED AFTER THIS
OFFERING OFFERING
------------------- ---------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
NAME ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Centre Partners Group(1)................... 2,599,841 28.4% 456,791 2,143,050 19.2%
Dominator Investors Group(2)............... 350,314 3.7 350,314 -- --
Mr. Leonhard Dreimann(3)................... 580,756 6.3 391,300(10) 3.5
Mr. William B. Rue(4)...................... 249,338 2.7 207,468(10) 1.8
Mr. David C. Sabin(5)...................... 382,928 4.1 107,895 275,033 2.4
Mr. John E. Thompson(6).................... 10,000 * 10,000 *
Mr. Frank Devine(7)........................ 30,300 * 30,300 *
Mr. Bert Doornmalen(8)..................... 21,000 * 21,000 *
Mr. Robert A. Bergmann(1).................. 0 * 0 *
Mr. Bruce G. Pollack(1).................... 0 * 0 *
All directors and executive officers as a
group (8 persons)(9)..................... 1,624,636 17.0% 935,101 8.1%
</TABLE>

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

* Less than 1%.

(1) Consists of an aggregate of 246,900 shares of common stock and 40,000 shares
of convertible preferred stock:

- 75,996 shares of common stock and 12,312 shares of convertible preferred
stock owned of record by Centre Capital Investors II, L.P.;

- 24,726 shares of common stock and 4,006 shares of convertible preferred
stock owned of record by Centre Capital Tax-Exempt Investors II, L.P.;

- 16,535 shares of common stock and 2,679 shares of convertible preferred
stock owned of record by Centre Capital Offshore Investors II, L.P.;

- 1,167 shares of common stock and 189 shares of convertible preferred
stock owned of record by Centre Parallel Management Partners, L.P.;

- 13,068 shares of common stock and 2,177 shares of convertible preferred
stock owned of record by Centre Partners Coinvestment, L.P.; and

- 115,408 shares of common stock and 18,697 shares of convertible preferred
stock owned of record by the State Board of Administration of Florida.

As of June 23, 1999, the 40,000 shares of convertible preferred stock
were convertible into 2,352,941 shares of Salton's common stock. Investors
II, Tax-Exempt II and Offshore II are limited partnerships, of which the
general partner of each is Centre Partners II, L.P., and of which Centre
Partners Management LLC is an attorney-in-fact. Parallel and Coinvestment
are also limited

43
<PAGE> 50

partnerships. In its capacity as manager of certain investments for the
State Board of Administration of Florida pursuant to a management
agreement, Centre Management is an attorney-in-fact of Parallel. Centre
Partners II LLC is the ultimate general partner of each of Investors II,
Tax-Exempt II, Offshore II, Parallel and Coinvestment. Bruce G. Pollack is
Managing Director of Centre Management and Centre Partners II LLC and as
such may be deemed to beneficially own and share the power to vote or
dispose the common stock and convertible preferred stock held by Investors
II, Tax-Exempt II, Offshore II, Parallel, Coinvestment and the State Board
of Administration of Florida. Mr. Pollack disclaims the beneficial
ownership of such common stock and Convertible Preferred Stock. The
foregoing is based upon information contained in a Schedule 13D/A dated
September 16, 1998, filed with the SEC.

(2) Dominator Investors Group is a Hong Kong corporation. Mr. Dreimann
beneficially owns 54.1% of Dominator, and Mr. Rue beneficially owns 12% of
Dominator.

(3) Includes 189,456 shares beneficially owned as a result of Mr. Dreimann's
54.1% ownership of Dominator and 82,147 shares which may be acquired upon
the exercise of immediately exercisable options.

(4) Includes 41,870 shares beneficially owned as a result of Mr. Rue's 12%
ownership of Dominator and 137,146 shares which may be acquired upon the
exercise of immediately exercisable options.

(5) Includes 117,147 shares of common stock which may be acquired upon the
exercise of immediately exercisable stock options. Also includes (a) 127,734
shares owned by Duquesne Financial Corporation, an Illinois corporation
which is owned by Susan Sabin, and (b) 64,700 shares owned by Susan Sabin.
Susan Sabin is David Sabin's wife. Mr. Sabin disclaims beneficial ownership
of all shares owned by Duquesne and Susan Sabin.

(6) Includes 5,000 shares of common stock which may be acquired upon the
exercise of immediately exercisable options.

(7) Includes 21,000 shares of common stock which may be acquired upon the
exercise of immediately exercisable options.

(8) Includes 21,000 shares of common stock which may be acquired upon the
exercise of immediately exercisable options.

(9) Includes an aggregate of 383,440 shares which may be acquired by directors
and officers of Salton upon the exercise of immediately exercisable options.
See footnotes 2 through 8 above.

(10) Reflects the sale of 189,456 shares by Dominator which Mr. Dreimann
beneficially owns as a result of his 54.1% interest in Dominator and the
sale of 41,870 shares by Dominator which Mr. Rue beneficially owns as a
result of his 12% interest in Dominator.

The addresses of the persons shown in the table above who are beneficial
owners of more than five percent of Salton's common stock are as follows:
Messrs. Dreimann, Sabin and Rue and Dominator Investors Group, 550 Business
Center Drive, Mount Prospect, Illinois 60056; and Centre Partners Management
LLC, 30 Rockefeller Plaza, Suite 5050, New York, New York 10020.

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<PAGE> 51

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS

The following summary describes the principal United States federal income
tax consequences of the purchase, ownership and disposition of Salton common
stock by a holder that, for United States federal income tax purposes, is not a
"U.S. Holder" (as defined below) (a "Non-U.S. Holder"). This summary is based on
the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
administrative pronouncements, judicial decisions and existing and proposed
Treasury Regulations ("Regulations"), changes to any of which subsequent to the
date of this prospectus may affect the tax consequences described herein, with
retroactive effect. This summary discusses only Salton common stock held as a
capital asset within the meaning of Section 1221 of the Code. It does not
discuss all of the tax consequences that may be relevant to a Holder in light of
its particular circumstances or to holders subject to special rules, such as
certain financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or foreign currencies, persons holding our common stock as
part of a hedging, conversion, or straddle transaction, or holders whose
functional currency is not the United States dollar. Persons considering the
purchase of our common stock should consult their tax advisors with regard to
the application of the United States federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.

As used herein, the term "U.S. Holder" means a beneficial owner of our
common stock that is, for the United States federal income tax purposes:

- a citizen or individual resident of the United States;

- a corporation (or other entity treated as a corporation) or partnership
created in or under the laws of the United States or of any State
thereof;

- an estate the income of which is subject to United States federal income
taxation regardless of its source; or

- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust (including certain trusts in existence on August 20, 1996 and
treated as United States persons prior to such date that timely elected
to continue to be treated as United States persons).

TAXATION OF DIVIDENDS

In general, Non-U.S. Holders will be subject to United States income or
withholding taxation on dividends paid, or deemed paid, by Salton on its common
stock. With respect to Non-U.S. Holders that are not engaged in a United States
trade or business, dividends paid by Salton to such Non-U.S. Holders will be
subject to United States withholding tax at a 30 percent rate (unless reduced by
an applicable income tax treaty). If the receipt of a dividend by a Non-U.S.
Holder is effectively connected with the conduct of a trade or business in the
United States by the Non-U.S. Holder, the dividend will be subject to United
States federal income tax imposed on net income on the same basis that applies
to United States holders generally (and, with respect to corporate holders and
under certain circumstances, the branch profits tax).

SALE, REDEMPTION OR OTHER DISPOSITION OF THE STOCK

Except as provided below, a Non-U.S. Holder generally will not be subject
to United States federal income or withholding tax with respect to gain
recognized on the sale or other disposition of our common stock, unless (1) the
gain is effectively connected with the conduct of a United States trade or
business by such Non-U.S. Holder or (2) such Non-U.S. Holder is an individual
who is present in the United States for 183 or more days during the taxable year
of the disposition and certain other requirements are met.

If proceeds from the disposition of our common stock are effectively
connected with the conduct of a United States trade or business by the Non-U.S.
Holder (or the Non-U.S. Holder is otherwise subject to

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<PAGE> 52

United States federal income taxation on a net income basis), such Non-U.S.
Holder generally will be subject to the rules that apply to U.S. holders
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax) but will not be subject to United States
federal withholding tax (subject to any modification provided under an
applicable income tax treaty).

UNITED STATES FEDERAL ESTATE TAXES

Common stock owned or treated as owned by an individual who is not a
citizen or resident (as specifically defined for United States federal estate
tax purposes) of the United States on the date of death will be included in such
individual's estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Generally, Salton must report annually to the United States Internal
Revenue Service and to each Non-U.S. Holder the amount of dividends paid to such
holder, and the tax withheld on such dividends, regardless of whether any tax
has actually been withheld. This information may also be made available to the
tax authorities of a country in which the Non-U.S. Holder resides.

Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of our common stock that provides the appropriate certification of
foreign status. Payments by a United States office of a broker of the proceeds
of a disposition of our common stock generally will not be subject to backup
withholding if the Non-U.S. Holder certifies it is a Non-U.S. Holder under
penalties of perjury or otherwise establishes an exemption. Information
reporting requirements (but not backup withholding) will also apply to a payment
of the proceeds of the disposition of our common stock by or through a foreign
office of a United States broker or a foreign broker that is a related person,
unless the Non-U.S. Holder certifies to the broker under penalties of perjury as
to its name, address and status as a foreign person or the holder otherwise
establishes an exemption.

The United States Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, such regulations do not significantly alter the substantive withholding
and information reporting requirements but unify current certification
procedures and forms and clarify reliance standards. The final regulations
generally are effective for payments made after December 31, 2000, subject to
certain transaction rules.

46
<PAGE> 53

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber Incorporated
and DLJdirect Inc., have severally agreed to purchase from Salton and the
selling stockholders the number of shares set forth opposite their names below.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
PaineWebber Incorporated....................................
DLJdirect Inc. .............................................
--------
Total.............................................
========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration statement,
the continuing correctness of the representations of Salton and the selling
stockholders, the receipt of a "comfort letter" from Salton's accountants, the
listing of the common stock on the NYSE and no occurrence of an event that would
have a material adverse effect on Salton. The underwriters are obligated to
purchase and accept delivery of all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price and
such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.

Salton and Centre Partners have granted the underwriters an option,
exercisable for 30 days from the date of the underwriting agreement, to purchase
up to an aggregate of 438,000 additional shares at the public offering price
less the underwriting fees. The underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent that the underwriters exercise this option, each underwriter will become
obligated, subject to specific conditions, to purchase a number of additional
shares approximately proportionate to this underwriter's initial purchase
commitment.

Salton and the selling stockholders have agreed to indemnify the
underwriters against some civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect of any of those liabilities.

Salton, each of the selling stockholders and the executive officers and
directors of Salton have agreed that, for a period of 90 days from the date of
this prospectus, they will not, subject to some exceptions, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of common stock or any securities convertible into or exercisable or
exchangeable for common stock; or (2) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any common stock (regardless of whether any of the transactions
described in clause (1) or (2) is to be settled by the delivery of common stock
or other securities, in cash or otherwise). In addition, for a 180 day period
Salton has agreed not to file any registration statement with respect to, and
each of its executive officers, directors and the selling stockholders has
agreed not to make demand for, or exercise any right with respect to, the
registration of any shares of common stock or any securities convertible into or
exercisable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.

47
<PAGE> 54

Other than in the United States, no action has been taken by Salton, the
selling stockholders or the underwriters that would permit a public offering of
the shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisement in connection with the offer and sale
of any of these shares be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of common stock included in this offering in any jurisdiction where that
would be permitted or legal.

Stabilization

In connection with this offering, any of the underwriters may decide to
engage in transactions that stabilize, maintain or otherwise affect the price of
the common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

Pricing of the Offering

The offering price for the common stock was based on discussions between
Salton and the representatives of the underwriters. Among the factors considered
in determining the offering price were the demand for the common stock, the
market price for the common stock, the level of trading volume in the common
stock, the general market for companies Salton's industry and market conditions
in general.

LEGAL MATTERS

Legal matters in connection with the offering described in this prospectus
will be passed upon for Salton by Sonnenschein Nath & Rosenthal, Chicago,
Illinois. Legal matters in connection with this offering will be passed upon for
the underwriters by Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, New
York.

EXPERTS

The financial statements of Salton as of June 27, 1998 and June 28, 1997
and for each of the three years in the period ended June 27, 1998 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

The financial statements of Toastmaster as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 have been
included in this prospectus and in the registration statement in reliance on the
report of KPMG LLP, independent auditors, as set forth in their report appearing
elsewhere herein and in the registration statement, upon their authority as
experts in accounting and auditing.

48
<PAGE> 55

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements, and other information with the
Securities and Exchange Commission. These reports, proxy statements and other
information can be read and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The SEC
maintains an internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC, including Salton. In addition, our common stock is
listed on the New York Stock Exchange and our reports and other information can
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.

INCORPORATION BY REFERENCE

The SEC allows us to "incorporate by reference" the documents that we file
with the SEC. This means that we can disclose information to you by referring
you to those documents. Any information we incorporate in this manner is
considered part of this prospectus except to the extent updated and superseded
by information contained in this prospectus. Some information we file with the
SEC after the date of this prospectus and until this offering is completed will
automatically update and supersede the information contained in this prospectus.

We incorporate by reference the following documents that we have filed with
the SEC and any filings that we will make with the Commission in the future
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until this offering is completed.

- Annual Report on Form 10-K for the fiscal year ended June 27, 1998,
except for Item 8 of the Report, as amended by the amendment to the 1998
10-K filed with the SEC on October 21, 1998.

- Quarterly Reports on Form 10-Q for the fiscal quarters ended September
26, 1998, December 26, 1998 and March 27, 1999;

- Current Report on Form 8-K filed with the SEC on January 15, 1999.

We will provide without charge, upon written or oral request, a copy of any
or all of the documents which are incorporated by reference into this
prospectus. Requests should be directed to: Salton, Inc. Attention: William B.
Rue, 550 Business Center Drive, Mount Prospect, Illinois 60056, telephone
number: (847) 803-4600.

49
<PAGE> 56

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Introduction to Unaudited Pro Forma Consolidated Financial
Statements................................................ F-2
Unaudited Pro Forma Consolidated Balance Sheet at March 27,
1999...................................................... F-3
Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Year ended June 27, 1998............... F-4
Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Thirty-Nine Weeks ended March 27,
1999...................................................... F-5
Notes to Unaudited Pro Forma Consolidated Financial
Statements................................................ F-6

CONSOLIDATED FINANCIAL STATEMENTS:
SALTON
Years ended June 27, 1998, June 28, 1997, and June 29, 1996
Independent Auditors' Report................................ F-9
Consolidated Balance Sheets as of June 27, 1998 and June 28,
1997...................................................... F-10
Consolidated Statements of Earnings for the Years ended June
27, 1998, June 28, 1997, and June 29, 1996................ F-11
Consolidated Statements of Stockholders' Equity for the
Years ended June 27, 1998, June 28, 1997, and June 29,
1996...................................................... F-12
Consolidated Statements of Cash Flows for the Years ended
June 27, 1998, June 28, 1997, and June 29, 1996........... F-13
Notes to Consolidated Financial Statements.................. F-14
Thirty-Nine Weeks ended March 27, 1999 and March 28, 1998
Consolidated Balance Sheets at March 27, 1999 (Unaudited)
and June 27, 1998......................................... F-26
Consolidated Statements of Earnings for the Thirty-Nine
Weeks ended March 27, 1999 and March 28, 1998
(Unaudited)............................................... F-27
Consolidated Statements of Cash Flows for the Thirty-Nine
Weeks ended March 27, 1999 and March 28, 1998
(Unaudited)............................................... F-28
Notes to Consolidated Financial Statements (Unaudited)...... F-29
TOASTMASTER
Years ended December 31, 1998, 1997 and 1996
Independent Auditors' Report................................ F-34
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-35
Consolidated Statements of Operations for the Years ended
December 31, 1998, 1997 and 1996.......................... F-36
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1998, 1997 and 1996.............. F-37
Consolidated Statements of Comprehensive Income (Loss) for
the Years ended December 31, 1998, 1997 and 1996.......... F-38
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1997 and 1996.......................... F-39
Notes to Consolidated Financial Statements.................. F-40
</TABLE>

F-1
<PAGE> 57

INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

In July 1998, we issued $40.0 million of our convertible preferred stock to
affiliates of Centre Partners Management LLC, and we repurchased 6,535,072
shares of our common stock owned by Windmere-Durable Holdings, Inc. for $12 per
share plus a $15.0 million junior subordinated note. In December 1998, we issued
$125.0 million of 10 3/4 senior subordinated notes, primarily to repay certain
indebtedness. In January 1999, we acquired Toastmaster for an aggregate
consideration of approximately $53.2 million. We also repaid approximately $57.8
million of Toastmaster's outstanding indebtedness in connection with the
acquisition. The unaudited pro forma statement of income data set forth below
gives effect to these transactions and our application of the net proceeds from
the sale of 2,005,000 shares of common stock in this offering, at an assumed
public offering price of $49 7/8 per share, after deducting underwriting
discounts and commissions and estimated offering expenses, as if they had been
consummated on June 29, 1997.

We sometimes refer to the stock repurchase and the issuance of the
convertible preferred stock as the "Recapitalization" in the following unaudited
pro forma consolidated statements of operations data.

The following unaudited pro forma consolidated balance sheet reflects
adjustments to Salton's historical consolidated balance sheet at March 27, 1999
to give effect to the application of the net proceeds from the sale of 2,005,000
shares of common stock in this offering at an assumed public offering price of
$49 7/8 per share, after deducting underwriting discounts and commissions and
estimated offering expenses, as if the offering had been consummated on March
27, 1999.

The unaudited pro forma consolidated financial information set forth below
reflects pro forma adjustments that are based upon available information and
certain assumptions that Salton believes are reasonable. The pro forma financial
information is for informational purposes only and does not purport to represent
what Salton's results of operations or financial position would have actually
been had the transactions to which pro forma effect is given been consummated as
of the dates or for the periods indicated. In preparing the pro forma financial
information, Salton believes it has utilized reasonable methods to conform the
basis of presentation of each of Salton's and Toastmaster's historical financial
statements. The acquisition of Toastmaster has been accounted for herein by the
purchase method of accounting. The pro forma information reflects preliminary
estimates of the allocation of the purchase price and is subject to final
determination. The pro forma information does not reflect cost savings expected
by Salton's management to be achieved over time following the acquisition of
Toastmaster. These cost savings may include: (1) more favorable product pricing
and other terms through outsourcing manufacturing of products overseas; and (2)
advertising, ocean freight, warehousing and corporate overhead expenses.
Salton's ability to recognize certain of these cost savings will depend to a
significant extent on its ability to successfully integrate the operations of
Salton and Toastmaster and other factors, including economic conditions and the
retail environment.

You should read the unaudited pro forma consolidated financial statements
and accompanying notes in conjunction with the historical financial statements,
including the related notes, of Salton and of Toastmaster and with other
financial information pertaining to Salton including "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.

F-2
<PAGE> 58

SALTON, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 27, 1999

<TABLE>
<CAPTION>
HISTORICAL OFFERING
SALTON(1) ADJUSTMENTS AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Cash................................................. $ 19,823 $ 100,000(3)
(32,000)(4)
(45,000)(4)
(5,000)(3)
(650)(3)
(900)(4)
(1,028)(4)
---------
15,422 $ 35,245
Accounts receivable, net of allowances............... 89,886 -- 89,886
Inventories.......................................... 120,178 -- 120,178
Prepaid expenses and other current assets............ 5,203 -- 5,203
Income tax receivable................................ 3,217 -- 3,217
Deferred tax assets.................................. 4,313 -- 4,313
-------- --------- --------
Total current assets......................... 242,620 15,422 258,042
Property, plant and equipment........................ 40,384 -- 40,384
Less accumulated depreciation........................ (17,881) -- (17,881)
-------- --------- --------
Net property, plant and equipment................. 22,503 -- 22,503
Intangibles, net and other assets.................... 50,652 -- 50,652
-------- --------- --------
TOTAL ASSETS................................. $315,775 $ 15,422 $331,197
======== ========= ========
Liabilities
Revolving line of credit and other current debt...... $ 34,293 $ (32,500)(4) $ 1,793
Accounts payable..................................... 25,938 25,938
Accrued expenses..................................... 22,242 (1,028)(4) 21,214
Income taxes payable................................. 6,902 (342)(4) 6,560
-------- --------- --------
Total current liabilities.................... 89,375 (33,870) 55,505
Non-current deferred tax liability................... 1,213 -- 1,213
Long term debt....................................... 169,500 (44,500)(4) 125,000
Notes payable........................................ 13,021 -- 13,021
-------- --------- --------
Total liabilities............................ 273,109 (78,370) 194,739
Stockholders' equity:
Preferred stock......................................
Common stock......................................... 131 131
Treasury stock....................................... (90,804) 34,219(3) (56,585)
Accumulated other comprehensive income............... 7 7
Additional paid-in capital........................... 90,730 65,781(3) 150,861
(5,000)(3)
(650)(3)
---------
60,131
Retained earnings.................................... 42,602 (558)(4) 42,044
-------- --------- --------
Total stockholders' equity................... 42,666 93,792 136,458
-------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $315,775 $ 15,422 $331,197
======== ========= ========
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

F-3
<PAGE> 59

SALTON, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
FISCAL YEAR ENDED JUNE 27, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA FOR PRO FORMA
RECAPITALIZATION RECAPITALIZATION ADJUSTMENTS FOR
HISTORICAL AND NOTES AND NOTES HISTORICAL TOASTMASTER
SALTON(1) OFFERING OFFERING TOASTMASTER(2) ACQUISITION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales:......................... $305,599 -- $305,599 $159,602 --
Cost of goods sold................. 179,376 $ (1,353)(5) 178,023 120,245 --
Distribution expenses.............. 12,327 -- 12,327 9,683 --
-------- -------- -------- -------- -------
Gross profit....................... 113,896 1,353....... 115,249 29,674 --
Selling, general and administrative
expenses......................... 84,216 -- 84,216 22,434 $ 846(8)
(900)(9)
-------- -------- -------- -------- -------
Operating income................... 29,680 1,353....... 31,033 7,240 54
Interest expense net............... (5,333) (10,297)(6) (15,630) (3,800) (2,709)(10)
Other expense...................... -- -- -- (785) --
Costs associated with
refinancing...................... (1,133) -- (1,133) -- --
Realized gain on sale of marketable
securities....................... 8,972 -- 8,972 -- --
-------- -------- -------- -------- -------
Income before income taxes......... 32,186 (8,944) 23,242 2,655 (2,655)
Income taxes (benefit)............. 12,205 (3,399)(7) 8,806 806 (687)(7)
-------- -------- -------- -------- -------
Net income......................... $ 19,981 $ (5,545) $ 14,436 $ 1,849 $(1,968)
======== ======== ======== ======== =======
Basic earnings per common share.... $ 1.53 $ 2.21
======== ========
Diluted earnings per common and
common equivalent share.......... $ 1.48 $ 1.59
======== ========
Weighted average common shares
outstanding...................... 13,062 6,527
Weighted average common and common
equivalent shares outstanding.... 13,506 9,101
OTHER DATA:
EBITDA(12)......................... $ 33,981 $ 35,334 $ 10,941
EBITDA margin(13).................. 11.1% 11.6% 6.9%
Depreciation and amortization...... $ 4,301 $ 4,301 $ 3,701
Capital expenditures............... 4,565 4,565 3,529

<CAPTION>
PRO FORMA FOR
RECAPITALIZATION
NOTES OFFERING
AND TOASTMASTER OFFERING PRO FORMA
ACQUISITION ADJUSTMENTS AS ADJUSTED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales:......................... $465,201 -- $465,201
Cost of goods sold................. 298,268 298,268
Distribution expenses.............. 22,010 22,010
-------- ------- --------
Gross profit....................... 144,923 -- 144,923
Selling, general and administrative
expenses......................... 106,596 -- 106,596
-------- ------- --------
Operating income................... 38,327 38,327
Interest expense net............... (22,139) $ 6,560(11) (15,579)
Other expense...................... (785) -- (785)
Costs associated with
refinancing...................... (1,133) -- (1,133)
Realized gain on sale of marketable
securities....................... 8,972 -- 8,972
-------- ------- --------
Income before income taxes......... 23,242 6,560(11) 29,802
Income taxes (benefit)............. 8,925 2,493(7) 11,418
-------- ------- --------
Net income......................... $ 14,317 $ 4,067 $ 18,384
======== ======= ========
Basic earnings per common share.... $ 2.19 $ 2.05
======== ========
Diluted earnings per common and
common equivalent share.......... $ 1.57 $ 1.66
======== ========
Weighted average common shares
outstanding...................... 6,527 8,989
Weighted average common and common
equivalent shares outstanding.... 9,101 11,106
OTHER DATA:
EBITDA(12)......................... $ 47,175 $ 47,175
EBITDA margin(13).................. 10.1% 10.1%
Depreciation and amortization...... $ 8,848 $ 8,848
Capital expenditures............... 8,094 8,094
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

F-4
<PAGE> 60

SALTON, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
THIRTY-NINE WEEKS ENDED MARCH 27, 1999
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
RECAPITALIZATION PRO FORMA
HISTORICAL AND NOTES FOR NOTES HISTORICAL
SALTON(1) OFFERING OFFERING TOASTMASTER(2)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales:............................. $371,412 -- $371,412 $ 91,024
Cost of goods sold..................... 214,374 -- 214,374 79,531
Distribution expenses.................. 14,521 -- 14,521
-------- ------- -------- --------
Gross profit........................... 142,517 -- 142,517 11,493
Selling, general and administrative
expenses............................. 90,832 -- 90,832 13,540
-------- ------- -------- --------
Operating income....................... 51,685 -- 51,685 (2,047)
Interest expense net................... (9,899) $(1,743)(6) (11,642) (2,335)
Other expense.......................... -- -- -- --
-------- ------- -------- --------
Income before income taxes............. 41,786 (1,743) 40,043 (4,382)
Income taxes (benefit)................. 14,131 (662)(7) 13,469 144
-------- ------- -------- --------
Net income (loss)...................... $ 27,655 $(1,081) $ 26,574 $ (4,526)
======== ======= ======== ========
Basic earnings per common share........ $ 3.78 $ 4.04
======== ========
Diluted earnings per common and common
equivalent share..................... $ 2.79 $ 2.82
======== ========
Weighted average common shares
outstanding.......................... 7,321 6,579
Weighted average common and common
equivalent shares outstanding........ 9,911 9,436
OTHER DATA:
EBITDA(12)............................. $ 56,235 $ 56,235 $ (102)
EBITDA margin(13)...................... 15.1% 15.1% (0.1)%
Depreciation and amortization.......... $ 4,550 $ 4,550 $ 1,945
Capital expenditures................... 1,436 1,436 1,568

PRO FORMA PRO FORMA FOR
ADJUSTMENTS FOR NOTES OFFERING
TOASTMASTER AND TOASTMASTER OFFERING AS ADJUSTED
ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales:............................. -- $462,436 -- $462,436
Cost of goods sold..................... -- 293,905 -- 293,905
Distribution expenses.................. -- 14,521 -- 14,521
------- -------- ------ --------
Gross profit........................... -- 154,010 -- 154,010
Selling, general and administrative
expenses............................. $ 434(8) 104,356 -- 104,356
(450)(9)
------- -------- ------ --------
Operating income....................... 16 49,654 -- 49,654
Interest expense net................... (2,789)(10) (16,766) $4,297(11) (12,469)
Other expense.......................... -- -- -- --
------- -------- ------ --------
Income before income taxes............. (2,773) 32,888 4,297 37,185
Income taxes (benefit)................. (889)(7) 12,724 1,633(7) 14,357
------- -------- ------ --------
Net income (loss)...................... $(1,884) $ 20,164 $2,664 $ 22,828
======= ======== ====== ========
Basic earnings per common share........ $ 3.06 $ 2.52
======== ========
Diluted earnings per common and common
equivalent share..................... $ 2.14 $ 2.00
======== ========
Weighted average common shares
outstanding.......................... 6,579 9,041
Weighted average common and common
equivalent shares outstanding........ 9,436 11,441
OTHER DATA:
EBITDA(12)............................. $ 56,583 $ 56,583
EBITDA margin(13)...................... 12.2% 12.2%
Depreciation and amortization.......... $ 6,929 $ 6,929
Capital expenditures................... 2,004 2,004
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

F-5
<PAGE> 61

SALTON, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

The unaudited pro forma consolidated financial statements have been
adjusted for the items set forth below.

(1) Represents the historical financial position of Salton as of March 27, 1999
and the consolidated results of operations for the fiscal year ended June
27, 1998 and the thirty-nine weeks ended March 27, 1999. The
Recapitalization occurred on July 28, 1998, the notes offering occurred on
December 16, 1998 and the acquisition of Toastmaster occurred on January 7,
1999. Accordingly, the historical financial position of Salton as of March
27, 1999 and the historical results of operations for the thirty-nine weeks
ended March 27, 1999 include the effects of the Recapitalization, the notes
offering and the acquisition of Toastmaster from the respective dates of
occurrence.

(2) Represents the consolidated results of operations of Toastmaster for the
twelve months ended June 30, 1998 and the six months ended December 31,
1998.

BALANCE SHEET

(3) Reflects the receipt of net proceeds, after deducting $5,000 of offering
costs and $650 for accounting, legal and printing expenses, of $94,350 from
the issuance of 2.5 million shares of treasury stock.

(4) Reflects the repayment of amounts outstanding under the credit agreement
of: (a) $32,000 for amounts for the revolving line of credit; (b) $45,000
for amounts under the term loan of which $500 is classified as current
portion of other debt; (c) $900 for termination costs associated with
prepayment of the tranche B term loan; and (d) the payment of $1,028 of
accrued interest.

STATEMENT OF OPERATIONS

(5) Reflects 5.0% of fiscal year 1998 purchases made by Salton from Windmere
which, under the terms of the junior subordinated note, are recorded as a
reduction in interest and principal related to the note and as an
associated reduction in cost of goods sold. During fiscal 1998, Salton
purchased approximately $27,100 of products from Windmere.

(6) Interest expense is adjusted to reflect:

A. For fiscal year ended June 27, 1998 --

(1) $14,065 of cash interest expense resulting from the following
borrowings:

<TABLE>
<CAPTION>
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
- --------------- ----------------- -------- --------
<S> <C> <C> <C>
Senior subordinated notes........... $125,000 10.750% $13,438
Revolving credit facility........... 8,146 7.70% 627
</TABLE>

(2) the elimination of $5,647 of historical interest incurred on
indebtedness outstanding under Salton's prior credit agreement,
which indebtedness was paid in full in connection with the
Recapitalization.

(3) the amortization of financing costs of $1,151 over the life of the
indebtedness; and

(4) $728 of interest expense related to the junior subordinated note.

F-6
<PAGE> 62
SALTON, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

B. For thirty-nine weeks ended March 27, 1999 --

(1) $6,349 of additional cash interest expense resulting from the
following borrowings:

<TABLE>
<CAPTION>
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
- --------------- ----------------- -------- --------
<S> <C> <C> <C>
Senior subordinated notes........... $125,000 10.750% $6,276
Revolving credit facility........... 962 7.70% 73
</TABLE>

(2) the elimination of (a) $360 of historical interest incurred on
indebtedness outstanding under Salton's prior credit agreement,
which indebtedness was paid in full in connection with the
Recapitalization, and (b) $5,267 of historical interest incurred on
indebtedness outstanding under the new credit agreement; and

(3) the amortization of financing of $1,021 over the life of the
indebtedness.

(7) Income tax expense is adjusted to reflect the income tax effects of pro
forma adjustments based upon an assumed tax rate of 38% and anticipated
permanent differences.

(8) A. For fiscal year ended June 27, 1998 --

Reflects amortization of goodwill, less $112 of historical Toastmaster
goodwill amortization.

B. For thirty-nine weeks ended March 27, 1999 --

Reflects amortization of goodwill, less $56 of historical Toastmaster
goodwill amortization.

(9) Eliminates salaries and benefits for certain executive officers of
Toastmaster whose employment terminated upon consummation of the
acquisition of Toastmaster.

(10) Interest expense is adjusted to reflect:

A. For fiscal year ended June 27, 1998 --

(1) $6,833 of cash interest resulting from the following borrowings:

<TABLE>
<CAPTION>
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
- --------------- ----------------- -------- --------
<S> <C> <C> <C>
Tranche B term loan.................. $45,000 8.25% $3,713
Revolving credit facility............ $39,000 8.0% $3,120
</TABLE>

(2) the elimination of $4,124 of historical interest on the existing
Toastmaster debt.

B. For thirty-nine weeks ended March 27, 1999 --

(1) $5,124 of cash interest resulting from the following borrowings:

<TABLE>
<CAPTION>
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
- --------------- ----------------- -------- --------
<S> <C> <C> <C>
Tranche B term loan.................. $45,000 8.25% $2,784
Revolving credit facility............ $39,000 8.0% $2,340
</TABLE>

(2) the elimination of $2,335 of historical interest on the existing
Toastmaster debt.

(11) Reflects the elimination of pro forma interest expense on amounts
outstanding under the tranche B term loan and revolving credit facility as
if they had been repaid with proceeds from this offering on June 28, 1998.
The interest rate used reflects the rate charged at March 27, 1999. Also
reflects the addition of $900 prepayment penalty associated with the
tranche B term loan.

F-7
<PAGE> 63
SALTON, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER DATA

(12) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted measure to provide
information regarding a company's ability to pay interest, repay debt or
make capital expenditures. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
Additionally, Salton's calculation of EBITDA may differ from that performed
by other companies, and thus the amounts disclosed for EBITDA may not be
directly comparable to similarly titled measures disclosed by other
companies.

(13) EBITDA margin represents EBITDA as a percentage of net sales.

F-8
<PAGE> 64

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Salton/Maxim Housewares, Inc.
Mount Prospect, Illinois

We have audited the accompanying consolidated balance sheets of
Salton/Maxim Housewares, Inc. (the "Company") as of June 27, 1998 and June 28,
1997 and the related consolidated statements of earnings, of stockholders'
equity and of cash flows for each of the three years in the period ended June
27, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Salton/Maxim Housewares, Inc.
as of June 27, 1998 and June 28, 1997 and the results of its operations and its
cash flows for each of the three years in the period ended June 27, 1998 in
conformity with generally accepted accounting principles.

As described in Note 16 to the consolidated financial statements,
subsequent to June 27, 1998, the Company entered into a new debt agreement,
issued preferred shares, repurchased approximately 50% of its outstanding common
shares, and entered into a definitive merger agreement for the acquisition of
Toastmaster Inc.

Deloitte & Touche LLP

September 3, 1998
Chicago, Illinois

F-9
<PAGE> 65

SALTON/MAXIM HOUSEWARES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 661,214 $ 2,612,871
Accounts receivable, less allowance:
1998 -- $3,000,000; 1997 -- $2,400,000................. 43,224,852 25,646,677
Inventories............................................... 76,505,088 41,967,801
Prepaid expenses and other current assets................. 2,940,624 3,717,062
Federal income taxes refundable........................... 1,105,336
Deferred income taxes..................................... 4,605,222 1,734,414
------------ ------------
Total current assets.............................. 127,937,000 76,784,161
PROPERTY, PLANT AND EQUIPMENT:
Molds and tooling......................................... 16,787,126 14,827,525
Warehouse equipment....................................... 452,715 380,487
Office furniture and equipment............................ 5,341,755 3,792,035
------------ ------------
22,581,596 19,000,047
Less accumulated depreciation............................. (14,266,296) (10,684,016)
------------ ------------
8,315,300 8,316,031
Intangibles, net of accumulated amortization................ 5,145,000 4,880,006
Non-current deferred income taxes........................... 205,580
Investment in Windmere common stock......................... 12,156,820
------------ ------------
TOTAL ASSETS................................................ $141,397,300 $102,342,598
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit.................................. $ 50,475,078 $ 37,977,230
Accounts payable.......................................... 18,960,008 17,361,238
Accrued expenses.......................................... 7,234,506 2,856,512
Income taxes payable...................................... 6,499,342 93,085
Current portion -- Subordinated Debt...................... 500,000
------------ ------------
Total current liabilities......................... 83,168,934 58,788,065
Non-current deferred income taxes........................... 517,000
Due to Windmere............................................. 4,932,730
------------ ------------
Total liabilities................................. 83,685,934 63,720,795
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 2,000,000
shares, no shares issued
Common Stock, $.01 par value; authorized, 20,000,000
shares; shares issued and outstanding:
1998 -- 13,099,644; 1997 -- 13,029,144................. 130,996 130,291
Unrealized gains on securities available for sale......... 1,337,250
Additional paid-in capital................................ 53,480,678 53,035,981
Less note receivable from stock issuance.................. (10,847,620) (10,847,620)
Retained earnings (Deficit)............................... 14,947,312 (5,034,099)
------------ ------------
Total stockholders' equity........................ 57,711,366 38,621,803
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $141,397,300 $102,342,598
============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

F-10
<PAGE> 66

SALTON/MAXIM HOUSEWARES, INC.

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales........................................... $305,598,750 $182,806,323 $99,202,415
Cost of goods sold.................................. 179,375,466 121,590,232 66,923,141
Distribution expenses............................... 12,327,187 7,808,631 5,856,477
------------ ------------ -----------
Gross profit........................................ 113,896,097 53,407,460 26,422,797
Selling, general and administrative expenses........ 84,216,473 42,944,341 21,342,872
------------ ------------ -----------
Operating income.................................... 29,679,624 10,463,119 5,079,925
Interest expense, net............................... (5,333,109) (4,063,197) (3,934,325)
Costs associated with refinancing................... (1,132,814)
Realized gain on marketable securities.............. 8,972,488
------------ ------------ -----------
Income before income taxes.......................... 32,186,189 6,399,922 1,145,600
Income tax expense (benefit)........................ 12,204,778 2,000,764 (3,449,884)
------------ ------------ -----------
Net income.......................................... $19,981,411.. $ 4,399,158 $ 4,595,484
============ ============ ===========
Weighted average common shares outstanding.......... 13,062,465 12,840,279 6,508,572
Weighted average common and common equivalent shares
outstanding....................................... 13,506,263 13,082,254 6,628,236
Net income per common share: Basic.................. $ 1.53 $ 0.34 $ 0.71
============ ============ ===========
Net income per common share: Diluted................ $ 1.48 $ 0.34 $ 0.69
============ ============ ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-11
<PAGE> 67

SALTON/MAXIM HOUSEWARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

<TABLE>
<CAPTION>
UNREALIZED
GAINS ON LESS NOTE
SECURITIES ADDITIONAL RECEIVABLE RETAINED TOTAL
COMMON HELD FOR PAID IN FROM SALES EARNINGS STOCKHOLDERS'
SHARES STOCK SALE CAPITAL OF STOCK (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995.... 6,508,572 $ 65,086 $29,292,946 $(14,028,741) $15,329,291
Net income for fiscal
1996................. 4,595,484 4,595,484
---------- -------- ---------- ----------- ------------ ------------ -----------
Balance, June 29, 1996... 6,508,572 65,086 29,292,946 (9,433,257) 19,924,775
Issuance of common
stock................ 6,508,572 65,085 23,650,352 $(10,847,620) 12,867,817
Issuance of warrants... 82,303 82,303
Unrealized gains on
securities available
for sale............. $1,337,250 1,337,250
Employee stock option
shares exercised..... 12,000 120 10,380 10,500
Net income fiscal
1997................. 4,399,158 4,399,158
---------- -------- ---------- ----------- ------------ ------------ -----------
Balance, June 28, 1997... 13,029,144 130,291 1,337,250 53,035,981 (10,847,620) (5,034,099) 38,621,803
Issuance of common stock,
net of issuance
costs.................. 25,000 250 300,531 300,781
Sale of securities....... (1,337,250) (1,337,250)
Stock option shares
exercised.............. 45,500 455 144,166 144,621
Net income fiscal
1998................. 19,981,411 19,981,411
---------- -------- ---------- ----------- ------------ ------------ -----------
Balance, June 27, 1998... 13,099,644 $130,996 $53,480,678 $(10,847,620) $ 14,947,312 $57,711,366
========== ======== ========== =========== ============ ============ ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-12
<PAGE> 68

SALTON/MAXIM HOUSEWARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 19,981,411 $ 4,399,158 $ 4,595,484
Adjustments to reconcile net income to net cash (used
in) operating activities:
Gain on sale of marketable securities.............. (8,972,488)
Deferred income taxes.............................. (1,428,170) 822,332 (3,482,384)
Depreciation and amortization...................... 4,300,647 3,136,060 2,195,510
Changes in assets and liabilities, net of acquisition:
Accounts receivable................................ (17,578,175) (9,776,051) (2,395,175)
Inventories........................................ (34,537,287) (13,679,836) (8,847,133)
Prepaid expenses and other current assets.......... 776,438 (1,783,056) (892,342)
Federal income tax refund.......................... 1,105,336 (1,105,336)
Accounts payable................................... 1,598,770 7,304,043 4,650,026
Taxes payable...................................... 6,406,257 81,085 22,500
Accrued expenses................................... 3,245,180 1,635,729 582,921
------------ ------------ -----------
Net cash used in operating activities......... (25,102,081) (8,965,872) (3,570,593)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (4,564,910) (4,608,389) (4,279,838)
Proceeds from the sale of marketable securities....... 19,072,000
Block acquisition and related payments................ (1,739,280) --
------------ ------------ -----------
Net cash provided by (used in) investing
activities.................................. 14,507,090 (6,347,669) (4,279,838)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit............ 12,497,848 13,881,848 6,234,938
(Repayment) proceeds from subordinated debt and due to
Windmere........................................... (5,432,730) 4,515,731 2,670,955
Offering costs associated with stock issue............ (485,650)
Common stock issued................................... 445,402 10,500
Payment for product line acquisitions................. (814,939)
Financing costs....................................... 1,132,814 (242,389)
------------ ------------ -----------
Net cash provided by financing activities..... 8,643,334 17,922,429 7,848,565
------------ ------------ -----------
Net (decrease) increase in cash....................... (1,951,657) 2,608,888 (1,866)
Cash -- Beginning of year............................. 2,612,871 3,983 5,849
------------ ------------ -----------
Cash -- End of year................................... $ 661,214 $ 2,612,871 $ 3,983
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................... $ 5,893,266 $ 3,939,322 $ 3,510,123
Income taxes....................................... $ 5,798,521 $ 1,697,500 $ 10,000
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During fiscal 1997, a long-term debt obligation of $3,254,286 was canceled
by the consummation of a transaction with Windmere-Durable Holdings,
Inc.("Windmere"). In addition, the Company received a $10,847,620 note
receivable and 748,112 shares of Windmere common stock in exchange for 6,508,572
newly issued shares of common stock of the Company.

See Notes to Consolidated Financial Statements.

F-13
<PAGE> 69

SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Salton/Maxim Housewares, Inc. ("SMHI") and its subsidiaries ("Salton" or
the "Company") is a leading marketer of a broad range of kitchen and home
appliances, personal and beauty care appliances and decorative quartz wall and
alarm clocks under the brand names of Salton(R), Maxim(R), Breadman(R),
Juiceman(R), Salton Creations(R), Salton Time(R), White-Westinghouse(R) and
Farberware(R). The Company also designs and markets a broad range of tabletop
products, including china, crystal and glassware, under the brand names Block(R)
China, Atlantis(R) Crystal and Gear.(R)

Principles of Consolidation -- The consolidated financial statements
include the accounts of SMHI and its subsidiaries, Home Creations Direct, Ltd.
and Salton Hong Kong, Ltd. Salton Hong Kong, Ltd. is a foreign corporation which
was organized under the laws of Hong Kong in fiscal year 1997. Intercompany
balances and transactions are eliminated in consolidation.

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

Accounting Period -- The Company's fiscal year ends on the Saturday closest
to June 30. The fiscal years ended June 27, 1998, June 28, 1997 and June 29,
1996 each consisted of 52 weeks.

Inventories -- Inventories are stated at the lower of cost or market. Cost
is determined on the first-in, first-out basis.

Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Expenditures for maintenance costs and repairs are charged against
income. Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets, not to exceed 5 years. For tax purposes, assets are
depreciated using accelerated methods.

Intangible Assets -- Intangible assets, which are amortized over their
estimated useful lives, consist of:

<TABLE>
<CAPTION>
USEFUL LIFE JUNE 27, JUNE 28,
(IN YEARS) 1998 1997
<S> <C> <C> <C>
Goodwill........................................ 10-40 $2,116,773 $1,926,454
Financing and organization costs................ 2-5 109,231 171,778
Patents and trademarks.......................... 5-20 2,918,996 2,781,774
---------- ----------
Intangible assets, net.......................... $5,145,000 $4,880,006
========== ==========
</TABLE>

Accumulated amortization of intangible assets was $4,722,608 at June 27,
1998, and $3,770,866 at June 28, 1997.

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

Revenue Recognition -- The Company recognizes revenues when goods are
shipped to its customers.

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

F-14
<PAGE> 70
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

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

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

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

Net Income Per Common and Common Equivalent Share -- The Company adopted
Statement of Financial Accounting Standards No. 128 -- Earnings per Share (SFAS
128) in fiscal 1998. Basic net income per common share is computed based upon
the weighted average number of common shares outstanding. Diluted net income per
common share is computed based upon the weighted average number of common shares
outstanding, adjusted for dilutive common stock equivalents applying the
treasury stock method. All earnings per share data presented in these financial
statements have been restated to conform with SFAS 128.

Fair Value of Financial Instruments -- The carrying values of financial
instruments included in current assets and liabilities approximate fair values
due to the short-term maturities of these instruments. During fiscal 1997, the
investment in Windmere common stock was accounted for as "available for sale"
and was carried at fair value. The stock was sold during fiscal 1998. See note 2
"Windmere Transaction."

Accounting Pronouncements -- The Company adopted Statement of Financial
Accounting Standards No. 128 -- Earnings per Share in Fiscal 1998. In June 1997,
the FASB issued Statement of Financial Accounting Standard No. 130 (SFAS 130),
"Reporting Comprehensive Income," No. 131 (SFAS 131), "Disclosures About
Segments of an Enterprise and Related Information," No. 132 (SFAS 132),
"Employer's Disclosures about Pensions and other Post Retirement Benefits which
Revises Current Disclosure Requirements for Employers' Pensions and other
Retiree Benefits" and No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities." These statements are effective for fiscal years
commencing after December 15, 1997. The Company will be required to comply with
the provisions of these statements in fiscal 1999 or, with respect to SFAS 133,
in fiscal 2000. The Company has not assessed the effect that these new standards
will have on its consolidated financial statements.

2. WINDMERE TRANSACTION

On July 11, 1996, the Company consummated a transaction (the "Windmere
Transaction") with Windmere -- Durable Holdings, Inc. ("Windmere"), pursuant to
a Stock Purchase Agreement dated February 27, 1996, as amended (the "Stock
Purchase Agreement"). Windmere is a corporation engaged principally in
manufacturing and distributing a wide variety of personal care products and
household appliances. Pursuant to the Stock Purchase Agreement, Windmere
purchased from the Company 6,508,572 newly issued shares of Common Stock (the
"Purchase"), which represented 50% of the outstanding shares of Common Stock of
the Company on February 27, 1996 after giving effect to the Purchase. As
consideration for the purchase, Windmere paid the Company: (i) $3,254,286 in
cancellation of a loan, as described below; (ii) a subordinated promissory note
in the aggregate principal amount of $10,847,620 (the "Note"), which Note is
payable July 11, 2001, bears interest at 8%, payable quarterly, and is secured
by certain assets of Windmere and its domestic subsidiaries and guaranteed by
such domestic subsidiaries; and (iii) 748,112 shares of Windmere's common stock.
Windmere's common stock

F-15
<PAGE> 71
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

is traded on the New York Stock Exchange. A portion of the consideration for the
Purchase was paid by the cancellation of the Company's obligation to repay a
loan in the principal amount of $3,254,286 which Windmere had made to the
Company in April 1996. Windmere was also granted an option to purchase up to
485,000 shares of Common Stock at $4.83 per share, which option was exercisable
only if and to the extent that options to purchase shares of Common Stock which
were outstanding on February 27, 1996 were exercised. Accordingly, Windmere
exercised options to purchase 26,500 shares of Common Stock during 1998.

During fiscal 1998 the Company sold 748,112 shares of Windmere's common
stock, realizing a gain of $8,972,488.

Subsequent to year-end the Company repurchased its common shares held by
Windmere. See note 16 "Subsequent Events."

3. BLOCK CHINA ACQUISITION

On July 1, 1996, the Company acquired substantially all of the assets and
certain liabilities of Block China Corporation, a tabletop product company, in a
transaction accounted for as a purchase. The Block China Division of the Company
designs and markets tabletop products, including china, crystal and glassware.
The consideration paid by the Company consisted of $1,485,000 in cash and a
warrant to purchase 25,000 shares of Common Stock with an exercise price of
$4.75. The consideration also included an earn-out of up to $500,000 and 150,000
shares of Common Stock based on financial performance over a three-year period
of the Division. The operating results of Block China before its acquisition by
the Company are not material. During 1998, the Company paid $83,333 and issued
25,000 shares of common stock to Block China under the earn-out.

4. REVOLVING LINE OF CREDIT AND LETTERS OF CREDIT

During the 1998 fiscal year, the Company increased its revolving line of
credit (the "Facility") with a commercial lender (the "Lender") from $50,000,000
to $75,000,000. Borrowings under this Facility bore interest at 1% over the
Lender's established prime rate, payable monthly, and included a provision which
provided the Company with the ability to reduce its borrowing rate, based on the
London InterBank Offered Rate (LIBOR), on up to 75% of outstanding borrowings.
The Facility had an expiration date of September 30, 2000. Under the terms of
the Facility, the Company must pay fees and related expenses to the Lender upon
early termination. Subsequent to year end, the Company entered into a new credit
agreement (the "New Credit Agreement") with an investment banking firm described
in note 16 "Subsequent Events." Accordingly, the Company accrued $1,132,814 in
termination fees and related expenses.

The Facility was secured by a first lien on substantially all the Company's
assets. Credit availability was based on a formula related to trade accounts
receivable, inventories and outstanding letters of credit and it contained
restrictive financial covenants, the more significant of which required the
Company to maintain specified ratios of total liabilities to net worth, minimum
tangible net worth, and minimum earnings before interest, taxes, depreciation
and amortization. Other covenants also limited the Company's activities in
mergers or acquisitions and sales of substantial assets. Compliance with these
covenants effectively restricted the ability of the Company to pay dividends,
and also required the Company to apply cash receipts to pay down borrowings
under the Facility.

F-16
<PAGE> 72
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

Information regarding short-term borrowings under the Facility is:

<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
Balance at end of fiscal period........................... $50,475,078 $37,977,230
Interest rate at end of fiscal period..................... 9.43% 10.5%
Maximum amount outstanding at any month-end............... $68,521,548 $43,632,702
Average amount outstanding................................ $56,374,193 $35,191,494
Weighted average interest rate during fiscal period....... 9.48% 10.5%
Outstanding letters of credit at end of fiscal period..... $ 5,566,840 $ 2,915,815
</TABLE>

5. SUBORDINATED DEBT AND DUE TO WINDMERE

Subordinated Debt

The Company had 10% subordinated notes payable aggregating $500,000. The
notes were repaid in fiscal 1998.

Windmere Transactions and Due to Windmere

The Company owed Windmere, including Durable Electrical Metal Factory,
Ltd., a wholly owned subsidiary of Windmere ("Durable"), approximately
$4,838,000 at June 27, 1998, primarily for trade accounts payable and interest.

The Company had amounts due to Windmere, including Durable, of
approximately $9,141,000, including notes payable of $4,932,730 at June 27,
1997. These amounts primarily represented working capital advances by Windmere
to the Company to fund the development of the White-Westinghouse(R) and
Farberware(R) product lines, as well as interest and trade accounts payable.

The Company and Windmere entered into a Marketing Cooperation Agreement on
July 11, 1996 (the "Marketing Cooperation Agreement"). Pursuant to this
agreement, until Windmere's interest in the Company is less than 30% for at
least ten consecutive days, each of the Company and Windmere has agreed to
participate in a variety of mutually satisfactory marketing cooperation efforts
designed to expand the market penetration of each party. Consequently, the
Company entered into a letter agreement dated April 30, 1997 (the "Letter
Agreement") with Windmere. The Letter Agreement provides that the Company will
pay to Windmere a fee in consideration of Windmere's marketing cooperation
efforts in connection with the Company's supply contract with Kmart and
Windmere's guarantee of the Company's obligations under such contract. See note
16 "Subsequent Events."

6. CAPITAL STOCK

The Company has authorized 20,000,000 shares of $.01 par value common
stock, at June 27, 1998 there were 13,099,644 shares issued and outstanding. As
more fully described in Note 2 "Windmere Transaction" on July 11, 1996, Windmere
purchased from the Company 6,508,572 newly issued shares of common stock which
represented 50% of the outstanding shares of common stock of the Company. During
fiscal 1998, Windmere exercised its option to buy 26,500 shares of Salton common
stock.

The Company has authorized 2,000,000 shares of $.01 par value preferred
stock. At June 27, 1998, no shares of preferred stock were issued.

Subsequent to year end, the Company repurchased the 6,535,072 shares of
common stock issued to Windmere and issued 40,000 shares of preferred stock as
described in note 16 "Subsequent Events."

F-17
<PAGE> 73
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

7. EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 27, 1998 JUNE 28, 1997 JUNE 29, 1996
<S> <C> <C> <C>
Net Income*................................... $19,981 $4,399 $4,595
Average common shares outstanding........... 13,062 12,840 6,509
Earnings per share-basic.................... $ 1.53 $ 0.34 $ 0.71
Dilutive stock options...................... 444 242 119
Average common and common equivalent shares
outstanding.............................. 13,506 13,082 6,628
Earnings per share-diluted.................. $ 1.48 $ 0.34 $ 0.69
</TABLE>

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

* Net income is the same for purposes of calculating basic and diluted EPS

Options to purchase 141,440, 130,000 and 130,000 shares of common stock at
prices of $12.25, $12.00 and $12.00 per share were outstanding at June 27, 1998,
June 28, 1997 and June 29, 1996, respectively, but were not included in the
computation of diluted EPS because the options exercise prices were greater than
the average market price of the common shares.

8. PROFIT SHARING PLAN

The Company has a 401(k) defined contribution plan that covers eligible
employees. The employees are eligible for benefits upon completion of a
specified number of years of service. Under the terms of the plan the company
currently matches a portion of the employee contributions. The Company's
discretionary matching contribution is based on a portion of a maximum of 6% of
participants' eligible wages, as defined. The Company's matching contributions
were approximately $97,000, $69,000, and $66,136 in 1998, 1997, and 1996,
respectively.

9. STOCK OPTION PLANS

In October 1995, SFAS No. 123, "Accounting For Stock-Based Compensation,"
was issued and is effective for financial statements for fiscal years beginning
after December 15, 1995. As permitted by the statement, the Company will
continue to measure compensation cost for stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to
Employees." Accordingly, no compensation cost has been recognized for the
Company's fixed stock option plans. Had compensation cost for the Company's
stock option plans been determined consistent with the fair value

F-18
<PAGE> 74
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

method outlined in SFAS No. 123, the impact on the Company's net income and
earnings per common share would have been as follows:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net Income
As reported............................................ $19,981,411 $4,399,158
Pro forma.............................................. $18,940,500 $4,192,582
Net income per common share: Basic
As reported............................................ $1.53 $0.34
Pro forma.............................................. $1.45 $0.33
Net income per common share: Diluted
As reported............................................ $1.48 $0.34
Pro forma.............................................. $1.40 $0.32
</TABLE>

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

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

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Dividend yield............................................. 0.0% 0.0%
Expected volatility........................................ 61.74% 65.96%
Risk-free interest rate.................................... 5.38% 6.11%
Expected life of options................................... 7.42 years 7.92 years
</TABLE>

In addition, on July 11, 1996 Windmere was granted an option to purchase up
to 485,000 shares of common stock at $4.83 per share. This option is exercisable
only if and to the extent that options to purchase shares of common stock which
were outstanding on February 27, 1996 are exercised. During fiscal 1998,
Windmere exercised their option to purchase 26,500 shares of Salton common
stock. Subsequent to year-end, the Company repurchased the remaining options.
See note 16 "Subsequent Events." A summary of the Company's fixed stock options
for the fiscal years ended June 27, 1998 and June 28, 1997 is as follows:

<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year.............. 966 $ 4.90 485 $4.83
Granted....................................... 206 10.82 493 4.88
Exercised..................................... (46) 3.11 (12) .88
Expired.......................................
Forfeited.....................................
----- ------ --- -----
Outstanding at end of year.................... 1,126 $ 6.06 966 $4.90
Options exercisable at end of year............ 1,118 $ 6.05 958 $4.88
Weighted-average fair value of options granted
during the year............................. $ 8.14 $4.54
</TABLE>

F-19
<PAGE> 75
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

The following information summarizes the stock options outstanding at June
27, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES (000) LIFE (YEARS) PRICE (000) PRICE
<S> <C> <C> <C> <C> <C>
$0.875 - $2.500......................... 300 6.84 $ 2.12 300 $ 2.12
$3.438 - $5.375......................... 490 7.91 4.83 482 4.83
$8.000 - $12.250........................ 336 7.20 11.38 336 11.38
----- --- ------ ----- ------
$0.875 - $12.250........................ 1,126 N/A N/A 1,118 $ 6.05
</TABLE>

10. RELATED PARTY TRANSACTIONS

The Company purchased inventory from Durable of approximately $27,068,000,
$23,511,000, and $3,200,000 in fiscal years ended June 27, 1998, June 28, 1997,
and June 29, 1996, respectively.

The Company purchased inventory and paid commissions to Markpeak, Ltd., a
Hong Kong company, of approximately $15,699,000 and $272,000 respectively in
1998, $7,815,000 and $432,000, respectively in 1997, and $10,233,000 and
$739,000, respectively in 1996. A director of the Company is the Managing
Director of Markpeak, Ltd.

The Company paid Shapiro, Devine and Craparo, Inc. ("SDC"), a manufacturers
representation firm, commissions of approximately $290,000, $241,000 and
$160,000 in 1998, 1997 and 1996, respectively. A director of the Company was a
co-founder of SDC. At June 27, 1998, the Company owed SDC approximately $38,000
for current commissions.

11. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under long-term
operating leases. Rental expense under all leases was approximately $1,564,000,
$1,183,000, and $665,000, for the fiscal years ended June 27, 1998, June 28,
1997, and June 29, 1996, respectively.

The future minimum rental commitments as of June 27, 1998 were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
<S> <C>
1999........................................................ $2,666,095
2000........................................................ 2,075,056
2001........................................................ 1,938,911
2002........................................................ 915,798
2003........................................................ 36,400
Thereafter.................................................. 157,733
----------
Total....................................................... $7,789,993
==========
</TABLE>

The Company has employment agreements with its three executive officers
that are in effect until June 30, 2001. Such agreements provide for minimum
salary levels as well as for incentive bonuses that are payable if the Company
achieves specified target performance goals. The agreements also provide for
lump sum severance payments upon termination of employment under certain
circumstances. The Company's aggregate commitment for future salaries at June
30, 1998, excluding bonuses, was approximately $1,350,000.

F-20
<PAGE> 76
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

The Company has license agreements with White Consolidated Industries, Inc.
("White Consolidated"), which require minimum royalty payments through the year
2011. The current level of royalty payments are in excess of the minimum
requirements. The Company also has various license agreements with other parties
for periods usually not exceeding three years. The agreements are then typically
renewable upon mutual consent. These license agreements require royalty payments
based on the sales of licensed product in the period. Total royalties paid under
these agreements, including the White Consolidated Industries, Inc. agreement,
were $20,266,000 in fiscal year 1998, $6,300,000 in fiscal year 1997 and
$1,600,000 in fiscal year 1996.

12. LEGAL PROCEEDINGS

The Company, White Consolidated, and certain other parties have been named
as defendants in litigation filed by Westinghouse Electric Corporation (now
known as CBS Corporation ("CBS")) in the United States District Court for the
Western District of Pennsylvania on December 18, 1996. The action arises from a
dispute between CBS and White Consolidated over rights to use the "Westinghouse"
trademark for consumer products, based on transactions between CBS and White
Consolidated in the 1970's and the parties' subsequent conduct. The action
seeks, among other things, an injunction enjoining the defendants from using the
trademark, unspecified damages and attorneys' fees. Pursuant to the Company's
license agreements with White Consolidated, White Consolidated is defending the
Company and is obligated to indemnify the Company from and against any and all
claims, losses and damages arising out of the action, including the costs of
litigation. An adverse decision in the litigation could result in Salton being
limited in further use of the White-Westinghouse(R) name and therefore the
possible termination or significant modification of the supply contract between
Salton and Kmart Corporation described in note 13.

The Company is a party to various other legal actions and proceedings
incident to its normal business operations. Management believes that the outcome
of such litigation will not have a material adverse effect on its financial
condition or annual results of operations.

13. SUPPLY CONTRACT AND MAJOR CUSTOMERS

The Company entered into a major supply contract with Kmart Corporation
("Kmart") on January 31, 1997. Under the contract, the Company supplies Kmart
with small kitchen appliances, personal care products, heaters, fans and
electrical air cleaners and humidifiers under the White-Westinghouse(R) brand
name. Sales to Kmart approximated 19% and 16% of total net sales of the Company
in fiscal years 1998 and 1997, respectively.

The Company's net sales in the aggregate to its five largest customers
during the fiscal years ended June 27, 1998, June 28, 1997 and June 29, 1996
were 47%, 47% and 55% of total net sales in these periods, respectively. In
addition to Kmart, one customer accounted for 7%, 9%, and 15% of total net sales
during the fiscal years ended June 27, 1998, June 28, 1997, and June 29, 1996,
respectively. Another customer accounted for 8%, 9%, and 13%, respectively, over
the same fiscal years.

Although the Company has long-established relationships with many of its
customers, with the exception of Kmart Corporation, it does not have long-term
contracts with any of its customers. A significant concentration of the
Company's business activity is with department stores, upscale mass
merchandisers, specialty stores, and warehouse clubs whose ability to meet their
obligations to the Company is dependent upon prevailing economic conditions
within the retail industry.

F-21
<PAGE> 77
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

14. INCOME TAXES

Federal, state and foreign taxes were approximately as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Federal
Current...................................... $10,080,000 $ 371,000 $ 32,000
Deferred..................................... (1,134,000) 822,000 (2,711,000)
State
Current...................................... 2,699,000 303,000
Deferred..................................... (294,000) (771,000)
Foreign
Current...................................... 854,000 505,000
Deferred..................................... -- -- --
----------- ---------- -----------
Total.......................................... $12,205,000 $2,001,000 $(3,450,000)
=========== ========== ===========
</TABLE>

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
Allowance for doubtful accounts............................ $ 1,309,065 $ 960,000
Depreciation and amortization.............................. (1,099,679) (1,060,680)
Other deferred items, net.................................. 175,940 (302,415)
Net operating loss carry-forwards.......................... 1,764,253 2,349,579
Inventory reserves and capitalization...................... 1,938,643 713,568
Unrealized gains on securities available for sale.......... -- (720,058)
----------- -----------
Net deferred tax asset..................................... $ 4,088,222 $ 1,939,994
=========== ===========
</TABLE>

During 1996, the Company re-assessed the measurement of deferred tax assets
based on available evidence and concluded that a valuation allowance was
unnecessary. Accordingly, a valuation allowance of $3,463,066 was eliminated in
the fourth quarter of fiscal 1996.

The Company has net loss carry-forwards at June 27, 1998 expiring as
follows:

<TABLE>
<CAPTION>
YEAR CARRY-FORWARD EXPIRES AMOUNT
<S> <C>
2008........................................................ $1,273,000
2009........................................................ 2,665,000
2110........................................................ 60,000
2111........................................................ 45,000
----------
Total....................................................... $4,043,000
==========
</TABLE>

As a result of certain transactions, the Company's ability to utilize its
net operating loss carryforwards to offset otherwise taxable income is limited
annually under Internal Revenue Code Section 382. The amount of such annual
limitation is approximately $2,000,000.

F-22
<PAGE> 78
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

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

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
Effective state tax rate................................ 4.9 4.8 4.8
Permanent differences................................... 0.3 2.3
Effect of foreign tax rate.............................. (2.1) (8.8)
Utilization of operating loss carryforwards............. (34.6)
Change in valuation allowance........................... (296.9)
Other................................................... (0.2) (2.0) (9.4)
---- ---- ------
Effective income tax rate............................... 37.9% 31.3% (301.1)%
==== ==== ======
</TABLE>

U.S. income taxes were not provided on certain unremitted earnings of
Salton Hong Kong, Ltd. which the Company considers to be permanent investments.
The cumulative amount of U.S. income taxes which have not been provided totaled
approximately $854,000 at June 27, 1998.

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

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

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1998
Net sales............................................. $65,773 $102,153 $68,099 $69,574
Gross profit.......................................... 24,797 35,029 26,159 27,911
Net income............................................ 4,124 5,448 2,778 7,631
Earnings per share: Basic............................. 0.32 0.42 0.21 0.58
Earnings per share: Diluted........................... 0.31 0.40 0.21 0.56
1997
Net sales............................................. $34,862 $ 58,837 $41,690 $47,417
Gross profit.......................................... 9,689 18,027 12,582 13,109
Net income (loss)..................................... 1,129 3,977 (677) (30)
Earnings (loss) per share: Basic...................... 0.09 0.31 (0.05) (0.00)
Earnings (loss) per share: Diluted.................... 0.09 0.30 (0.05) (0.00)
</TABLE>

16. SUBSEQUENT EVENTS

The New Credit Agreement

The Company entered into the New Credit Agreement dated as of July 27, 1998
with an investment banking firm. This agreement provides for $215.0 million in
senior secured credit facilities consisting of a Tranche A $90.0 million term
loan, a $75.0 million Delayed Draw Term Loan, and a five year $50.0 million
senior secured revolving credit facility maturing on July 27, 2003. In addition,
the New Credit Agreement allows the Company to undertake a subordinated notes
offering of up to $125 million. Proceeds of the offering, if undertaken, would
be required to be used to repay the Tranche A $90 million term loan, amounts
outstanding, if any, under the Delayed Draw Term Loan and amounts outstanding
under the senior secured Revolving Credit Facility, respectively, up to a total
of $115 million. Any excess

F-23
<PAGE> 79
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

amount would be available as cash to the Company. On July 28, 1998, the Company
borrowed the Tranche A term loan in order to complete the repurchase
subsequently described in this note.

The Company's borrowings under the New Credit Agreement are at an
established base rate (equivalent to the prime rate of interest) plus an
applicable margin or, at the Company's election, a eurodollar rate (equivalent
to the LIBOR rate) plus an applicable margin based on a range of ratios of total
debt to earnings before interest, taxes, depreciation and amortization. At July
28, 1998, the base rate plus applicable margin was 9.6% and the eurodollar rate
plus applicable margin was 7.8%.

The New Credit Agreement contains certain limitations restricting company
activity and financial covenants, the most significant of which are, as defined,
minimum interest coverages, fixed charge coverages and maximum total leverage.

The Tranche A term loan matures in twenty consecutive installments
commencing on September 30, 1998.

The future maturities are:

<TABLE>
<S> <C>
1999........................................................ $ 3,750,000
2000........................................................ 5,000,000
2001........................................................ 20,000,000
2002........................................................ 25,000,000
2003........................................................ 28,750,000
Thereafter.................................................. 7,500,000
-----------
$90,000,000
===========
</TABLE>

The commitment for the Delayed Draw Term Loan expires on July 27, 1999.
This loan, if drawn, matures in sixteen consecutive quarterly installments,
commencing on September 30, 1999. Future installment payments would be made
quarterly in accordance with the following table:

<TABLE>
<CAPTION>
INSTALLMENTS PRINCIPAL AMOUNT
<S> <C>
1 through 4................................................. $2,500,000
5 through 12................................................ 5,000,000
13 through 16............................................... 6,250,000
</TABLE>

In addition to the preceding maturity schedules, the Company is required to
make additional mandatory payments of 50% of the defined annual excess cash flow
of the Company, 100% of the net proceeds of any sale or disposition of certain
assets, and 100% of the net proceeds of the incurrence of certain indebtedness.
All such amounts are first applied to the prepayment of outstanding term loans
and secondly to the reduction of the Revolving Credit Facility.

The Preferred Stock

On July 28, 1998, Salton also issued $40 million of convertible preferred
stock to a private investment firm in connection with a Stock Purchase Agreement
dated July 15, 1998. The convertible preferred stock is generally non-dividend
bearing and is convertible into 2,352,941 shares of Salton common stock
(reflecting a $17 per share conversion price). The holders of the convertible
preferred stock are entitled to one vote for each share of Salton common stock
that the holder would receive upon conversion of the convertible preferred
stock.

F-24
<PAGE> 80
SALTON/MAXIM HOUSEWARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996

In connection with the convertible preferred stock issuance, two
individuals representing the private investment firm were appointed to serve on
the Company's Board of Directors.

The Repurchase

On July 28, 1998, the Company repurchased (the "Repurchase") 6,535,072
shares of Salton common stock owned by Windmere pursuant to a Stock Agreement
dated as of May 6, 1998 (the "Windmere Stock Agreement") by and among Salton,
Windmere and the executive officers of Salton. Prior to the Repurchase, Windmere
owned approximately 50% of Salton's outstanding common stock. The price for the
Repurchase was $12 per share in cash plus a $15 million subordinated promissory
note. The note, which has a term of six and one-half years and bears interest at
4% per annum payable annually, is subject to offsets of 5% of the total purchase
price paid by Salton for product purchases from Windmere and its affiliates
during the term of the note. The principal amount of the note is also subject to
reduction in the event Salton's supply agreement with Kmart is terminated for
any reason.

The Company (i) paid the cash portion of the purchase price for the
Repurchase, (ii) refinanced the Facility described in note 4 and (iii) paid
certain related fees and expenses in connection with the Repurchase with the net
proceeds from the Convertible Preferred Stock Issuance and borrowings of $90
million under the Tranche A term loan.

In connection with the Repurchase: (i) Windmere repaid in full its
promissory note in the principal amount of $10,847,620, that was issued to
Salton in July, 1996; (ii) Salton repurchased for approximately $3.3 million
Windmere's option to purchase up to 458,500 shares of Salton, that was granted
to Windmere in July, 1996; and (iii) Windmere and Salton agreed to continue
various commercial and other arrangements, including an agreement relating to
Salton's supply agreement with Kmart, subject to certain modifications.

Effective upon the closing of the Repurchase, each of the persons who had
been designated by Windmere to serve on Salton's Board of Directors resigned
from Salton's Board of Directors.

The Toastmaster Transaction

On August 26, 1998, the Company entered into a definitive merger agreement
("Agreement") for the acquisition of Toastmaster Inc. The Agreement provides for
Toastmaster Inc. shareholders to receive $7.00 per share in cash, for a total
purchase price, including related costs, of approximately $53.2 million. The
Company intends to finance the transaction through available credit facilities.

The transaction is expected to close in the last calendar quarter of 1998,
and is subject to, among other things, the approval of the holders of 66 2/3% of
the outstanding shares of Toastmaster Inc. common stock.

*****

F-25
<PAGE> 81

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

<TABLE>
<CAPTION>
MARCH 27, JUNE 27,
1999 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 19,823 $ 661
Accounts receivable, net of allowances.................... 89,886 43,225
Inventories............................................... 120,178 76,505
Prepaid expenses and other current assets................. 5,203 2,941
Income Tax Receivable..................................... 3,217
Deferred tax assets....................................... 4,313 4,605
-------- --------
Total current assets.............................. 242,620 127,937
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 928
Buildings................................................. 4,682
Molds and tooling......................................... 23,571 16,787
Warehouse equipment and machinery......................... 5,571 453
Office furniture and equipment............................ 5,632 5,341
-------- --------
40,384 22,581
Less accumulated depreciation............................. (17,881) (14,266)
-------- --------
22,503 8,315
INTANGIBLES, NET OF ACCUMULATED AMORTIZATION................ 50,652 5,145
-------- --------
TOTAL ASSETS................................................ $315,775 $141,397
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit and other current debt........... $ 34,293 $ 50,475
Accounts payable.......................................... 25,938 18,960
Accrued expenses.......................................... 22,242 7,235
Income taxes payable...................................... 6,902 6,499
-------- --------
Total current liabilities......................... 89,375 83,169
LONG TERM DEBT.............................................. 169,500
NOTES PAYABLE............................................... 13,021
NON-CURRENT DEFERRED TAX LIABILITY.......................... 1,213 517
-------- --------
Total liabilities................................. 273,109 83,686
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 2,000,000
shares; 40,000 shares issued Common stock, $.01 par
value; authorized, 20,000,000 shares; issued and
outstanding, 1999 -- 6,618,942 shares,
1998 -- 13,099,644 shares.............................. 131 131
Treasury Stock -- at cost................................. (90,804)
Additional paid-in capital................................ 90,730 53,481
Less Notes Receivable..................................... (10,848)
Accumulated other comprehensive income.................... 7
Retained Earnings......................................... 42,602 14,947
-------- --------
Total Stockholders' Equity........................ 42,666 57,711
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $315,775 $141,397
======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-26
<PAGE> 82

SALTON, INC.

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

<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
------------------------ ------------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES.................................. $ 124,340 $ 68,099 $ 371,412 $ 236,025
Cost of goods sold......................... 75,032 39,336 214,374 141,643
Distribution expenses...................... 5,956 2,604 14,521 8,397
---------- ----------- ---------- -----------
GROSS PROFIT............................... 43,352 26,159 142,517 85,985
Selling, general and administrative
expenses................................. 31,083 21,417 90,832 62,961
---------- ----------- ---------- -----------
OPERATING INCOME........................... 12,269 4,742 51,685 23,024
Interest expense........................... 5,089 1,282 9,899 4,244
Realized gain on sale of marketable
securities............................... (724) (724)
---------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES................. 7,180 4,184 41,786 19,504
Income taxes............................... 2,026 1,406 14,131 7,154
---------- ----------- ---------- -----------
NET INCOME................................. $ 5,154 $ 2,778 $ 27,655 $ 12,350
========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.............................. 6,600,300 13,072,144 7,321,471 13,056,016
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING............ 9,554,316 13,522,358 9,911,096 13,491,944
NET INCOME PER COMMON SHARE: BASIC......... $ 0.78 $ 0.21 $ 3.78 $ 0.95
========== =========== ========== ===========
NET INCOME PER COMMON SHARE: DILUTED....... $ 0.54 $ 0.21 $ 2.79 $ 0.92
========== =========== ========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-27
<PAGE> 83

SALTON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
39 WEEKS ENDED
----------------------
MARCH 27, MARCH 28,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income:............................................... $ 27,655 $ 12,350
Adjustments to reconcile net income to net cash used in
operating activities:
Gain on sale of marketable securities.................. (724)
Changes in deferred taxes.............................. (158) 612
Depreciation and amortization.......................... 4,550 2,890
Purchase reduction of note payable and other noncash
items................................................. (136)
Changes in assets and liabilities -- net of acquisition:
Accounts receivable.................................... (5,731) (21,199)
Inventories............................................ (5,497) (21,171)
Income tax receivable.................................. (539) 1,105
Prepaid expenses and other current assets.............. (368) 434
Accounts payable....................................... (165) 1,296
Taxes payable.......................................... 403
Accrued expenses....................................... (1,236) 6,115
--------- ---------
NET CASH FROM OPERATING ACTIVITIES.......................... 18,778 (18,292)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired............. (107,992)
Proceeds from the sale of marketable securities........... 1,388
Capital expenditures...................................... (1,436) (3,823)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES.......................... (109,428) (2,435)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolving lines of credit.................... (18,475) 24,178
Proceeds from long-term debt.............................. 260,000
Repayment of long-term debt............................... (90,000)
Costs associated with refinancing......................... (8,103)
Preferred stock issuance.................................. 40,000
Purchase of treasury stock................................ (70,799)
Costs associated with preferred stock issuance............ (2,999)
Common stock issuance..................................... 248 142
Repayment of other debt................................... (67) (5,433)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES.......................... 109,805 18,887
--------- ---------
Effect of exchange rate changes on cash..................... 7
--------- ---------
NET INCREASE (DECREASE) IN CASH............................. $ 19,162 $ (1,840)
Cash, beginning of period................................. 661 2,613
--------- ---------
Cash, end of period....................................... $ 19,823 $ 773
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest............................................... $ 7,463 $ 4,306
Income taxes........................................... $ 14,131 $ 4,128
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

In the quarter ended September 26,1998, the Company repurchased 6,535,072
shares of the Company's common stock from Windmere -- Durable Holdings Inc.
("Windmere") for a total purchase price of $90,804,000. The purchase price
included the issuance of a six and one-half year $15,000,000 subordinated
promissory note which bears interest at 4% per annum recorded at its fair value
of $9,096,000 and the effective repayment of Windmere's promissory note to
Salton for the principal amount of $10,848,000.

See Notes to Consolidated Financial Statements.

F-28
<PAGE> 84

SALTON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. CONSOLIDATED FINANCIAL STATEMENTS.

The consolidated financial statements have been prepared from the Company's
records without audit and are subject to year end adjustments. The interim
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of financial information. The interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Salton, Inc. 1998 Annual
Report to Shareholders and the Annual Report on Form 10-K. The results of
operations for the interim periods should not be considered indicative of
results to be expected for the full year.

2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE.

Basic net income per common share is computed based upon the weighted
average number of common shares outstanding. Diluted net income per common share
is computed based upon the weighted average number of common shares outstanding,
adjusted for dilutive common stock equivalents applying the treasury stock
method for options and warrants and the if-converted method for convertible
securities.

3. EFFECT OF NEW ACCOUNTING STANDARDS AND STATEMENTS

During the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This statement requires that the Company report the change in its net assets
during the period from non-owner sources. For the 13 weeks ended and the 39
Weeks ended March 27, 1999 and March 28, 1998 components of other comprehensive
income (loss) include foreign currency translation gains and holding gains
(losses) arising from available for sale securities, net of tax, respectively.

<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
--------------------- ---------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income.......................................... $5,154 $ 2,778 $27,655 $12,350
Other comprehensive income (loss)................... 7 (1,527) 7 2,374
------ ------- ------- -------
Comprehensive income........................... $5,161 $ 1,251 $27,662 $14,724
====== ======= ======= =======
</TABLE>

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

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

F-29
<PAGE> 85
SALTON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for fiscal
years beginning after June 15, 1999 and will change disclosure requirements for
Derivative Instruments and Hedging Activities. The Company will be required to
comply with the provisions of this statement in fiscal 2000. The Company has not
assessed the effect that this new standard will have on its consolidated
financial statements and/or disclosures.

4. EVENTS OF THE THIRTY-NINE WEEKS ENDED MARCH 27, 1999.

On July 28, 1998, Salton repurchased (the "Stock Repurchase") 6,535,072
shares of Salton common stock owned by Windmere-Durable Holdings, Inc.
("Windmere") pursuant to a Stock Agreement dated as of May 6, 1998 (the
"Windmere Stock Agreement") by and among Salton, Windmere and the executive
officers of Salton. Prior to the Stock Repurchase, Windmere owned approximately
50% of Salton's outstanding common stock. The price for the Stock Repurchase was
$12 per share in cash plus a $15.0 million subordinated promissory note (the
"Junior Subordinated Note"). The Junior Subordinated Note, which has a term of
six and one-half years and bears interest at 4.0% per annum payable annually, is
subject to offsets of 5% of the total purchase price paid by Salton for product
purchases from Windmere and its affiliates during the term of the note. During
the first nine months of fiscal 1999 the Company reduced this debt and interest
by approximately $990,000 for related purchases of products from Windmere. The
principal amount of the Junior Subordinated Note is also subject to cancellation
in the event Salton's supply agreement with Kmart is terminated for any reason.

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

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

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

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

On December 16, 1998 the Company issued $125,000,000 of 10 3/4% Senior
Subordinated Notes (the "Subordinated Notes") due 2005. Proceeds of the Notes
were used to repay outstanding indebtedness and for working capital and general
corporate purposes. The Subordinated Notes contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, prepay other indebtedness, pay
dividends, repurchase or redeem capital

F-30
<PAGE> 86
SALTON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock, enter into certain investments, enter into sale and lease-back
transactions, make certain acquisitions, engage in mergers and consolidations,
create liens, or engage in certain transactions with affiliates, and that will
otherwise restrict corporate and business activities. In addition, under the
Subordinated Notes, the Company is required to comply with a specified financial
fixed charge coverage ratio.

Salton amended and restated the New Credit Agreement on January 7, 1999
(the "Amended Credit Agreement"). The Amended Credit Agreement, among Salton,
Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc., as syndication
agent and administration agent, and a syndicate of banks, provides for $125.0
million in a senior secured credit facility consisting of a $45.0 million Term
Loan (the "Term Loan") at an established base rate (equivalent to the prime rate
of interest) plus an applicable margin of 225 basis points or, at the Company's
election, a eurodollar rate (equivalent to the LIBOR rate) plus an applicable
margin of 325 basis points maturing in twenty-four consecutive quarterly
installments commencing on March 26, 1999; and a $80.0 million revolving credit
facility (the "Revolving Credit Facility") at an established base rate
(equivalent to the prime rate of interest) plus an applicable margin of 200
basis point or, at the Company's election, a eurodollar rate (equivalent to the
LIBOR rate plus an applicable margin of 300 basis points) based on a range of
ratios of total debt to earnings before interest, taxes, depreciation and
amortization maturing on March 26, 2003. The Amended Credit Facility is secured
by a first lien on substantially all the Company's assets. Credit availability
is based on a formula related to trade accounts receivable, inventories and
outstanding letters of credit. The Amended Credit Agreement contains a number of
significant covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, prepay other
indebtedness, pay dividends, repurchase or redeem capital stock, enter into
certain investments, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers and consolidations, create liens, or engage in
certain transactions with affiliates, and will otherwise restrict corporate and
business activities. In addition, under the Amended Credit Agreement, the
Company is required to comply with specified financial ratios and tests,
including a net average debt ratio, a net average senior debt ratio, a
consolidated fixed charge coverage ratio, and a consolidated interest coverage
ratio.

On January 7, 1999, the Company acquired all of the stock of Toastmaster
Inc. ("Toastmaster"), a Columbia, Missouri based manufacturer and marketer of
kitchen and small household electrical appliances and time products (the
"Toastmaster Acquisition"). Toastmaster designs, manufactures, markets and
services a wide array of kitchen and small household electrical appliances and
time products under the brand names of Toastmaster(R) and Ingraham(R).
Toastmaster, Inc., a Missouri Corporation, is now a wholly owned subsidiary of
Salton, Inc.

In November 1996, White Consolidated Industries, Inc. ("WCI") filed suit
for injunctive relief and damages against Westinghouse Electric Corporation (now
known as CBS Corporation ("CBS") in the United States District Court for the
Northern District of Ohio alleging that CBS's grant of licenses of the
Westinghouse(TM) name for use on lighting products, fans and electrical
accessories for use in the home violates WCI's rights to the
Westinghouse(TM)name and constitutes a breach of the agreements under which
CBS's predecessor sold WCI its appliance business and licensed certain trademark
rights in 1975. In response to that suit, CBS filed a related action in December
1996 in the United States District Court for the Western District of
Pennsylvania, naming WCI, Windmere, Salton, Newtech and certain other parties as
defendants. The two actions were consolidated in the Pennsylvania court (the
"Trademark Litigation"). Oral Argument on the parties' cross motions for summary
judgment was held on April 16, 1999. No decision has been issued. A trial date
of June 21, 1999 has been set by the court. CBS seeks an injunction prohibiting
the Company, Newtech and WCI from using the White-Westinghouse(R) name on
products not specifically enumerated in the sale documents between CBS's
predecessor and WCI, and unspecified damages and attorneys' fees. An adverse
decision in the Trademark Litigation could result in the Company being limited
in further use of the White-Westinghouse(R) name and therefore the possible
termination or significant modification of the supply agreement between the
Company and Kmart.
F-31
<PAGE> 87
SALTON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

On April 27, 1999, CBS and WCI entered into a partial settlement agreement
which did not resolve the issues concerning the Company. CBS and WCI are
currently discussing a possible settlement that would address the remaining
issues in the litigation, including those concerning the Company.

5. ACQUISITION

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

The operating results of Toastmaster have been included in the consolidated
statements of earnings from the date of acquisition. The following unaudited pro
forma results of operations assume the transactions to which pro forma effect is
given occurred at the beginning of the thirty-nine weeks ended March 27, 1999
and March 28, 1998, respectively:

<TABLE>
<CAPTION>
39 WEEKS ENDED 39 WEEKS ENDED
-------------- --------------
MARCH 27, MARCH 28,
1999 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales............................................. $462,436 $361,926
Operating income...................................... 49,654 29,120
Net income............................................ 20,506 8,959
Net income per share:
Basic............................................... $ 3.12 $ 1.37
Diluted............................................. $ 2.17 $ 0.98
</TABLE>

The pro forma results are for informational purposes only and do not
purport to represent what the Company's results of operations would have
actually been had the transactions to which pro forma effect is

F-32
<PAGE> 88
SALTON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

given been consummated for the periods indicated. The pro forma results do not
reflect cost savings expected by the Company's management to be achieved over
time following the Toastmaster Acquisition.

6. SUBSEQUENT EVENTS.

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

F-33
<PAGE> 89

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Toastmaster Inc.:

We have audited the accompanying consolidated balance sheets of Toastmaster
Inc. as of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, comprehensive income (loss), and cash flows
for each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Toastmaster
Inc. at December 31, 1998 and 1997 and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.

KPMG LLP

March 16, 1999
Kansas City, Missouri

F-34
<PAGE> 90

TOASTMASTER INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash...................................................... $ 173,088 $ 178,030
Accounts receivable, less allowances for doubtful
accounts, sales discounts, and returns of $3,723,000 in
1998 and $2,714,000 in 1997 (notes 3 and 7)............ 41,950,447 42,396,253
Inventories (notes 2 and 3)............................... 38,667,753 31,825,621
Prepaid expenses and other current assets................. 2,076,524 2,144,645
Income taxes receivable................................... 2,505,787 4,070,503
------------ ------------
Total current assets.............................. 85,373,599 80,615,052
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT, AT COST (NOTE 3):
Land...................................................... 927,584 927,584
Buildings................................................. 10,599,793 9,884,855
Machinery and equipment................................... 38,748,529 45,660,717
------------ ------------
50,275,906 56,473,156
Less accumulated depreciation............................. 33,874,758 37,210,559
------------ ------------
Net property, plant, and equipment................ 16,401,148 19,262,597
------------ ------------
Goodwill, net of accumulated amortization of $1,395,812 in
1998 and $1,283,192 in 1997............................... 3,152,879 3,265,499
Other assets................................................ 3,219,125 3,148,340
------------ ------------
$108,146,751 106,291,488
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current installments of long-term debt (note 3)........... $ 3,694,031 2,104,149
Accounts payable.......................................... 4,134,150 4,382,729
Accrued advertising....................................... 3,369,132 2,528,768
Accrued warranty and product liability.................... 4,971,660 4,630,160
Accrued vacation.......................................... 1,137,235 1,161,698
Other accrued liabilities................................. 4,729,538 4,616,748
Deferred income taxes (note 4)............................ 400,010 1,455,992
------------ ------------
Total current liabilities......................... 22,435,756 20,880,244
Long-term debt, excluding current installments (note 3)..... 49,686,015 42,597,072
Deferred income taxes (note 4).............................. 745,921 800,607
Other liabilities........................................... 839,418 695,448
------------ ------------
Total liabilities................................. 73,707,110 64,973,371
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, note issued................................ -- --
Common stock, $.10 par value; 20,000,000 shares
authorized, 7,596,775 shares issued.................... 759,677 759,677
Additional paid-in capital................................ 25,339,958 25,343,543
Retained earnings......................................... 9,000,537 15,877,723
Accumulated other comprehensive income.................... (429,348) (375,311)
------------ ------------
34,670,824 41,605,632
Treasury stock, at cost, 43,525 shares in 1998 and 57,325
shares in 1997......................................... (231,183) (287,515)
------------ ------------
Total stockholders' equity........................ 34,439,641 41,318,117
COMMITMENT AND CONTINGENCIES (note 6)
------------ ------------
$108,146,751 $106,291,488
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-35
<PAGE> 91

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales.......................................... $146,091,426 $154,346,785 $163,049,140
Cost of sales (note 9)............................. 126,020,417 125,464,731 142,458,084
------------ ------------ ------------
Gross profit............................. 20,071,009 28,882,054 20,591,056
Selling, general, and administrative expenses...... 23,401,897 22,669,161 23,640,864
------------ ------------ ------------
Operating income (loss).................. (3,330,888) 6,212,893 (3,049,808)
Other expense -- interest.......................... 4,128,632 4,062,561 4,392,994
Other income -- interest........................... 31,318 638,669 32,247
------------ ------------ ------------
Income (loss) before income taxes........ (7,428,202) 2,789,001 (7,410,555)
Income tax expense (benefit) (note 4).............. (1,009,145) 899,251 (2,719,913)
------------ ------------ ------------
Net income (loss)........................ $ (6,419,057) $ 1,889,750 $ (4,690,642)
============ ============ ============
Basic and diluted earnings (loss) per common
share............................................ $ (0.85) $ 0.25 $ (0.62)
============ ============ ============
Weighted average shares used in computation:
Basic earnings per common share.................. 7,547,743 7,538,455 7,538,250
Diluted earnings per common share................ 7,547,743 7,545,794 7,538,250
============ ============ ============
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-36
<PAGE> 92

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Common stock -- beginning and end of year............. $ 759,677 $ 759,677 $ 759,677
----------- ----------- -----------
Additional paid-in capital:
Beginning of year................................... 25,343,543 25,339,958 25,339,958
Sale of 13,800 and 1,200 shares of treasury stock... (3,585) 3,585 --
----------- ----------- -----------
End of year......................................... 25,339,958 25,343,543 25,339,958
----------- ----------- -----------
Retained earnings:
Beginning of year................................... 15,877,723 14,591,056 19,885,776
Net income (loss)................................... (6,419,057) 1,889,750 (4,690,642)
Cash dividends ($.06, $.08 and $.08 per share)...... (458,129) (603,083) (604,078)
----------- ----------- -----------
End of year......................................... 9,000,537 15,877,723 14,591,056
----------- ----------- -----------
Accumulated other comprehensive income:
Beginning of year................................... (375,311) (238,987) (275,727)
Other comprehensive income (loss)................... (54,037) (136,324) 36,740
----------- ----------- -----------
End of year......................................... (429,348) (375,311) (238,987)
----------- ----------- -----------
Treasury stock:
Beginning of year................................... (287,515) (288,054) (288,054)
Sale of 13,800 and 1,200 shares of treasury stock... 56,332 539 --
----------- ----------- -----------
End of year......................................... (231,183) (287,515) (288,054)
----------- ----------- -----------
Total -- end of year........................ $34,439,641 $41,318,117 $40,163,650
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-37
<PAGE> 93

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss)...................................... $(6,419,057) $1,889,750 $(4,690,642)
----------- ---------- -----------
Other comprehensive income, net of tax:
Minimum pension liability adjustment, net of tax
expense (benefit) of $11,040, $(82,616), and
$25,418, in 1998, 1997, and 1996, respectively
(note 5).......................................... 17,268 (129,533) 39,757
Foreign currency translation adjustments, net of tax
benefit of $(45,588), $(4,341), and $(1,929) in
1998, 1997, and 1996, respectively................ (71,305) (6,791) (3,017)
----------- ---------- -----------
Other comprehensive income (loss)................. (54,037) (136,324) 36,740
----------- ---------- -----------
Comprehensive income (loss).................. $(6,473,094) $1,753,426 $(4,653,902)
=========== ========== ===========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-38
<PAGE> 94

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (6,419,057) $ 1,889,750 $ (4,690,642)
------------- ------------- -------------
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization.............. 3,891,869 3,621,668 4,148,456
(Gain) loss on sale of property, plant, and
equipment................................ 63,612 (25,209) (13,671)
Deferred income taxes...................... (1,120,382) 4,029,737 (1,933,677)
Restructuring charge....................... -- 122,547 7,600,000
Changes in assets and liabilities:
Accounts receivable...................... 445,806 307,592 21,800,263
Inventories.............................. (6,842,132) 1,797,453 (1,137,300)
Prepaid expenses and other current
assets................................ 68,121 (1,350,541) (207,460)
Other assets............................. (70,785) (120,081) (65,033)
Accounts payable......................... (248,579) 627,598 (2,188,267)
Accrued advertising and other current
liabilities........................... 1,441,143 (513,815) (2,475,806)
Income taxes............................. 1,564,716 (3,302,075) (2,109,089)
------------- ------------- -------------
Total adjustments..................... (806,611) 5,194,874 23,418,416
------------- ------------- -------------
Net cash flows (used in) provided by
operating activities................ (7,225,668) 7,084,624 18,727,774
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment... (1,670,756) (4,372,380) (4,484,999)
Proceeds from sale of property, plant, and
equipment.................................. 689,344 28,567 29,895
------------- ------------- -------------
Net cash flows used in investing
activities.......................... (981,412) (4,343,813) (4,455,104)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit agreements..... 161,781,588 155,588,324 172,649,840
Repayments of revolving credit agreements..... (151,060,109) (155,505,295) (188,213,335)
Proceeds from long-term debt.................. 64,168 -- 4,119,052
Repayments of long-term debt.................. (2,106,822) (2,137,526) (2,165,933)
Dividends on common stock..................... (458,129) (603,083) (604,078)
Sale of treasury stock........................ 52,747 4,124 --
------------- ------------- -------------
Net cash flows provided by (used in)
financing activities................ 8,273,443 (2,653,456) (14,214,454)
------------- ------------- -------------
Foreign currency translation adjustment....... (71,305) (6,791) (3,017)
------------- ------------- -------------
Net (decrease) increase in cash....... (4,942) 80,564 55,199
Cash at beginning of year....................... 178,030 97,466 42,269
------------- ------------- -------------
Cash at end of year............................. $ 173,088 $ 178,030 $ 97,468
============= ============= =============
Cash paid during the year for:
Interest...................................... $ 4,019,000 $ 3,996,000 $ 4,393,000
Income taxes.................................. -- 222,000 1,323,000
============= ============= =============
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-39
<PAGE> 95

TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Financial Statement Presentation

The consolidated financial statements include the accounts of Toastmaster
Inc. and its wholly-owned subsidiary, Toastmaster de Mexico S.A. de C.V.,
referred to collectively herein as the (Company). All significant intercompany
transactions and balances have been eliminated in the accompanying consolidated
financial statements.

(b) Operations

The Company manufactures small electrical kitchen and household appliances
and time products sold under the Toastmaster(R) and Ingraham(R) labels. The
Company has manufacturing facilities in Missouri and North Carolina. Although
the Company has long-established relationships with many of its customers, the
Company does not have long-term contracts with any of its customers. A
significant concentration of the Company's business activity is with entities
whose ability to meet their obligations with the Company is dependent upon
prevailing economic conditions within the retail industry.

The Company recognizes sales revenue when products are shipped. Net sales
reflect a reduction of amounts related to product returns, sales discount
programs, outbound freight, and certain allowances for advertising, the latter
of which are accounted for by certain competitors as "advertising" expense. The
Company views these amounts as price reductions, thereby reducing net sales and
lowering gross profits, as well as selling, general, and administrative expense.

Inventories are valued at the lower of cost, determined by the last-in,
first-out (LIFO) method, or market.

(d) Property, Plant, and Equipment

Property, plant, and equipment are stated at cost of acquisition or
construction. Maintenance and repairs are charged to operations as incurred.
Renewals and betterments are capitalized as additions to the appropriate asset
accounts. Upon sale or retirement of assets, the cost and related accumulated
depreciation applicable to such assets are removed from the accounts and any
resulting gain or loss is reported in the consolidated statements of operations.

(e) Depreciation

The Company depreciates property, plant, and equipment over the useful
lives of the various assets which range from three to forty years, using
principally the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes.

(f) Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities for subsequent changes in tax
rates is recognized in income in the period that includes the tax rate change.

F-40
<PAGE> 96
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(g) Research and Development

Research and development costs, which are included in selling, general, and
administrative expenses, aggregated $439,000, $457,000, and $573,000 in 1998,
1997, and 1996, respectively.

(h) Intangible Assets

The excess of the cost of the acquisition of the Company over the estimated
fair value of the net assets acquired (goodwill) is being amortized on a
straight-line basis over forty years.

Costs associated with obtaining financing arrangements are included in
other assets and are being amortized over the term of the related borrowings.

(i) Employee Benefit Plans

The Company has noncontributory retirement plans covering salaried and
hourly employees. The policy of the Company is to fund retirement costs in
amounts sufficient to satisfy the minimum funding requirements under Employee
Retirement Income Security Act (ERISA) guidelines.

(j) Product Warranties

The Company provides for estimated future costs that will be incurred under
product warranties presently in force.

(k) Self-insurance

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

(l) Product Liability Claims

The Company is involved in product liability litigation arising in the
normal course of business and purchases product liability insurance coverage. A
liability is recognized for product liability claims when payment for such
claims is determined to be probable and the amount can be reasonably estimated,
after consideration of the applicable insurance coverages and deductibles.

(m) Fair Value of Financial Instruments

Estimates of fair values are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could effect the estimates. The fair market
value of the Company's financial instruments approximates the carrying value.

(n) Foreign Currency Translation

Assets and liabilities in foreign currencies are translated into dollars at
rates prevailing at the balance sheet date. The net exchange differences
resulting from these translations are reported in stockholders' equity. Revenues
and expenses are translated at average rates for the year. Gains and losses
resulting from foreign currency transactions are included in the consolidated
statements of operations. The net losses resulting from foreign currency
transactions were $1,134,000, $269,000, and $64,000 in 1998, 1997, and 1996,
respectively.

F-41
<PAGE> 97
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(o) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

(p) Advertising Costs

Advertising costs are expensed as incurred and amounted to $6,661,000,
$7,714,000, and $8,491,000 in 1998, 1997, and 1996, respectively.

(q) Stock Option Plans

The Company records stock options in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of underlying
stock exceeds the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
later years as if the fair value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the accounting provisions
of APB Opinion No. 25 and provide the pro forma disclosures under SFAS No. 123.

(r) Earnings Per Common Share

Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue stock were exercised or converted into
common stock, or resulted in the issuance of common stock that then shared in
the earnings of the entity.

For the years ended December 31, 1998, 1997, and 1996, there are no
differences between the numerator used in computing basic and diluted earnings
per share which represents the net income (loss) of the Company. For the years
ended December 31, 1998, 1997, and 1996, the denominator used in computing basic
earnings per share represents the weighted average number of common shares
outstanding (7,547,743 shares -- 1998, 7,538,455 shares -- 1997, 7,538,250
shares -- 1996). The denominator used in computing diluted earnings per share
represents the weighted average number of common shares outstanding used for
purposes of the basic earnings per share computation. In years with net income,
the denominator is increased to reflect the potential dilution under the
treasury stock method of the outstanding stock options (41,918 shares in 1998,
7,339 shares in 1997, and 0 shares in 1996). The number of outstanding shares
used in the diluted earnings (loss) per share computation is not increased for
stock options in years with net losses because their inclusion would be
antidilutive.

(s) Comprehensive Income

On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components; however, the adoption
of this statement had no impact on the Company's net income or shareholders'
equity. SFAS No. 130 requires the Company's change in the minimum pension
liability and the foreign

F-42
<PAGE> 98
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

currency translation adjustments to be included in other comprehensive income.
Prior years' financial statements have been reclassified to conform to these
requirements.

(2) INVENTORIES

A summary of inventories is as follows:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials.............................................. $ 5,369,193 $ 5,143,145
Work-in-process............................................ 1,759,148 1,813,409
Finished goods............................................. 31,539,412 24,869,067
----------- -----------
Total............................................ $38,667,753 $31,825,621
=========== ===========
</TABLE>

If the first-in, first-out (FIFO) method of inventory valuation had been
used, inventories at December 31, 1998 and 1997 would have been approximately
$214,000 and $652,000 higher than reported. Net income (loss) for the years
ended December 31, 1998 and 1997 would have been approximately $289,000 and
$738,000 lower (higher) than reported and net loss for the year ended December
31, 1996 would have been approximately $71,000 higher than reported.

During 1997 and 1996, LIFO inventory layers were reduced. These reductions
resulted in charging lower inventory costs prevailing in previous years to cost
of goods sold in 1997 and 1996, thus reducing cost of goods sold by $114,000 and
$344,000, respectively, below the amount that would have resulted from
liquidating inventory recorded at December 31, 1997 and 1996 prices,
respectively.

(3) LONG-TERM DEBT

A summary of long-term debt is as follows:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Borrowings under revolving credit agreements............... $46,008,099 $35,286,620
Term note, monthly payments of $154,762 plus interest,
balance of $1,798,000 due in November 2001............... 5,511,902 7,369,046
Other...................................................... 1,860,045 2,045,555
----------- -----------
Total long-term debt............................. 53,380,046 44,701,221
Less current portion....................................... 3,694,031 2,104,149
----------- -----------
$49,686,015 $42,597,072
=========== ===========
</TABLE>

The borrowings under the revolving credit and term loan agreement were paid
off in January 1999 (note 11).

The Company had a revolving credit and term loan agreement which expires in
November 2001. The agreement, as modified, provided for borrowings of up to
$85,000,000 (including the balance of the term loan) from June 1 through January
31 or $60,000,000 from February 1 through May 31, or eligible accounts
receivable and inventory, as described therein.

Borrowings under the revolving credit agreement generally bore interest at
prime plus .75% (8.5% at December 31, 1998), with the option to elect the London
Interbank Offering Rate (LIBOR) plus 1.75% (7.37875% at December 31, 1998). The
Company had borrowings of $46,008,099 at December 31, 1998 under the LIBOR
option. The Company could elect to pay interest on a specified amount of
borrowings (not less than $4,000,000 or more than $12,000,000) at a fixed rate
based on the U.S. treasury note yield to maturity plus 2.5%. The interest period
for any fixed rate loan was not less than one year.

F-43
<PAGE> 99
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998, the Company had borrowed $5,511,902 under the term
loan provisions of the agreement, $211,902 of which bore interest at 8.75% and
$5,300,000 of which bore interest at 7.46938%.

The annual interest rate on any loan under the agreement could not be less
than 5%. The Company also paid a 1/2% annual fee, paid monthly on the unused
portion of the revolving credit agreement. Advances under the revolving credit
agreement were secured by accounts receivable, inventory, and property, plant,
and equipment. The agreement contained restrictions as to maintenance of net
worth and certain financial ratios, minimum levels of income and working
capital, payment of cash dividends or purchases of treasury stock, additions to
property, plant, and equipment, and incurrence of additional indebtedness.

Aggregate long-term debt maturities at December 31, 1998, including the
revolving credit agreement which expires in 2001, were as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1999.................................................... $ 3,694,031
2000.................................................... 1,880,301
2001.................................................... 47,805,714
-----------
$53,380,046
===========
</TABLE>

The Company has obtained guarantees for letters of credit, primarily for
importing purposes, up to $8,000,000. Outstanding letters of credit at December
31, 1998 and 1997 aggregated approximately $1,545,000 and $982,000,
respectively.

The fair market value of the Company's revolver and term notes approximated
their carrying value at December 31, 1998. Other long-term debt with a carrying
amount of $1,860,045 had a fair value of $1,944,000 at December 31, 1998.

(4) INCOME TAXES

The components of income tax expense (benefit) are shown below:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal..................................... $ 139,257 $(2,903,272) $ (735,825)
State....................................... (28,020) (237,297) (72,774)
----------- ----------- -----------
Total current....................... 111,237 (3,140,569) (808,599)
----------- ----------- -----------
Deferred:
Federal..................................... (1,018,285) 3,727,294 (1,757,303)
State....................................... (102,097) 312,526 (154,011)
----------- ----------- -----------
Total deferred...................... (1,120,382) 4,039,820 (1,911,314)
----------- ----------- -----------
Total income tax expense
(benefit)......................... $(1,009,145) $ 899,251 $(2,719,913)
=========== =========== ===========
</TABLE>

The Company generated a net operating loss for tax return purposes during
1998. Due to a law change, this net operating loss may only be carried back two
years, 1996 and 1997. Both of these years also generated net tax operating
losses and, therefore, the net operating loss from the current year must be
carried forward. These losses expire in the year 2018. As discussed in note 11,
in January 1999 the Company was acquired, resulting in a change of ownership
that limits future utilization of the net operating losses. These losses will be
limited in their usage to the lesser of approximately $2,500,000 per

F-44
<PAGE> 100
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

year, or the amount of taxable income that the Company contributes to the
acquirer's net taxable income in future years.

The actual income tax expense (benefit) differs from the expected expense
(benefit) computed by applying the statutory federal rate of 34% to pretax
income (loss) for the following reasons:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Computed "expected" expense (benefit).......... $(2,525,589) $ 948,260 $(2,519,589)
Amortization of goodwill....................... 38,291 38,291 38,291
State income tax expense (benefit), net........ (85,877) 49,651 (112,702)
(Income) loss of foreign subsidiary............ 75,820 (138,720) (79,214)
Other.......................................... (87,576) 1,769 (46,699)
Net operating loss............................. 1,575,786 -- --
----------- --------- -----------
Actual income tax expense
(benefit).......................... $(1,009,145) $ 899,251 $(2,719,913)
=========== ========= ===========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are presented below:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred income tax assets:
Inventories.............................................. $ 1,034,340 $ 1,102,290
Accrued liabilities...................................... 2,077,887 2,082,141
Net operating loss....................................... 1,575,786 --
Other.................................................... 456,182 348,998
----------- -----------
Total gross deferred assets...................... 5,144,195 3,533,429
Valuation allowance...................................... (1,575,786) --
----------- -----------
Net deferred assets.............................. 3,568,409 3,533,429
----------- -----------
Deferred income tax liabilities:
Property, plant, and equipment........................... (752,300) (800,607)
Inventories.............................................. (3,242,483) (3,389,671)
Allowances for doubtful accounts, sales discounts, and
returns............................................... (523,117) (1,393,652)
Interest receivable...................................... (196,440) (206,098)
----------- -----------
Total gross deferred liabilities................. (4,714,340) (5,790,028)
----------- -----------
Net deferred tax liability....................... $(1,145,931) $(2,256,599)
=========== ===========
</TABLE>

A valuation allowance of $1,575,786 for certain deferred tax assets was
established at December 31, 1998.

(5) EMPLOYEE BENEFIT PLANS

Substantially all of the Company's employees are covered by two defined
benefit pension plans. The plans' assets consist of a balanced portfolio of
investments in money market, common stock, bond, and real estate funds.
Effective December 31, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits.The disclosures
required by SFAS No. 132 supersede previous disclosure requirements without
affecting measurement or recognition criteria. Accordingly, all

F-45
<PAGE> 101
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

disclosures for prior periods shown below have been revised to conform to the
disclosure requirements of SFAS No. 132:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................. $10,128,711 $ 8,384,636
Service cost............................................. 695,837 632,271
Interest cost............................................ 786,703 675,117
Actuarial loss........................................... 665,283 949,543
Benefits paid and expenses............................... (687,154) (512,856)
----------- -----------
Benefit obligation at end of year........................ $11,589,380 $10,128,711
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year........... $ 9,119,571 $ 7,564,007
Actual return on plan assets............................. 1,565,491 1,244,075
Employer contribution.................................... 824,022 824,345
Benefits paid from plan assets........................... (576,247) (346,532)
Expenses................................................. (125,085) (166,324)
----------- -----------
Fair value of plan assets at end of year................. $10,807,752 $ 9,119,571
=========== ===========
Funded status.............................................. $ (781,628) $(1,009,140)
Unrecognized net actuarial loss............................ 157,933 236,418
Unrecognized transitional asset............................ (248,654) (323,288)
Unrecognized prior service cost............................ 8,038 9,728
Additional pension liability in excess of unrecognized
prior service cost....................................... (537,273) (565,817)
----------- -----------
Accrued pension cost recorded in other accrued
liabilities in the accompanying consolidated balance
sheets................................................ $(1,401,584) $(1,652,099)
=========== ===========
Weighted average assumptions as of December 31:
Discount rate......................................... 7.0% 7.0%
Rate of increase in compensation...................... 5.0 5.0
Expected return on plan assets........................ 9.0 9.0
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost -- benefits earned during the
year..................................... $ 695,837 $ 632,271 $ 555,874
Interest cost on projected benefit
obligation............................... 786,703 675,117 612,287
Actuarial return on plan assets............. (1,565,491) (1,244,075) (788,136)
Net amortization and deferral............... 685,001 493,786 124,964
----------- ----------- -----------
Net pension cost.................... $ 602,050 $ 557,099 $ 504,989
=========== =========== ===========
</TABLE>

Under the requirements of SFAS No. 87, Employers' Accounting for Pensions,
an additional minimum pension liability for one plan, representing the excess of
accumulated benefits over plan assets and accrued pension costs, was recognized
at December 31, 1998 and 1997. A corresponding amount of $(6,861) and $(9,603)
was recognized as an intangible asset at December 31, 1998 and 1997 to the
extent of unrecognized prior service cost and unrecognized transition
obligation, with the balance recorded as a separate reduction of stockholders'
equity, net of the deferred tax effect.

F-46
<PAGE> 102
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has a cash incentive program for certain key employees. Under
the terms of the plan, cash awards are made based upon the achievement of
certain corporate and individual performance goals. Awards in total are limited
to not more than 5% of the Company's earnings before interest and taxes. No
awards were earned under the program in 1998, 1997, or 1996.

The Company maintains a defined contribution savings plan covering
substantially all employees. The plan is funded through employee and voluntary
employer contributions. The Company accrued contributions of $130,000, $140,000,
and $140,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.

The Company has adopted an incentive stock option plan (the ISO Plan), a
Nonemployee Director Stock Option Plan (the Directors' Plan) and a Non-Statutory
Stock Option Plan (the Non-Statutory Plan). Under the ISO Plan, options to
acquire a total of 111,000 shares of the Company's common stock were granted to
certain employees, 46,000 in 1993, 52,500 in 1994, and 12,500 in 1997. The
options vest over five years, with 20% cumulative vesting each year, and expire
six years after the date of grant. The options granted in 1997 allow the holders
to acquire stock for $3.4375 per share, which was the fair market value of the
stock when the options were granted. In 1997, the exercise price and exercise
period for options granted in 1993 and 1994 and still held by active employees
were amended. The exercise price was reduced to $3.4375 per share, which was the
fair market value of the stock on the effective date of the amendment, and the
exercise period was extended an additional year to six years. Under the
Directors' Plan, options to acquire a total of 15,000 shares of common stock
were granted to nonemployee directors in 1993. The options vested immediately
and allowed the holders to acquire stock for $7.375 per share, which was the
fair market value of the stock when the options were granted. The 1993 options
expired in 1998. Also under the Directors' Plan, options to acquire a total of
15,000 additional shares of common stock were granted to nonemployee directors
in 1997. The options vest immediately, expire five years after the date of
grant, and allow the holders to acquire stock for $3.4375 per share, which was
the fair market value of the stock when the options were granted. At December
31, 1998 and 1997, there were options on 86,000 shares and 93,000 shares
outstanding, respectively, of which 59,700 shares and 55,700 shares,
respectively, are exercisable under the ISO Plan. At December 31, 1998, there
were options on 15,000 shares outstanding and exercisable at $3.4375 per share
under the Directors' Plan. At December 31, 1997, there were options on 30,000
shares outstanding and exercisable (15,000 at $3.4375 per share and 15,000 at
$7.375 per share) under the Directors' Plan. No options have been granted under
the Non-Statutory Plan.

In 1994, the Company adopted a supplemental executive retirement plan
(SERP) for certain officers of the Company who were unable to participate in the
Company's qualified defined benefit plan beginning January 1, 1989, because of
changes in the tax laws which imposed certain antidiscrimination requirements
upon qualified plans. The SERP provides for a normal retirement benefit for each
of the officers. Early retirement benefits under the SERP would be actuarially
adjusted to reflect the earlier commencement of the benefit. The SERP is funded
by the purchase of life insurance policies to be held in trust. The Company
reimburses the participants for the current tax recognition resulting from
insurance policy purchases. The respective costs are being amortized over a
five-year vesting employment period of the participants. The expense for this
plan was approximately $434,000, $407,000, and $401,000 for 1998, 1997, and
1996, respectively. The SERP benefits were accelerated in January 1999 (see note
11).

(6) COMMITMENTS AND CONTINGENCIES

(a) Leases

The Company leases certain equipment under operating lease agreements. Rent
expense was approximately $1,202,000, $1,250,000, and $1,139,000 for the years
ended December 31, 1998, 1997, and 1996.

F-47
<PAGE> 103
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future lease commitments under long-term noncancelable operating leases are
as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1999..................................................... $ 713,000
2000..................................................... 574,000
2001..................................................... 489,000
2002..................................................... 461,000
2003..................................................... 398,000
Thereafter............................................... 163,000
----------
$2,798,000
==========
</TABLE>

It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than the
amounts shown for 1999.

(b) Contingencies

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.

The Company is a party to environmental proceedings at two sites and is
investigating the need for remediation at two additional facilities of the
Company. The Company has accrued approximately $300,000 for the anticipated
future costs of investigation and remediation. Although such costs could exceed
that amount, the Company believes that any such excess will not have a material
impact on the Company's financial position or results of operations.

(7) CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

One customer accounted for approximately 32%, 27%, and 27% of net sales for
the years ended December 31, 1998, 1997, and 1996, respectively. As of December
31, 1998, accounts receivable from a single customer comprised 24% of total
accounts receivable, and accounts receivable denominated in foreign currencies
amounted to approximately $4.3 million.

Income (loss) before income taxes attributable to Toastmaster de Mexico
S.A. de C.V. amounted to $(223,000) in 1998, $408,000 in 1997, and $236,000 in
1996.

F-48
<PAGE> 104
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) UNAUDITED QUARTERLY FINANCIAL DATA

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

<TABLE>
<CAPTION>
QUARTER
-------------------------------------
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
1998:
Net sales............................................ $25,626 $29,441 $37,855 $53,169
Gross profit......................................... 4,308 4,270 4,251 7,241
Loss before income taxes............................. (1,524) (1,523) (2,375) (2,006)
Net loss............................................. (882) (1,012) (1,623) (2,902)
Basic and diluted loss per common share.............. (0.12) (0.13) (0.21) (0.39)
======= ======= ======= =======
1997:
Net sales............................................ $26,315 $27,757 $44,209 $56,066
Gross profit......................................... 4,134 4,967 8,639 11,142
Income (loss) before income taxes.................... (1,782) (1,131) 2,123 3,579
Net income (loss).................................... (1,141) (712) 1,410 2,333
Basic and diluted earnings (loss) per common share... (0.15) (0.09) 0.19 0.30
======= ======= ======= =======
1996:
Net sales............................................ $26,738 $32,634 $49,321 $54,356
Gross profit......................................... 3,359 4,282 9,573 3,377
Income (loss) before income taxes.................... (2,605) (2,042) 1,481 (4,245)
Net income (loss).................................... (1,654) (1,312) 950 (2,675)
Basic and diluted earnings (loss) per common share... (0.22) (0.17) 0.13 (0.36)
======= ======= ======= =======
</TABLE>

(9) RESTRUCTURING

The Company completed a restructuring of its product lines and operations
in 1997. The Company disposed of its environmental products line and
discontinued the production of certain kitchen countertop appliances and time
products. The inventory and manufacturing equipment related to these products
will be disposed of through normal channels of distribution and sale and
abandonment, respectively.

Restructuring charges incurred in the fourth quarter of 1996 consisted of
inventory valuation charges of $5,666,000, anticipated losses on the disposal of
fixed assets of $1,684,000, and accrued expenses of $250,000. Total
restructuring charges in 1996 amounted to $7,600,000 before income taxes and are
recorded in cost of sales.

Additional restructuring charges of $123,000 were incurred in 1997 for
anticipated losses on the disposal of fixed assets and are recorded in cost of
sales. At December 31, 1998 and 1997, accrued restructuring expense amounted to
$0 and $127,000, respectively.

(10) ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans. Accordingly,
no compensation expense has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for 1997 awards and
amendments under these plans consistent with the methodology presented in SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's net loss for
1998 would have been increased by approximately $41,000 or $0.01 for basic and
diluted earnings per common share, and net income for 1997 would have been
reduced by approximately $47,500 or $0.01 for basic and diluted earnings per
common share. The fair value of the

F-49
<PAGE> 105
TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options granted and amended during 1997 is estimated at values ranging from
$0.39 to $1.11 on the dates of grant or amendment using the Black-Scholes
option-pricing model with the following assumptions: dividend rate of $0.02 per
share, volatility of 36.60% risk-free interest rate ranging between 5.39% and
6.23%, and an expected life ranging between 0.5 and 3.5 years.

Pro forma net income reflects only options granted or amended since
December 31, 1994. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over the
options vesting period, and compensation cost for options granted prior to
January 1, 1995 is not considered.

(11) SUBSEQUENT EVENTS

On January 7, 1999, Salton, Inc. (Salton) completed the purchase of all
outstanding common stock of the Company for $7.00 per share. Salton also assumed
the assets and liabilities of the Company, and subsequently paid off the
borrowings under the revolving credit agreements (note 3).

The Company was obligated for severance pay and accelerated retirement
benefits upon a change in controlling ownership under certain contractual
agreements with executive officers. Those obligations aggregated $2,511,235 and
were paid in January and February 1999, and will be recorded by the Company as
1999 transactions.

The Company continues to operate as a wholly-owned subsidiary of Salton.

F-50
<PAGE> 106

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999

[SALTON LOGO]

SALTON, INC.

SHARES OF COMMON STOCK

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

PROSPECTUS
----------------------------

DONALDSON, LUFKIN & JENRETTE

PAINEWEBBER INCORPORATED

DLJDIRECT INC.

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

We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Salton have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Until 25 days after the date of this prospectus, all dealers, whether or not
participating in this offering, that effect transaction in these securities may
be required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter in this
offering and when selling previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 107

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses expected to be incurred in
connection with the offering described in this registration statement. All of
such amounts (except the SEC registration fee and the New York Stock Exchange
listing fee) are estimated.

<TABLE>
<CAPTION>
AMOUNT
<S> <C>
SEC registration fee........................................ $ *
NASD filing fee............................................. *
New York Stock Exchange listing fee......................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Miscellaneous............................................... *
-------
Total............................................. *
=======
</TABLE>

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

* To be filed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any action or proceeding, had no reasonable
cause to believe his conduct was unlawful. Section 145 further provides that a
corporation similarly may indemnify any such person serving in any such capacity
who was or is a party or is threatened to be made a part to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor, against expenses actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director: (1) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or (4)
for any transaction from which the director derived an improper personal
benefit.

II-1
<PAGE> 108

The Registrant's Restated Certificate of Incorporation (the "Certificate")
provides that Salton's directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director
except to the extent that exculpation from liabilities is not permitted under
the DGCL as in effect at the time such liability is determined. The Registrant's
Certificate further provides that the Registrant shall indemnify its directors
and officers to the fullest extent permitted by the DGCL.

The directors and officers of Salton are covered under directors' and
officers' liability insurance policies maintained by Salton.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed herewith or to be filed by amendment:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
*1.1 -- Form of Underwriting Agreement.
*5.1 -- Opinion of Sonnenschein Nath & Rosenthal.
23.1 -- Consent of Independent Auditors -- Deloitte & Touche LLP.
*23.2 -- Consent of Sonnenschein Nath & Rosenthal (included in
Exhibit 5.1).
23.3 -- Consent of Independent Auditors -- KPMG LLP.
24.1 -- Power of Attorney (included on page II-3).
</TABLE>

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

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was effective; and

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication to such issue.

II-2
<PAGE> 109

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Salton, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and the State of
Illinois, on the 25th day of June, 1999.

SALTON, INC.

By: /s/ LEONHARD DREIMANN
----------------------------------
Leonhard Dreimann
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Leonhard Dreimann, William B. Rue, and David C.
Sabin, or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capabilities, to sign any and all pre- or
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 25th day of June, 1999.

<TABLE>
<CAPTION>
SIGNATURE
<C> <S>

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

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

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

/s/ DAVID C. SABIN Director
- -----------------------------------------------------
David C. Sabin

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

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

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

Director
- -----------------------------------------------------
Bruce G. Pollack
</TABLE>

II-3
<PAGE> 110

EXHIBIT INDEX

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

* To be filed by amendment.

II-4

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Salton, Inc.
(formerly, Salton/Maxim Housewares, Inc., the "Company") on Form S-3 of our
report dated September 3, 1998, appearing in the Prospectus, which is part of
this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus, which is part of this Registration
Statement.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
June 23, 1999

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the inclusion of our report dated March 16, 1999 with respect to
the consolidated balance sheets of Toastmaster Inc. as of December 31, 1998 and
the related consolidated statements of operations, stockholders' equity,
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 1998. We consent to the reference of our
firm under the caption Experts in the Form S-3 Registration Statement of
Salton, Inc. and related Prospectus.

Kansas City, Missouri
June 23, 1999