UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                  For the Quarterly Period Ended June 30, 2001


                           COMMISSION FILE NO. 0-25121

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



                           SELECT COMFORT CORPORATION
             (Exact name of registrant as specified in its charter)


             MINNESOTA                                           41-1597886
  (State or other jurisdiction of                             (I.R.S. Employer
  incorporation or organization)                             Identification No.)

        6105 TRENTON LANE NORTH
        MINNEAPOLIS, MINNESOTA                                      55442
(Address of principal executive offices)                          (Zip code)

       Registrant's telephone number, including area code: (763) 551-7000



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


As of June 30, 2001,  18,126,265  shares of Common Stock of the Registrant  were
outstanding.


                           SELECT COMFORT CORPORATION
                                AND SUBSIDIARIES



                                      INDEX


                                                                        PAGE NO.
                                                                       ---------

PART I:  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets
         June 30, 2001 and December 30, 2000.................................  3

         Consolidated Statements of Operations
         for the Three Months and Six Months ended
         June 30, 2001 and July 1, 2000......................................  4

         Consolidated Statements of Cash Flows
         for the Six Months ended June 30, 2001
         and July 1, 2000....................................................  5

         Notes to Consolidated Financial Statements..........................  6

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations.......................  9

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.......... 14

PART II: OTHER INFORMATION

Item 1.    Legal Proceedings................................................. 15

Item 2.    Changes in Securities and Use of Proceeds......................... 15

Item 3.    Defaults Upon Senior Securities................................... 15

Item 4.    Submission of Matters to a Vote of Security Holders............... 15

Item 5.    Other Information................................................. 16

Item 6.    Exhibits and Reports on Form 8-K.................................. 16





PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   SELECT COMFORT CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


                                                                    (UNAUDITED)
                                                                      JUNE 30,     DECEMBER 30,
                              ASSETS                                    2001          2000
                                                                   -------------  -------------
                                                                               
 Current assets:
    Cash and cash equivalents                                         $  8,848       $  1,498
    Marketable securities                                                    -          3,950
    Accounts receivable, net of allowance for doubtful
      accounts of $260, and $264, respectively                           2,106          2,693
    Inventories (note 2)                                                 8,953         11,083
    Prepaid expenses                                                     5,297          4,741
                                                                   -------------  -------------
        Total current assets                                            25,204         23,965

 Property and equipment, net                                            34,207         37,063
 Other assets                                                            3,558          3,644
                                                                   -------------  -------------
        Total assets                                                  $ 62,969       $ 64,672
                                                                   =============  =============

               LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
    Current maturities of long-term debt                              $     29       $     38
    Accounts payable                                                    19,014         17,271
    Accruals:
     Sales returns                                                       4,618          5,284
     Compensation, taxes and benefits                                    5,934          6,238
     Other                                                               6,609          7,565
                                                                   -------------  -------------
        Total current liabilities                                       36,204         36,396

 Long-term debt, less current maturities (note 3)                       12,466          2,322
 Accrued warranty costs                                                  5,725          5,745
 Other liabilities                                                       4,006          3,609
                                                                   -------------  -------------
        Total liabilities                                               58,401         48,072
                                                                   -------------  -------------

 Shareholders' equity:
    Undesignated preferred stock; 5,000,000 shares authorized,
      no shares issued and outstanding                                       -              -
    Common stock, $.01 par value; 95,000,000 shares authorized,
      18,126,265 and 17,962,689 shares issued and outstanding,             181            180
      respectively
    Additional paid-in capital                                          80,777         79,452
    Accumulated deficit                                                (76,390)       (63,032)
                                                                   -------------  -------------
        Total shareholders' equity                                       4,568         16,600
                                                                   -------------  -------------
        Total liabilities and shareholders' equity                    $ 62,969       $ 64,672
                                                                   =============  =============





          See accompanying notes to consolidated financial statements.



                                       3


                   SELECT COMFORT CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)




                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                  ------------------------  ------------------------
                                                    JUNE 30,     JULY 1,      JUNE 30,     JULY 1,
                                                      2001        2000          2001        2000
                                                  -----------  -----------  -----------  -----------
                                                                              
Net sales                                          $ 62,742     $ 61,787     $128,198     $137,946
Cost of sales                                        22,428       21,886       46,039       49,032
                                                  -----------  -----------  -----------  -----------
   Gross margin                                      40,314       39,901       82,159       88,914
                                                  -----------  -----------  -----------  -----------

Operating expenses:
   Sales and marketing                               37,394       38,543       81,568       83,816
   General and administrative                         5,954        6,712       12,967       15,232
   Store closings and asset impairments                 142           37          488           37
                                                  -----------  -----------  -----------  -----------
       Total operating expenses                      43,490       45,292       95,023       99,085
                                                  -----------  -----------  -----------  -----------
Operating loss                                       (3,176)      (5,391)     (12,864)     (10,171)
                                                  -----------  -----------  -----------  -----------
Other income (expense):
   Interest income                                       40          309          115          684
   Interest expense                                    (254)          (2)        (352)          (4)
   Equity in loss of affiliate                            -         (246)           -         (428)
   Other, net                                          (140)          (5)        (142)         (48)
                                                  -----------  -----------  -----------  -----------
       Other income (expense), net                     (354)          56         (379)         204
                                                  -----------  -----------  -----------  -----------
Loss before income taxes                             (3,530)      (5,335)     (13,243)      (9,967)
Income tax expense (benefit)                              -       (1,870)         115       (3,504)
                                                  -----------  -----------  -----------  -----------
Net loss                                           $ (3,530)    $ (3,465)    $(13,358)    $ (6,463)
                                                  ===========  ===========  ===========  ===========


Net loss per share (note 4) - basic and diluted    $  (0.19)    $  (0.19)    $  (0.74)    $  (0.36)
                                                  ===========  ===========  ===========  ===========
Weighted average shares - basic and diluted          18,119       17,818       18,087       17,786
                                                  ===========  ===========  ===========  ===========





          See accompanying notes to consolidated financial statements.



                                       4


                   SELECT COMFORT CORPORATION AND SUBSIDIARIES

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



                                                        SIX MONTHS ENDED
                                                    ------------------------
                                                     JUNE 30,     JULY 1,
                                                       2001         2000
                                                    -----------  -----------

Cash flows from operating activities:
   Net loss                                          $(13,358)    $ (6,463)
   Adjustments to reconcile net loss to net cash
     provided by operating activities:
     Depreciation and amortization                      4,994        4,514
     Loss on disposal of assets                           496          178
     Deferred tax assets                                    -       (3,583)
     Change in operating assets and liabilities:
       Accounts receivable, net                           681          569
       Inventories                                      2,130       (1,795)
       Prepaid expenses                                    90           49
       Income taxes                                         -        2,227
       Accounts payable                                 1,743        1,063
       Accrued sales returns                             (666)        (562)
       Accrued warranty costs                             (25)       1,006
       Accrued compensation, taxes and benefits          (304)        (485)
       Other accrued liabilities                         (863)         153
       Other assets                                       (75)         447
       Other liabilities                                  397          426
                                                    -----------  -----------
         Net cash used in operating activities         (4,760)      (2,256)
                                                    -----------  -----------

Cash flows from investing activities:
   Purchases of property and equipment                 (2,367)      (7,589)
   Sales of marketable securities                       3,950       10,696
                                                    -----------  -----------
         Net cash provided by investing activities      1,583        3,107
                                                    -----------  -----------

Cash flows from financing activities:
   Principal payments on debt                             (18)           -
   Proceeds from issuance of common stock                 191          404
   Net proceeds from issuance of long-term debt        10,354            -
                                                    -----------  -----------
         Net cash provided by financing activities     10,527          404
                                                    -----------  -----------

Increase in cash and cash equivalents                   7,350        1,255
Cash and cash equivalents, at beginning of period       1,498        7,441
                                                    -----------  -----------
Cash and cash equivalents, at end of period          $  8,848     $  8,696
                                                    ===========  ===========




          See accompanying notes to consolidated financial statements.



                                       5


                   SELECT COMFORT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated  financial statements for the three months and six months ended
June 30, 2001 and July 1, 2000 of Select Comfort  Corporation  and  subsidiaries
("Select Comfort" or the "Company"),  have been prepared by the Company, without
audit,  pursuant to the rules and  regulations  of the  Securities  and Exchange
Commission  and  reflect,  in the opinion of  management,  all normal  recurring
adjustments necessary to present fairly the financial position of the Company as
of June 30, 2001 and  December 30, 2000 and the results of  operations  and cash
flow for the periods presented.

The  consolidated  financial  statements  have been prepared on a  going-concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities  and other  commitments  in the  normal  course of  business.  These
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification of recorded asset amounts or the amounts and
classification  of liabilities  that might be necessary if the Company is unable
to continue as a going concern. The Company's continuation as a going concern is
dependent, among other things, upon obtaining positive cash flow from operations
or upon its ability to raise additional working capital.

Certain prior year financial statement amounts have been reclassified to conform
to the current year  presentation.  In particular,  accrued  warranty costs have
been  divided  between  current  liabilities  and  long-term  liabilities.   The
resulting  respective  accrued  warranty cost balances are based on the expected
timing of when warranty  claims will be satisfied.  The warranty claims expected
to be satisfied  within the following  twelve month period have been included in
other current liabilities.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with accounting  principles generally accepted
in the United States of America have been condensed or omitted  pursuant to such
rules and regulations, although management believes the disclosures are adequate
to make the information presented not misleading.  These consolidated  financial
statements  should be read in conjunction with the Company's most recent audited
consolidated  financial  statements  and related notes included in the Company's
Annual  Report to  Shareholders  and its Form  10-K for the  fiscal  year  ended
December 30, 2000.  Operating  results for the Company on a quarterly  basis may
not be indicative of operating results for the full year.

During July 2001 the Financial  Accounting Standards Board issued statement SFAS
142  "Goodwill  and  Other  Intangible   Assets."  Statement  142  replaces  the
requirement to amortize  goodwill and intangible  assets with  indefinite  lives
with a requirement  for an annual  impairment  test. The Company must adopt SFAS
142 at the beginning of fiscal 2002. The Company is analyzing the impact of SFAS
142,  but  it is not  expected  to  have  a  material  impact  on the  Company's
consolidated financial statements.

(2)  INVENTORIES

Inventories consist of the following (in thousands):

                                                  JUNE 30,      DECEMBER 30,
                                                    2001           2000
                                                -------------  -------------

Raw materials                                         $3,250        $ 5,507
Work in progress                                          49             60
Finished goods                                         5,654          5,516
                                                -------------  -------------
                                                      $8,953        $11,083
                                                =============  =============




                                       6


                   SELECT COMFORT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)  LONG-TERM DEBT

In June 2001, the Company  issued $11 million in principal  amount of its senior
secured notes ("the Notes") in a private  placement.  The Notes have a five-year
maturity,  bear  interest  at 8% per  annum  payable  annually  in cash  and are
convertible  into shares of the Company's  common stock at the rate of $1.00 per
share.  The  Notes  are  secured  by a first  lien on  substantially  all of the
Company's  assets.  In addition,  the holders of the Notes received  warrants to
purchase 4.4 million  shares of the Company's  common stock for $1.00 per share.
The  warrants  have a  five-year  term.  The Note  conversion  price and warrant
exercise  price are subject to certain  anti-dilution  protections,  including a
reset of the warrant and conversion  prices if the average  closing price of the
Company's  common stock price for the 10 trading days ending on October 31, 2001
is below $1.00.  The net proceeds  from these Notes  approximated  $10.4 million
after deduction of placement fees and expenses. The warrants were valued at $1.1
million and have been  recorded as debt  discount  to be  amortized  as interest
expense over the 5-year note term.

(4)  NET LOSS PER COMMON SHARE

The  following  computations  reconcile  net  loss  with  net  loss  per  common
share-basic and diluted (in thousands, except per share amounts).


                                    THREE MONTHS ENDED               SIX MONTHS ENDED
                             -------------------------------  -------------------------------
                                NET               PER SHARE     NET               PER
        JUNE 30, 2001           LOSS     SHARES    AMOUNT       LOSS      SHARES   SHARE
        -------------        ---------- --------- ---------  ---------- --------- ----------
                                                                   
BASIC AND DILUTED EPS
Net loss attributable to

  common shareholders         $(3,530)    18,119    $(0.19)    $(13,358)   18,087    $(0.74)
                             ========== ========= ==========  ========== ========= ==========

         JULY 1, 2000
         ------------
BASIC AND DILUTED EPS
Net loss attributable to
  common shareholders         $(3,465)    17,818    $(0.19)     $(6,463)   17,786    $(0.36)
                             ========== ========= ==========  ========== ========= ==========


(5)  LITIGATION

The Company and certain of its former  officers and directors have been named as
defendants in a class action lawsuit filed on June 1, 1999, on behalf of Company
shareholders  in U.S.  District Court in Minnesota.  The named  plaintiffs,  who
purport to act on behalf of a class of purchasers of the Company's  common stock
during the period from December 4, 1998 to June 7, 1999,  charge the  defendants
with  violations of federal  securities  laws. The suit alleges that the Company
and the named  directors  and  officers  failed to  disclose  or  misrepresented
certain  information  concerning  the  Company  during  the  class  period.  The
complaint does not specify an amount of damages  claimed.  The Company  believes
that the complaint is without merit and intends to vigorously defend the claims.

The Company and the individual defendants brought a motion to dismiss all claims
on November 10, 1999. The motion was heard by a magistrate judge on December 21,
1999. On January 27, 2000, the magistrate  recommended  that the claims based on
Section  11  of  the  federal  securities  laws  be  dismissed.  The  magistrate
recommended  that the  motion to dismiss  be denied  with  respect to the claims
based on Rule 10b-5 of the federal  securities  laws. In February 2000, both the
plaintiffs   and  the   defendants   formally   objected  to  the   magistrate's
recommendation.  The objection was made to the United States  District  Court in
Minnesota.  On May 12,  2000,  the United  States  District  Court in  Minnesota
adopted the  recommendation of the magistrate and denied the defendants'  motion
to dismiss the Rule 10b-5 claims.  The Court also adopted the  recommendation of
the magistrate and dismissed the plaintiff's Section 11 claims without prejudice
and with leave to amend.

On March 31, 2000, the Company and certain of its former  officers and directors
were  named as  defendants  in a class  action  lawsuit  filed on  behalf of the
Company's  shareholders in U.S. District Court in Minnesota  asserting identical
factual  allegations as the  consolidated  complaint  described  above. The suit
alleges claims based on Sections 11 and 12(a)(2) of the federal securities laws.
The  complaint  does not  specify  an amount of  damages  claimed.  The  Company
believes this  complaint is without  merit and intends to vigorously  defend the
claims.  The above two class  actions  were  consolidated  by the United  States
District Court Magistrate on July 24, 2000.



                                       7


On January 30, 2001, the plaintiffs made a motion to certify a class.  The class
certification motion is pending. Discovery has begun.

The  Company  is a party to other  various  claims,  legal  actions,  sales  tax
disputes,  and other complaints  arising in the ordinary course of business.  In
the opinion of  management,  any losses that may occur from these other  matters
are  adequately  covered by insurance  or are  provided for in the  consolidated
financial  statements  and the ultimate  outcome of these other matters will not
have a material  effect on the  consolidated  financial  position  or results of
operations of the Company.



                                       8


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING  DISCUSSION AND ANALYSIS  SHOULD BE READ IN  CONJUNCTION  WITH THE
CONSOLIDATED  FINANCIAL  STATEMENTS AND THE NOTES THERETO INCLUDED HEREIN.  THIS
QUARTERLY  REPORT ON FORM 10-Q CONTAINS  FORWARD-LOOKING  STATEMENTS  WITHIN THE
MEANING  OF THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF  1995.  YOU CAN
IDENTIFY FORWARD-LOOKING  STATEMENTS BY THOSE THAT ARE NOT HISTORICAL IN NATURE,
PARTICULARLY  THOSE  THAT  USE  TERMINOLOGY  SUCH AS  "MAY,"  "WILL,"  "SHOULD,"
"EXPECTS,"  "ANTICIPATES,"  "CONTEMPLATES,"  "ESTIMATES,"  "BELIEVES,"  "PLANS,"
"PROJECTS,"  "PREDICTS,"  "POTENTIAL"  OR "CONTINUE" OR THE NEGATIVE OF THESE OR
SIMILAR TERMS.  THESE STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND  UNCERTAINTIES
THAT  COULD  CAUSE  ACTUAL  RESULTS  TO  DIFFER  MATERIALLY  FROM THE  COMPANY'S
HISTORICAL  EXPERIENCE AND ITS PRESENT  EXPECTATIONS OR  PROJECTIONS.  IMPORTANT
FACTORS KNOWN TO SELECT COMFORT THAT COULD CAUSE SUCH MATERIAL  DIFFERENCES  ARE
IDENTIFIED AND DISCUSSED IN PART I, ITEM 1 OF OUR ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 30, 2000, WHICH DISCUSSION IS INCORPORATED HEREIN
BY REFERENCE. THESE IMPORTANT FACTORS INCLUDE:

o    THE ABILITY OF THE COMPANY TO MAINTAIN SUFFICIENT LEVELS OF WORKING CAPITAL
     TO SUPPORT OPERATING NEEDS AND GROWTH INITIATIVES.
o    THE COMPANY'S ABILITY TO CREATE PRODUCT AND BRAND NAME AWARENESS.
o    THE  EFFICIENCY   AND   EFFECTIVENESS   OF  THE  COMPANY'S   MARKETING  AND
     ADVERTISING.
o    THE ABILITY OF THE COMPANY TO INCREASE  SALES VOLUMES  THROUGH ITS EXISTING
     DISTRIBUTION CHANNELS.
o    THE  ABILITY  OF THE  COMPANY TO  EFFICIENTLY  AND  EFFECTIVELY  PURSUE NEW
     CHANNELS OF DISTRIBUTION.
o    THE PERFORMANCE OF THE COMPANY'S EXISTING AND NEW STORES.
o    THE ABILITY OF THE COMPANY TO CONTINUE TO ATTRACT AND RETAIN KEY PERSONNEL,
     INCLUDING QUALIFIED SALES PROFESSIONALS.
o    THE  ABILITY  OF THE  COMPANY  TO  REALIZE  THE  BENEFITS  OF  COST  SAVING
     INITIATIVES.
o    THE LEVELS OF CONSUMER ACCEPTANCE OF THE COMPANY'S PRODUCT LINES.
o    THE ABILITY OF THE COMPANY TO  CONTINUOUSLY  IMPROVE ITS  EXISTING  PRODUCT
     LINES AND INTRODUCE NEW PRODUCTS.
o    THE  ABILITY  OF THE  COMPANY  TO  EFFICIENTLY  IMPLEMENT  NATIONWIDE  HOME
     DELIVERY AND ASSEMBLY.
o    ECONOMIC TRENDS AND CONSUMER CONFIDENCE.
o    INDUSTRY COMPETITION.
o    THE RISKS AND  UNCERTAINTIES  DETAILED  FROM TIME TO TIME IN THE  COMPANY'S
     FILINGS WITH THE SEC,  INCLUDING THE  COMPANY'S  ANNUAL REPORT ON FORM 10-K
     AND OTHER PERIODIC REPORTS FILED WITH THE SEC.

OVERVIEW

Select Comfort is the leading  manufacturer and retailer of  adjustable-firmness
air beds,  which are  clinically  proven to improve sleep and relieve back pain.
The company's mission is to improve people's lives by providing a better night's
sleep. From product design to global manufacturing, Select Comfort is vertically
integrated  with  dedicated  customer  service  and  its  own  selling  channels
including direct phone,  e-commerce,  and company-owned  retail stores. We value
our direct contact with our customers because it fosters continuous  improvement
and innovation.

For  2001,  our goal is to  return to  profitability,  driven  by the  following
strategic  priorities:
o    Rightsizing our cost structure,
o    Building consumer awareness,
o    Improving our sales conversion effectiveness,
o    Expanding profitable distribution, and
o    Improving product quality, innovation and service levels.

BUSINESS STRUCTURE

SALES DISTRIBUTION/POINTS OF SALE
Our growth  strategies are focused on building brand  awareness for our products
and increasing the number of points of sale at which  consumers can purchase our
products.  We  currently  sell  through four sales  channels.  We began  selling
through  our direct  marketing  call center in 1991,  through our  company-owned
retail  stores  in  1992,  over  the  internet  in 1999  and  through  wholesale
opportunities in 2000.



                                       9


The  proportion  of our total net sales,  by dollar  volume,  from each of these
channels is as follows:
                                   Three Months Ended         Six Months Ended
                                  --------------------       -------------------
                                   6/30/01    7/01/00         6/30/01   7/01/00
                                  ---------  ---------       --------- ---------
     Stores                          75%        78%             78%       76%
     Direct Call Center              15%        19%             15%       21%
     E-commerce                       3%        3%               3%        3%
     Wholesale                        7%         -               4%        -

Our company-owned retail store locations are summarized as follows:

                                   Three Months Ended         Six Months Ended
                                  --------------------       -------------------
                                   6/30/01    7/01/00         6/30/01   7/01/00
                                  ---------  ---------       --------- ---------
     Beginning of period              326        342             333       341
     Opened                             3          6               5        11
     Closed                            (2)       (15)            (11)      (19)
                                  ---------  ---------       --------- ---------
     End of period                    327        333             327       333

Our  company-owned  stores  include  leased space  within 24 Bed,  Bath & Beyond
stores as of June 30, 2001. In addition to our company-owned stores,  internally
managed call center and web site, our adjustable-firmness beds and sleep-related
products are sold  wholesale to an  independent  furniture  retailer  with three
retail  stores and over the QVC shopping  network.  Sales volumes to date in the
wholesale  channels  have been  driven  primarily  by the number and size of QVC
shows.

We do not have  plans to open or close a  significant  number  of  company-owned
stores in the near future.  We are evaluating the relative  economic benefits of
selling   through  our  own  stores  versus   wholesale   distribution   through
independently  owned  furniture/mattress   retailers  and  are  considering  the
initiation of larger-scale wholesale tests in specific markets.

MARKETING DRIVERS
We utilize  advertising,  sales promotions and public relations efforts to build
consumer  awareness of our brand,  products  and the  locations of our points of
sale. Advertising spending is summarized as follows (in 000's):

                                   Three Months Ended         Six Months Ended
                                  --------------------       -------------------
                                   6/30/01    7/01/00         6/30/01   7/01/00
                                  ---------  ---------       --------- ---------
     Advertising                    $6,999     $6,306         $17,429   $15,540

Future advertising  expenditures will depend on the effectiveness and efficiency
of the  advertising  in  creating  awareness  of our  products  and brand  name,
generating  consumer  inquiries  and driving  consumer  traffic to our points of
sale.  We have  begun  to,  and  expect  to  continue  to,  spend an  increasing
percentage of our marketing budget on advertising  designed to attract consumers
to retail stores.  We anticipate that full year advertising spend levels in 2001
will be slightly lower than in 2000,  reflecting the  re-apportionment  of media
dollars to a test campaign.

In  addition to the factors  noted  above,  sales  results are  influenced  by a
variety  of  factors,   including  general  economic   conditions  and  consumer
confidence, levels of retail mall traffic, the maturation of our store base, the
timing and effectiveness of promotional events and advertising expenditures, the
timing and success of new product introductions and product line extensions, the
quality and tenure of  store-level  managers  and sales  professionals,  and the
amount of  competitive  activity.  Our business is also subject to some seasonal
influences,   with  lower  sales  levels  in  the  second  quarter  and  heavier
concentrations  of  sales  during  the  fourth  quarter  holiday  season  due to
increased mall traffic.  Comparable  store sales  decreased for the three months
ended June 30, 2001 and July 1, 2000 by 3.6% and 4.0%, respectively.  Comparable
store sales decreased for the six months ended June 30, 2001 and July 1, 2000 by
5.2% and 1.9%, respectively.



                                       10


OPERATING STRUCTURE
A  substantial  portion of operating  expenses is related to sales and marketing
expenses, including costs associated with operating existing stores, advertising
expenditures,  supporting our store infrastructure and opening new stores. These
costs are relatively fixed in nature, and spending cannot be adjusted quickly in
response to shortfalls in customer inquiries or net sales. We believe historical
operating  losses have been  primarily the result of an aggressive  retail store
opening strategy,  significant  marketing,  advertising and product  development
expenditures,  and the development of a substantial corporate  infrastructure to
support future growth.

In 2000 we began to implement  initiatives  designed to bring our cost structure
in line with our sales  volumes with the  ultimate  objective of making our core
bed business  profitable at sales volumes equal to those  achieved in year 2000.
To date we have implemented  programs  designed to reduce our total annual fixed
and variable costs by $35 million, reducing our sales breakeven point by 17%.

These cost reduction measures have included:

     o    Closing one of three manufacturing plants, one of two call centers and
          consolidating two administrative offices,
     o    Closing over 30 under-performing stores,
     o    Reducing overall staffing,  including approximately 20% of field sales
          support and approximately 12% of administrative staffing,
     o    Discontinuing  our catalog sales channel and deferring roll out of our
          sofa sleeper product,
     o    Restructuring  our promotional  programs and developing more efficient
          programs  to  utilize  in-store   signage  and  customer   fulfillment
          materials, and
     o    Developing a program to resell returned products to targeted markets.

We believe we have taken steps that can return us to profitability in the second
half of 2001. However, there can be no assurance that we will be able to achieve
or sustain  sales  levels or expense  levels  that will  enable us to achieve or
sustain profitability in the future, on a quarterly or annual basis.

Quarterly and annual operating  results may fluctuate  significantly as a result
of a variety of factors,  including  increases or decreases in comparable  store
sales, the timing,  amount and  effectiveness of advertising  expenditures,  any
changes in return rates, the timing of new store openings and related  expenses,
net sales  contributed by new stores,  competitive  factors,  any disruptions in
third-party  delivery  services  and general  economic  conditions  and consumer
confidence. Furthermore, a substantial portion of net sales is often realized in
the last month of a quarter with such net sales  frequently  concentrated in the
last weeks or days of a quarter, due in part to our promotional  schedule.  As a
result, we may be unable to adjust spending in a timely manner and our business,
financial condition and operating results may be materially  adversely affected.
Our  historical  results of operations may not be indicative of the results that
may be achieved for any future fiscal period.

At June 30, 2001, we had net operating loss  carryforwards  ("NOLs") for federal
income tax purposes of  approximately  $44.3 million  expiring between the years
2003 and 2021.  We expect  that  approximately  $1.4  million of these NOLs will
expire  unutilized due to an Internal  Revenue Code (IRC) Section 382 limitation
resulting from a prior ownership change.

FISCAL 2001 - SECOND QUARTER RESULTS

Net sales during the second quarter of 2001 were $62.7  million,  or 1.5% higher
than the prior year. Higher sales volumes were net of two contrasting factors:

o    An increase in sales volumes associated primarily with QVC shows, partially
     offset by
o    Slowing economic  conditions  reflected in consumer confidence measures and
     lower volumes of mall traffic and direct-marketing response.



                                       11


Operating losses for the second quarter of 2001 totaled $3.2 million as compared
to  operating  losses  of $5.4  million  for the  second  quarter  of 2000.  The
improvement in profitability is a direct result of successful  execution of cost
restructuring efforts. Specific cost reductions have included:

o    Lower return rates, contributing $600,000 to gross margins,
o    Sales  of  refurbished  return  product,  contributing  $600,000  to  gross
     margins,
o    Reductions of general and administrative expenses of $800,000, and
o    Restructuring of promotional programs and sales support to maintain product
     and operating margins.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the Company's results
of operations expressed as percentages of net sales.  Percentage amounts may not
total due to rounding.

                                          THREE MONTHS ENDED   SIX MONTHS ENDED
                                          ------------------  ------------------
                                          JUNE 30,   JULY 1,  JUNE 30,   JULY 1,
                                            2001      2000      2001      2000
                                          --------  --------  --------  --------

Net sales                                  100.0%    100.0%    100.0%    100.0%
Cost of sales                               35.7      35.4      35.9      35.5
                                          --------  --------  --------  --------
   Gross margin                             64.3      64.6      64.1      64.5
                                          --------  --------  --------  --------
Operating expenses:
   Sales and marketing                      59.6      62.4      63.6      60.8
   General and administrative                9.5      10.9      10.1      11.0
   Store closings/impairments                0.2       0.1       0.4       0.0
                                          --------  --------  --------  --------
       Total operating expenses             69.3      73.3      74.1      71.8
                                          --------  --------  --------  --------
Operating loss                              (5.1)     (8.7)    (10.0)     (7.4)
Other income (expense), net                 (0.6)      0.1      (0.3)      0.1
                                          --------  --------  --------  --------

Loss before income taxes                    (5.6)     (8.6)    (10.3)     (7.2)
Income tax expense (benefit)                 0.0      (3.0)      0.1      (2.5)
                                          --------  --------  --------  --------
Net loss                                    (5.6)%    (5.6)%   (10.4)%    (4.7)%
                                          ========  ========  ========  ========


COMPARISON  OF THREE  MONTHS ENDED JUNE 30, 2001 WITH THREE MONTHS ENDED JULY 1,
2000

NET SALES
Net sales  increased  1.5% to $62.7  million for the three months ended June 30,
2001 from $61.8  million for the three months ended July 1, 2000,  due primarily
to an increase in mattress unit sales with no significant  change in the average
mattress selling price, although slightly higher retail selling prices have been
offset  by lower  wholesale  price  points.  The  increase  in net sales was due
primarily to a $4.6  million  increase  from the  Company's  wholesale  channel,
offset by (i) a $2.2 million  decrease in direct  marketing  sales,  (ii) a $1.3
million decrease in company-owned  retail store sales,  comprised primarily of a
decrease in  comparable  store sales of $1.6  million,  and (iii) a $0.1 million
decrease in net sales from the Company's e-commerce channel.

GROSS MARGIN
Gross  margin  decreased  to 64.3% for the three months ended June 30, 2001 from
64.6% for the three months ended July 1, 2000  primarily due to increased  sales
in the wholesale  channel,  which contribute lower gross margin percentages than
retail sales channels,  partially  offset by higher gross margin  percentages in
retail sales channels,  due primarily to decreases in discounts  associated with
promotional offerings.

SALES AND MARKETING
Sales and  marketing  expenses  decreased  3.0% to $37.4  million  for the three
months ended June 30, 2001 from $38.5 million for the three months ended July 1,
2000,  and  decreased as a  percentage  of net sales to 59.6% from 62.4% for the
comparable  prior-year  period.  The decrease in the dollar  amount of sales and
marketing expenses was primarily due to decreases in selling expenses associated
with lower retail sales volumes and fewer stores,  partially offset by increases
in media and media production expense. Sales and marketing expenses decreased as
a percentage of net sales



                                       12


primarily due to decreased  compensation,  occupancy and other selling expenses,
partially offset by increased media and media production expenses.

GENERAL AND ADMINISTRATIVE
General and  administrative  expenses  decreased  10.4% to $6.0  million for the
three  months  ended June 30, 2001 from $6.7  million for the three months ended
July 1, 2000. The decrease in general and administrative  expenses was primarily
due to staffing  reductions  and reduced  occupancy  expense  resulting from the
consolidation of our two corporate offices.

OTHER INCOME (EXPENSE), NET
Other income decreased  $410,000 to approximately  $354,000 in other expense for
the three  months ended June 30, 2001 from $56,000 in other income for the three
months ended July 1, 2000.  The decrease is  primarily  due to interest  expense
associated  with the $11  million  in  long-term  debt  and  lower  cash  levels
affecting interest income in 2001.

INCOME TAX EXPENSE (BENEFIT)
Income tax expense  increased $1.9 million to $0 for the three months ended June
30, 2001 from a $1.9 million benefit for the three months ended July 1, 2000 due
to not  recognizing  an income tax benefit  from  operating  losses in the three
months ended June 30, 2001.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2001 WITH SIX MONTHS ENDED JULY 1, 2000

NET SALES
Net sales  decreased  7.0% to $128.2  million for the six months  ended June 30,
2001 from $137.9 million for the six months ended July 1, 2000, due primarily to
a decrease  in  mattress  unit sales with no  significant  change in the average
mattress selling price, although slightly higher retail selling prices have been
offset  by lower  wholesale  price  points.  The  decrease  in net sales was due
primarily to (i) a $9.9 million decrease in direct marketing sales,  (ii) a $4.6
million decrease from company-owned retail store sales, comprised primarily of a
decrease  in  comparable  store  sales of $5.1  million  and a decrease  of $2.1
million from the  elimination  of our roadshow  distribution  channel  partially
offset by a net increase of $2.6 million from non-comparable  stores and (iii) a
$0.8 million decrease in net sales from the Company's e-commerce channel, offset
by an  increase  of $5.7  million  in net  sales  from the  Company's  wholesale
channel.

GROSS MARGIN
Gross  margin  decreased  to 64.1% for the six months  ended June 30,  2001 from
64.5% for the six months ended July 1, 2000 primarily due to increased  sales in
the wholesale  channel,  which  contribute  lower gross margin  percentages than
retail sales channels,  partially  offset by higher gross margin  percentages in
retail sales channels,  due primarily to decreases in discounts  associated with
promotional offerings.

SALES AND MARKETING
Sales and marketing  expenses decreased 2.7% to $81.6 million for the six months
ended June 30, 2001 from $83.8  million  for the six months  ended July 1, 2000,
and  increased  as a  percentage  of net  sales  to  63.6%  from  60.8%  for the
comparable  prior-year  period.  The decrease in the dollar  amount of sales and
marketing expenses was primarily due to decreases in selling expenses associated
with lower retail sales volumes and fewer stores,  partially offset by increases
in media and media production expense. Sales and marketing expenses increased as
a percentage of net sales primarily due to increased media and media  production
expense.

GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 14.5% to $13.0 million for the six
months  ended June 30, 2001 from $15.2  million for the six months ended July 1,
2000. The decrease in general and  administrative  expenses was primarily due to
staffing   reductions  and  reduced   occupancy   expense   resulting  from  the
consolidation of our two corporate offices and severance costs associated with a
reduction in force in 2000.

OTHER INCOME (EXPENSE), NET
Other income decreased  $583,000 to approximately  $379,000 in other expense for
the six months  ended June 30, 2001 from  $204,000  in other  income for the six
months ended July 1, 2000.  The decrease is due to interest  expense  associated
with the $11 million in financing that closed in June 2001 and lower cash levels
affecting interest income in 2001.



                                       13


INCOME TAX EXPENSE (BENEFIT)
Income tax expense  increased  $3.6 million to $115,000 for the six months ended
June 30, 2001 from a $3.5 million  benefit for the six months ended July 1, 2000
due to not recognizing an income tax benefit from operating  losses in the three
months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity has been the sale of equity securities. Our most
recent  source of capital  resources  has been from the  completion of our $11.0
million  convertible debt offering in June 2001. We completed our initial public
offering in December  1998,  resulting in net proceeds of $44.6  million,  which
have been used for (i) the  repayment  of $15.0  million of debt,  (ii)  capital
expenditures related to expansion of retail stores,  manufacturing  capabilities
and  development  of  information  technology  systems,  (iii) the repurchase of
1,220,000  shares of Company  common  stock for $12.7  million and (iv)  working
capital needs.

Net cash used in operating activities for the six months ended June 30, 2001 was
approximately $4.8 million and consisted  primarily of the net loss adjusted for
non-cash expenses, partially offset by decreases in inventories and increases in
accounts payable. Net cash used in operating activities for the six months ended
July 1, 2000 was approximately  $2.3 million and consisted  primarily of the net
loss adjusted for non-cash expenses and increases in inventory  partially offset
by increases in accounts payable and receipt of an income tax refund.

Net cash provided by investing activities was approximately $1.6 million for the
six months ended June 30, 2001 and $3.1 million for the six months ended July 1,
2000.  Investing  activities  consisted  primarily  of purchases of property and
equipment for new retail stores and information  technology  system  development
costs in 2001 and  purchases of property and  equipment  for new retail  stores,
information technology systems and manufacturing  facilities in 2000. In 2001 we
liquidated  $4.0  million  of  marketable   securities  to  support   continuing
operations, while in 2000 we liquidated $10.7 million.

Net cash provided by financing  activities was  approximately  $10.5 million for
the six months  ended June 30, 2001 which  consisted  primarily  of net proceeds
from  issuance of  long-term  debt and $404,000 for the six months ended July 1,
2000 from the issuance of common stock.

Financial  instruments that potentially subject the Company to concentrations of
credit risk  consist  principally  of  investments.  The  counterparties  to the
agreements consist of government agencies and various major corporations of high
credit  standing.  The Company  does not believe  there is  significant  risk of
non-performance by these counterparties because the Company limits the amount of
credit exposure to any one financial institution and any one type of investment.

The Company had negative working capital of approximately  $11.0 million at June
30,  2001,  and $12.4  million at December  30,  2000.  The Company has incurred
negative  cash flows and has incurred  pretax  losses from  operations  of $13.2
million for the six months  ended June 30,  2001 and $26.0  million for the year
ended  December 30, 2000.  Based on these factors,  among others,  the Company's
auditors  have  included an emphasis  paragraph in their  opinion  regarding the
Company's fiscal 2000 financial  statements to express  substantial  doubt about
the Company's ability to continue as a going concern.

The Company's continuation as a going concern is dependent,  among other things,
upon  obtaining  positive  cash flow from  operations  and upon its  ability  to
generate  or  obtain  additional  working  capital.  Our  ability  to  return to
profitability  and  positive  cash  flow,  to meet our short  term and long term
working capital needs, and to generate or obtain additional  working capital are
dependent,  in large part, on our ability to improve sales trends, which will be
impacted by the length and severity of the current economic downturn.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not  applicable.



                                       14


PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Select  Comfort  and  certain  former  officers  and  directors  were  named  as
defendants in a class action lawsuit  initially  filed on June 1, 1999 on behalf
of shareholders in U.S. District Court in Minnesota.  The named plaintiffs,  who
purport to act on behalf of a class of purchasers of our common stock during the
period  from  December  4, 1998 to June 7,  1999,  charge  the  defendants  with
violations of federal  securities  laws.  The suit alleges that we and the named
directors and officers failed to disclose or misrepresented  certain information
concerning our business during the class period.  The complaint does not specify
an amount of damages claimed. We believe that the complaint is without merit and
intend to vigorously defend the claims.

The Company and the individual defendants brought a motion to dismiss all claims
on November 10, 1999. The motion was heard by a magistrate judge on December 21,
1999. On January 27, 2000, the magistrate  recommended  that the claims based on
Section  11  of  the  federal  securities  laws  be  dismissed.  The  magistrate
recommended  that the  motion to dismiss  be denied  with  respect to the claims
based on Rule 10b-5 of the federal  securities  laws. In February 2000, both the
plaintiffs   and  the   defendants   formally   objected  to  the   magistrate's
recommendation.  The objection was made to the United States  District  Court in
Minnesota.  On May 12,  2000,  the United  States  District  Court in  Minnesota
adopted the  recommendation of the magistrate and denied the defendants'  motion
to dismiss the Rule 10b-5 claims.  The Court also adopted the  recommendation of
the magistrate and dismissed the plaintiff's Section 11 claims without prejudice
and with leave to amend.

On March 31, 2000, the Company and certain of its former  officers and directors
were  named as  defendants  in a class  action  lawsuit  filed on  behalf of the
Company's  shareholders in U.S. District Court in Minnesota  asserting identical
factual  allegations as the  consolidated  complaint  described  above. The suit
alleges claims based on Sections 11 and 12(a)(2) of the federal securities laws.
The  complaint  does not  specify  an amount of  damages  claimed.  The  Company
believes this  complaint is without  merit and intends to vigorously  defend the
claims.  The above two class  actions  were  consolidated  by the United  States
District Court Magistrate on July 24, 2000.

On January 30, 2001, the plaintiffs made a motion to certify a class.  The class
certification motion is pending. Discovery has begun.

We have agreed to indemnify the individual  defendants and to advance reasonable
expenses  of  defense  of the  litigation  to the  individual  defendants  under
applicable Minnesota corporate law. To date, we have paid an aggregate of $3,891
to the law firm of Briggs & Morgan on behalf of defendant H. Robert Hawthorne.

We are involved in other various claims, legal actions,  sales tax disputes, and
other complaints  arising in the ordinary course of business.  In the opinion of
management,  any losses that may occur from these other  matters are  adequately
covered  by  insurance  or  are  provided  for  in  the  consolidated  financial
statements  and the  ultimate  outcome of these  other  matters  will not have a
material effect on the consolidated  financial position or results of operations
of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.



                                       15


ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS.

         EXHIBIT
         NUMBER        DESCRIPTION

          10.1         Note Purchase Agreement dated as of June 1, 2001 by and
                       among Select Comfort Corporation and the Purchasers named
                       therein.

          10.2         Form of Note issued under the Note Purchase Agreement.

          10.3         Form of Warrant issued under the Note Purchase Agreement.

          10.4         Security Agreement dated June 6, 2001 executed by Select
                       Comfort Corporation in favor of St. Paul Venture Capital
                       VI, LLC.

          10.5         Pledge Agreement dated June 6, 2001 executed by Select
                       Comfort Corporation in favor of St. Paul Venture Capital
                       VI, LLC.

          10.6         Patent and Trademark Security Agreement dated June 6,
                       2001 executed by Select Comfort Corporation in favor of
                       St. Paul Venture Capital VI, LLC.

          10.7         Registration Rights Agreement dated June 6, 2001 by and
                       among Select Comfort Corporation and the securityholders
                       named therein.

          10.8         Select Comfort Corporation 1997 Stock Incentive Plan, as
                       amended and restated through May 1, 2001.



     (b)  REPORTS ON FORM 8-K

          During the  quarter  ended June 30,  2001,  the  Company  filed  three
          Current Reports on Form 8-K. The Reports consisted of the following:

          (i)  Current  Report  filed April 16, 2001,  announcing  the filing of
               Form 10-K and final  audited  results for the fourth  quarter and
               year ended December 30, 2000.

          (ii) Current  Report  filed  April 24,  2001,  announcing  comments on
               unaudited results for the first quarter ended March 31, 2001.

          (iii)Current  Report  filed  June  6,  2001,  announcing  securing  of
               commitments for financing.

          (iv) Current  Report  filed  July 12,  2001,  announcing  comments  on
               unaudited results for the second quarter ended June 30, 2001.


                                       16


                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                    SELECT COMFORT CORPORATION



                                    /s/ William R. McLaughlin
                                  ----------------------------------------------
August  14, 2001                    William R. McLaughlin
                                    President and Chief Executive Officer
                                    (principal executive officer)




                                    /s/ James C. Raabe
                                  ----------------------------------------------
                                    James C. Raabe
                                    Chief Financial Officer
                                    (principal financial and accounting officer)



                                       17


                                  EXHIBIT INDEX


EXHIBIT NUMBER                 DESCRIPTION                             LOCATION
--------------     ------------------------------------     -----------------------------
                                                      
    10.1           Note Purchase Agreement dated as of      Filed herewith electronically
                   June 1, 2001 by and among Select
                   Comfort Corporation and the
                   Purchasers named therein

    10.2           Form of Note issued under the Note       Filed herewith electronically
                   Purchase Agreement

    10.3           Form of Warrant issued under the         Filed herewith electronically
                   Note Purchase Agreement

    10.4           Security Agreement dated June 6,         Filed herewith electronically
                   2001 executed by Select Comfort
                   Corporation in favor of St. Paul
                   Venture Capital VI, LLC

    10.5           Pledge Agreement dated June 6, 2001      Filed herewith electronically
                   executed by Select Comfort
                   Corporation in favor of St. Paul
                   Venture Capital VI, LLC

    10.6           Patent and Trademark Security            Filed herewith electronically
                   Agreement dated June 6, 2001
                   executed by Select Comfort
                   Corporation in favor of St. Paul
                   Venture Capital VI, LLC

    10.7           Registration Rights Agreement dated      Filed herewith electronically
                   June 6, 2001 by and among Select
                   Comfort Corporation and the
                   securityholders named therein

    10.8           Select Comfort Corporation 1997          Filed herewith electronically
                   Stock Incentive Plan, as amended
                   and restated through May 1, 2001


                                       18