CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION

Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made below. These include, but are not limited to, competitive factors, technological and product developments, market demand, economic conditions, the resolution of litigation involving us and our ability to comply with the terms of our credit facilities. Further information on these and other factors which could affect our financial results can be found in our reports filed with the Securities and Exchange Commission, including the Annual Report on Form 10-K, including Part I thereof, our Current Reports on Form 8-K, this Form 10-Q and the proxy statement dated March 26, 2009.

OVERVIEW AND OUTLOOK

We are a New York corporation that develops, manufactures and markets high performance, professional quality exercise equipment products for the commercial market and, to a lesser extent, the premium segment of the consumer market.

We estimate that commercial sales represent more than 90% of our total net sales. Our financial performance can be affected when, in times of economic uncertainty, our commercial customers, particularly fitness clubs, become cautious in making expansion and other capital investments and reduce their expenditures for items such as the fitness equipment offered by us.

Commencing with the fourth quarter of 2008, our net sales have declined compared to the corresponding period of the prior year, with net sales in the first nine months of 2009 about 21% below net sales in the corresponding 2008 period. We believe that this sales decline largely reflects our commercial customers, particularly fitness clubs, being cautious in making capital investments due to economic conditions, both generally and in the fitness industry.

While we cannot be certain how long these conditions will persist or the extent that these conditions will affect our financial performance, we expect sales to continue to be negatively impacted by the economy. We further expect that sales will rebound as the economy recovers.

We have taken various steps to reduce expenses in response to the decline in our sales. These steps have included a first quarter 2009 work force reduction of about 5% and a second quarter 2009 wage reduction of 3% or 5% for all employees. In addition, at the request of our outside Board members, a corresponding 5% reduction in director fees will be in effect during the period of the employee wage reduction. We intend to monitor general economic conditions and our sales performance and, if warranted, may effect further cost saving measures during the year.

We failed to meet certain financial covenants contained in our credit facilities at March 28 and June 27, 2009. We received waivers with respect to these failures and have renegotiated our financial covenants with our lenders. At September 26, 2009 we were in compliance with each credit facility's financial covenants as currently in effect and we believe that we will remain in compliance with these financial covenants for the foreseeable future.

The foregoing statements are based on current expectations. These statements are forward-looking and actual results may differ materially. In particular, the continued uncertainties in U.S. and global economic conditions and in the fitness industry make it particularly difficult to predict product demand and other related matters and may preclude us from achieving expected results.

RESULTS OF OPERATIONS

NET SALES

Our net sales decreased $6,767,000, or 19%, to $28,986,000 for the third quarter of 2009 from $35,753,000 for the third quarter of 2008. For the nine months ended September 26, 2009, net sales decreased $23,007,000, or 21%, to $85,662,000 from $108,669,000 compared to the same period in 2008. For the third quarter of 2009, sales of cardiovascular products decreased $2,770,000, or 15%, to $16,392,000, sales of strength products decreased $3,521,000, or 26%, to $10,083,000 and freight, parts and other sales decreased $476,000 or 16%, to $2,511,000 compared to the same period in 2008. For the nine months ended September 26, 2009, sales of cardiovascular products decreased $8,912,000, or 16%, to $47,460,000, sales of strength products decreased $12,825,000, or 30%, to $29,643,000 and freight, parts and other sales decreased $1,270,000 or 13%, to $8,559,000 compared to the same period in 2008. The sales decline was generally throughout our product offerings and was reflective of economic conditions, generally and in the fitness industry.

GROSS MARGIN

Gross margin for the third quarter of 2009 decreased by .7% to 31.6% from 32.3% for the same period in 2008. The decrease was caused primarily by higher warranty expense (1.2%) and lower overhead absorption due to sales volume (.4%), partially offset by lower freight costs (.9%).

Gross margin for the nine months ended September 26, 2009 decreased by 5.2% to 28.3% from 33.5% for the same period in 2008. The decrease was caused primarily by higher material costs (4.6%) and warranty expense (1.3%), partially offset by lower freight costs (.7%).

The price of steel, a major component of our products, fluctuates from time to time. Prices for steel were higher during the first six months of 2009 compared to the corresponding period of 2008. The price of steel started to decline during the second quarter of 2009 and steel costs for the third quarter of 2009 were slightly favorable compared to the third quarter of 2008. We cannot predict the future impact of steel prices on our results.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased $1,603,000, or 15%, to $8,997,000 in the third quarter of 2009 compared to $10,600,000 in the third quarter of 2008, predominantly due to a decrease in domestic and international selling and marketing expenses ($850,000) and a decrease in product development costs ($327,000). For the nine months ended September 26, 2009, selling, general and administrative expenses decreased by $4,308,000, or 13%, to $27,932,000 compared to $32,240,000 for the comparable period in 2008, predominantly due to a decrease in domestic and international selling and marketing expenses ($2,085,000) and a decrease in product development costs ($1,769,000). In response to economic conditions we have effectuated various cost reductions. We expect that these steps will result in selling, general and administrative expenses continuing at a reduced level for the balance of 2009. Selling, general and administrative expenses represented 31% and 33% of sales for the three and nine months ended September 26, 2009 and 30% of sales for the three and nine months ended September 27, 2008, respectively.

NET INTEREST EXPENSE

Net interest expense increased by $1,000 in the third quarter of 2009 compared to the corresponding period of 2008. For the nine months ended September 26, 2009, net interest expense decreased by $24,000 primarily due to interest earned from a financing program established in 2009 offset by higher debt balances and interest rates.

INCOME TAXES

We recorded an income tax expense (benefit) of ($228,000) and ($1,208,000) for the three and nine months ended September 26, 2009, respectively and $305,000 and $1,422,000 for the three and nine

months ended September 27, 2008, respectively. In 2002, we established a valuation allowance against all of our deferred tax assets. On a quarterly basis, we reevaluate the need for this valuation allowance based upon the existence of various factors. Based on this reevaluation, we reduced the valuation allowance by $5,244,000 effective September 29, 2007. The effective tax rate (benefit) was (155.1%) and 47.3% for the three months ended September 26, 2009 and September 27, 2008, respectively. The effective tax rate benefit for the third quarter of 2009 was impacted by the increase in the year-to-date effective tax (benefit) rate. The computation for the quarter includes the recording of the reconciliation of the prior year income tax return to the tax provision, as well as normal fluctuations in the year-to-date computation including non-deductible foreign losses and other non-deductible expenses. The effective tax rate (benefit) was (26.0%) and 44.3% for the nine months ended September 26, 2009 and September 27, 2008, respectively. The low tax benefit rate for 2009 is primarily due to the effects of non-deductible foreign losses. Actual cash outlays for taxes continue to be reduced by the available operating loss carry forwards.

As of December 31, 2008, U.S. federal operating loss carryforwards of approximately $16,009,000 were available to us to offset future taxable income and, as of such date, we also had foreign net operating loss carryforwards of $4,426,000, federal alternative minimum tax credit carryforwards of $670,000 and federal research and development tax credit carryforwards of $251,000. The net deferred tax asset balance of $14,420,000 at September 26, 2009 represents the amount that we believe is more-likely-than-not to be realized, and the remaining valuation allowance at September 26, 2009 is $1,909,000. If the estimates and related assumptions relating to the likely utilization of the deferred tax asset change in the future, the valuation allowance may change accordingly.

We adopted the provisions of FASB ASC 740-10-15 on January 1, 2007. There was no impact on our financial position upon adoption and there have been no material changes through September 26, 2009.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of September 26, 2009, we had working capital of $18,837,000 compared to $20,929,000 at December 31, 2008. The net decrease in working capital is primarily due to the effects of operating losses incurred during the period.

For the nine months ended September 26, 2009, we generated $101,000 of cash from operating activities compared to $8,335,000 for the nine months ended September 27, 2008. The decrease in cash provided by operating activities is primarily due to a net loss in 2009 compared to the prior period net income, a decrease in accounts payable and accrued expenses and a smaller decrease in accounts receivable in 2009 than in the corresponding period of 2008.

Cash used in investing activities of $434,000 during the nine months ended September 26, 2009 consisted of purchases of computer hardware and infrastructure of $222,000 and manufacturing tooling and equipment of $212,000, primarily for the manufacture of new products. Cash used in investing activities during the nine months ended September 27, 2008 consisted of purchases of manufacturing tooling and equipment of $3,978,000, primarily for the manufacture of new products, and computer hardware and infrastructure of $1,448,000. We currently expect that our capital expenditures in the fourth quarter of 2009 will not exceed $500,000.

Cash used in financing activities was $126,000 for the nine months ended September 26, 2009, consisting primarily of $1,403,000 of term loan repayments and $451,000 for purchases of treasury stock through a repurchase program offset by a $1,000,000 Wachovia term loan and $750,000 of net revolver borrowings. Cash used in financing activities was $2,011,000 for the nine months ended September 27, 2008, consisting primarily of debt repayments.

We have credit facilities with RBS Citizens, National Association ("Citizens") and Wachovia Bank, N.A. ("Wachovia"). Our Citizens Credit Agreement provides a revolving line of credit of up to the lesser of a ceiling or an amount determined by reference to a borrowing base. Our Citizens Loan Agreement provided for a $13,000,000 real estate loan which was advanced in 2007 to finance the acquisition of our

Owatonna facility. We entered into the Wachovia Loan Agreement in 2007, providing for a term loan to finance the acquisition of machinery and equipment. The Wachovia Loan Agreement was supplemented in 2008 and 2009 to provide additional term loans to finance the acquisition of machinery and equipment. A total of $5,000,000, $1,975,000, and $1,000,000, respectively, was advanced under the initial, second and third Wachovia term loans.

The Citizens revolving line of credit is secured by our accounts receivable and inventory, and matures July 1, 2011. The Citizens real estate loan is secured by a mortgage on the Owatonna facility, is cross -collateralized by our accounts receivable and inventory and matures on July 2, 2014. The Wachovia loans are secured by our equipment. The first Wachovia term loan matures on March 1, 2013, the second term loan matures on January 1, 2014 and the third term loan matures on December 31, 2009.

At September 26, 2009, there were $750,000 in revolving credit loans, a $11,873,000 real estate loan and $6,212,000 in term loans. Availability under the revolving loan fluctuates daily. At September 26, 2009, there was $4,250,000 in unused availability under the working capital revolving loan facility.

Our credit facilities include financial covenants. We failed to meet certain of these covenants at March 28 and June 27, 2009. We obtained waivers from each lender for the quarters then ended and also have entered into amendments of each credit facility which among other things modified the financial covenants. At September 26, 2009, we were in compliance with each credit facility's financial covenants as currently in effect and we believe that we will remain in compliance with these financial covenants for the foreseeable future.

In November 2008, we announced that our Board of Directors authorized a stock repurchase program of up to one million shares of our common stock. There is no requirement that any level of purchases up to the maximum be made under this program, and the timing, amount and cost of any purchase depends upon various factors, including our stock price and market conditions. Through September 26, 2009, 531,200 shares had been repurchased under this program with an aggregate cost to us of $703,000. Pursuant to our credit facilities, we are currently restricted in making further purchases of our shares.

We rely upon cash flows from our operations and borrowings under our credit facilities to fund our working capital and capital expenditure requirements. A decline in sales or margins or a failure to remain in compliance with the terms of our credit facilities could result in having insufficient funds for such purposes. We believe that our expected cash flows and the availability under our revolving line of credit are sufficient to fund our general working capital and capital expenditure needs for at least the next 12 months.

As of December 31, 2008, we had approximately $20,435,000 in net operating loss carry forwards, substantially all of which will be available to offset future taxable income.

CONTRACTUAL OBLIGATIONS

The following is an aggregated summary of the Company's obligations and
commitments to make future payments under agreements:



                                                 Less Than One     One to Three     Four to Five     After Five
                                    TOTAL            Year             Years            Years           Years
Contractual obligations:
Debt                             $ 18,835,000   $     2,915,000   $    3,830,000   $    2,067,000   $ 10,023,000
Interest due including impact
of interest rate swaps (a)          5,149,000         1,301,000        2,248,000        1,600,000              -
Operating lease commitments           749,000           446,000          268,000           35,000              -
Purchase obligations               18,280,000        14,630,000        3,650,000                -              -

                                 $ 43,013,000   $    19,292,000   $    9,996,000   $    3,702,000   $ 10,023,000

(a) This includes fixed rates of 8.75% and 8.06% per the interest rate swap agreements.

We have agreements with our named executive officers that provide for severance payments to the officer in the event the employee is terminated without cause or, in certain situations, the officer resigns after a change of control. The estimated maximum cash exposure under these agreements, assuming the employment of the officers terminated effective as of December 31, 2008, was $3,095,000. The actual amounts to be paid can only be determined at the time of the executive officer's separation from the Company.

OFF-BALANCE SHEET ARRANGEMENTS

We have a lease financing program whereby we arrange equipment leases and other financing for certain commercial customers for selected products. These leases are sales-type leases and are generally for terms of three to five years, at which time title transfers to the lessee. While most of these financings are without recourse, in certain cases we may offer a guarantee or other recourse provisions. At September 26, 2009, the maximum contingent liability under all recourse provisions was approximately $5,738,000. A reserve for estimated losses under recourse provisions of $1,067,000 has been recorded based upon historical experience and review of specific leases in default, and is included in accrued liabilities at September 26, 2009.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management 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 the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to the allowance for doubtful accounts, realizability of inventory, reserves for warranty obligations, reserves for legal matters and product liability, and valuation of deferred tax assets. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, which could materially impact the Company's results of operations and financial position. These critical accounting policies and estimates have been discussed with the Company's audit committee.

Allowance for doubtful accounts. Management performs ongoing credit evaluations of customers and adjusts credit limits based upon payment history and the customer's current credit worthiness, as determined by a review of their current credit information. Management continuously monitors collections and payments from customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. If the financial condition of a specific customer or the Company's general customer base were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Realizability of inventory. The Company values inventory at the lower of cost or market. Management regularly reviews inventory quantities on-hand and records a provision for excess and obsolete inventory based primarily on estimated forecasts of product demand and historical usage, after considering the impact of new products. If actual market conditions and product demand are less favorable than projected, additional inventory write-downs may be required.

Warranty reserve. All products are warranted for one year labor and up to ten years for structural frames. Warranty periods for parts range from one to ten years depending on the part and the type of equipment. A warranty liability is recorded at the time of product sale based on estimates that are developed from historical information and certain assumptions about future events. Future warranty obligations are affected by product failure rates, usage and service costs incurred in addressing warranty claims. These factors are impacted by the level of new product introductions and the mix of equipment sold to the commercial and consumer markets. If actual warranty costs differ from management's estimates, adjustments to the warranty liability would be required.

Legal matters. The Company records a reserve related to certain legal matters when it is probable that a loss has been incurred and the range of such loss can be determined. With respect to other matters, management has concluded that a loss is only possible or remote and, therefore, no loss is recorded. As additional information becomes available, the Company will continue to assess whether losses from legal matters are probable, possible, or remote, and the adequacy of accruals for probable loss contingencies.

Product liability reserve. Due to the nature of its products, the Company is involved in certain pending product liability claims and lawsuits. The Company maintains product liability insurance coverage subject to deductibles. Reserves for self-insured retention, including claims incurred but not yet reported, are included in accrued liabilities in the accompanying condensed consolidated balance sheets, based on management's review of outstanding claims and claims history and consultation with its third-party claims administrators. If actual results vary from management's estimates, adjustments to the reserve would be required.

As of December 31, 2008, the Company accrued $5,000,000 for a product liability claim and a corresponding receivable for a liability claim estimated to be recoverable under the Company's insurance policies. On a quarterly basis, the company reviews the product liability claim and corresponding receivable. As of September 26, 2009, the balance was reduced to $4,644,000. This accrual was included as a component of other liabilities and the insurance recoverable was included as a component of other assets at September 26, 2009 and December 31, 2008.

Valuation of deferred tax assets. In 2002, the Company established a full valuation allowance against its net deferred tax assets. On a quarterly basis, management reevaluates the need for this valuation allowance due to the existence of various factors. Based on this reevaluation, the Company reduced the valuation allowance by $5,377,000 in 2007. The net deferred tax asset balance of $14,420,000 at September 26, 2009 represents the amount that management believes is more-likely-than-not to be realized and the remaining valuation allowance at September 26, 2009 is $1,909,000. Management will continue to assess the need for the remaining valuation allowance in future periods. Approximately $37,000,000 of income before income taxes is needed to fully realize the Company's recorded net deferred tax asset and $42,000,000 of future taxable income is needed to fully realize the Company's deferred tax assets. The difference between total deferred tax assets and the net operating loss carry forwards and credits is primarily book versus tax differences of various expenses. If the estimates and related assumptions relating to the likely utilization of the deferred tax asset change in the future, the valuation allowance may change accordingly.