878280--10/9/2007--SALTON

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{stock, price, share}

{customer, product, revenue}

{cost, regulation, environmental}

{condition, economic, financial}

{operation, international, foreign}

{debt, indebtedness, cash}

{property, intellectual, protect}

{operation, natural, condition}

{product, market, service}

{product, liability, claim}

{investment, property, distribution}

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Our debt instruments contain restrictive covenants that could adversely affect our business by limiting our flexibility. We must either repay or refinance significant debt obligations due in November 2007 and during the next twelve months. We have experienced a decline in domestic market sales and continue to implement a domestic restructuring plan. Our international operations, and expansion of these operations, subjects us to additional business risks and may cause our profitability to decline due to increased costs. Our margins have been adversely impacted by increases in raw material prices. Our ability to obtain products may be adversely impacted by worldwide demand on raw material. If we were to lose one or more of our major customers, or suffer a major reduction of orders from them, our financial results would suffer. Our dependence on foreign suppliers subjects us to the risks of doing business abroad. The small household appliance industry is highly competitive and we may not be able to compete effectively. If the housewares sector of the retail industry continues to experience an economic slowdown, our financial results will be adversely affected. Long lead times, potential material price increases and customer demands may cause us to purchase more inventory than necessary. Our ability to successfully pursue strategic and operational initiatives will depend on the continued efforts of our Chief Executive Officer. Our outstanding convertible preferred stock contains redemption and other provisions which could have a material adverse effect on, and significantly dilute, the interests of holders of our common stock. Our credit ratings have been downgraded and could be downgraded further. If we have to expend significant amounts to remediate environmental liabilities, our financial results will suffer. The seasonal nature of our business could adversely impact our operations. Product recalls or lawsuits relating to defective products could adversely impact our financial results. The infringement or loss of our proprietary rights could have an adverse effect on our business. We may be subject to litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products. Compliance with governmental regulations could significantly increase our operating costs or prevent us from selling our products. The requirements of complying with the Sarbanes-Oxley Act may strain our resources, and our internal control over financial reporting may not be sufficient to ensure timely and reliable external financial reports. Our stock price may continue to be volatile. Our common stock was recently delisted from the New York Stock Exchange and currently trades on the Pink Sheets Electronic Quotation Service. Takeover defense provisions which we have implemented may adversely affect the market price of our common stock. We do not anticipate paying dividends. The failure to integrate the businesses and operations of Salton and Applica in a timely and efficient manner could adversely affect the business of the combined company and the ability of the combined company to realize expected synergies. The merger consideration is based in part on the expectation that Applica will significantly contribute to the combined company s financial performance and if we do not realize the expected synergies or perform as well as we expect financially following the merger, we will effectively have paid too much in merger consideration. The costs associated with the merger are difficult to estimate, may be higher than estimated and may harm the financial results of the combined company to an unexpected degree. Completion of the merger and related transactions will result in dilution of future earnings per share to our stockholders. Neither entity has completed its analysis of how much of its net operating loss carryforwards will be available to the combined company, and the combined company s net operating loss carryforwards may be limited as a result of the merger.

Full 10-K form ▸

878280--10/9/2007--SALTON_INC