The best way is to overwrite the theme folder via your FTP. If you don’t want to lose all changes that you customized, before updating the latest version, please mark and copy all files that you edited, then update to the version 1.0.7.
After finishing, you add all customized code to your theme.
Note: you can find here for the document guide on how to upgrade the theme: http://premium.wpmudev.org/blog/how-to-upgrade-a-wordpress-theme-even-if-its-customized/
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