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, our ability to comply with the terms of our credit facilities, competitive factors, technological and product developments, market demand, economic conditions and the resolution of litigation involving the Company. 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 April 12, 2012.

OVERVIEW AND OUTLOOK

We are a New York corporation that develops, manufacturers 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.

We experienced a sales decline in 2009, with sales stabilizing in 2010. Our net sales for 2011 and the first nine months of 2012 were 14% and 6%, respectively, above net sales for the corresponding prior periods. While we believe that improving economic and industry conditions and our marketing and new product initiatives have been contributing factors to this sales growth, we cannot be certain of the extent that a reversal of improvement in economic conditions or a prolonged period of uneven sub-par economic growth in the US, Europe or other areas in which we do business would affect our financial performance.

In December 2010, the jury in the Barnhard product liability suit described elsewhere in this Report apportioned a significant amount of liability to us. In February 2012, we entered into a settlement agreement with the plaintiff. Pursuant to this settlement, we paid to the plaintiff, net of insurance and contribution by the third party defendant, $18,500,000 and agreed to pay an additional sum of approximately $1,000,000 over seven years. To fund a portion of these payments we incurred additional debt from our primary lender.

On October 17, 2012, our Board of Directors approved an Agreement and Plan of Merger pursuant to which all of our outstanding common stock, exclusive of shares owned by the Company's largest shareholder, UM Holdings, Ltd. ("UM"), its subsidiaries, and John Aglialoro and Joan Carter, would be converted into $2.55 per share payable in cash, in a "going private" merger transaction. John Aglialoro is our Chairman and CEO and Joan Carter is a director of the Company, and together with UM own approximately 49.4% of our outstanding common stock.

If the merger is approved and consummated, our Company will be solely owned by UM, Mr. Aglialoro and Ms. Carter. As a result, shares of our common stock will be deregistered under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), we will no longer be subject to the reporting requirements of the Exchange Act; and our shares will no longer trade on any market.

Consummation of the merger is subject to various conditions, including approval of the Merger Agreement by the affirmative vote of two-thirds of all outstanding shares and a majority of the shares

held by the public shareholders, and consummation of financing. While there can be no assurance that the merger will be approved by our shareholders or consummated, we anticipate that we will seek approval of the merger at a Special Shareholders Meeting to be held during the first quarter of 2013 and if approval is obtained the transaction will close shortly thereafter.

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 future events and may preclude us from achieving expected results.

RESULTS OF OPERATIONS

NET SALES

Our net sales increased $890,000 or 3%, to $34,368,000 for the third quarter of 2012 versus $33,478,000 for the third quarter of 2011. For the nine months ended September 29, 2012, net sales increased $5,373,000 or 6%, to $102,427,000 from $97,054,000 compared to the same period in 2011. For the third quarter of 2012, sales of cardiovascular products increased $1,290,000 or 7% to $18,954,000, and parts, freight and other sales increased $272,000 or 8% to $3,826,000, offset by sales of strength products which decreased $672,000 or 6% to $11,588,000 compared to the same period in 2011. For the nine months ended September 29, 2012, sales of cardiovascular products increased $4,748,000 or 9%, to $57,336,000 and parts, freight and other sales increased $1,689,000 or 16%, to $12,242,000, offset by decreases in sales of strength product of $1,064,000, or 3%, to $32,849,000 compared to the same period in 2011. The sales results for the nine months ended September 29, 2012 were aided by an additional five business days in 2012 compared to 2011.

GROSS MARGIN

Gross margin for the third quarter of 2012 decreased by 1.9% to 33.2%, from 35.1% for the same period in 2011. Gross margin for the nine months ended September 29, 2012 decreased by 3% to 32.0%, from 35.0% for the same period in 2011. Warranty expense increased by 0.4% and 0.7% of sales in the quarter and nine months ended September 29, 2012, respectively, largely as a result of increased sales of recently introduced cardiovascular products. Additionally, margins in 2012 were negatively impacted by our recently introduced treadmill and Arc Trainer products, which traditionally have initial higher manufacturing costs. We expect to achieve cost improvements in these products over time.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased $250,000, or 2%, to $10,154,000 in the third quarter of 2012 compared to $10,404,000 in the third quarter of 2011, predominantly due to lower marketing, trade show and advertising costs. For the nine months ended September 29, 2012, selling, general and administrative expenses increased by $680,000, or 2%, to $31,498,000 compared to $30,818,000 for the comparable period in 2011. The increase for the nine month period was predominantly due to higher sales and marketing costs, including initiatives directed to marketing new products, and additional sales and marketing personnel. Selling, general and administrative expenses represented 30% and 31% of sales for the three and nine months ended September 29, 2012, and 31% and 32% of sales for the three and nine months ended September 24, 2011, respectively.

LITIGATION CHARGE (REDUCTION)

The 2011 litigation charges predominantly relate to statutory interest accruing on the Barnhard product liability judgment. The 2012 litigation charge (reduction) relates to further adjustments to the Barnhard litigation reserve following settlement of the matter. We do not expect additional Barnhard related adjustments going forward. See Note 12 to our Consolidated Financial Statements included herein.

NET INTEREST EXPENSE

Net interest expense increased by $91,000 in the third quarter of 2012 compared to the corresponding period of 2011. For the nine months ended September 29, 2012, net interest expense increased by $165,000. The increases are due to the additional bank debt incurred during the first quarter of 2012. We expect net interest expense for the balance of 2012 to exceed net interest expense for the corresponding periods of 2011, due to this additional bank debt. See Note 7 to our Consolidated Financial Statements included herein.

INCOME TAXES

A valuation allowance for deferred tax assets is recorded to the extent it cannot be determined that the realization of these assets is more likely than not. We established a valuation allowance to fully offset net deferred tax assets as of December 31, 2010 due to the uncertainty created by the unfavorable Barnhard jury verdict (see Note 12 to our Consolidated Financial Statements). Since the March 2012 settlement payment for the Barnhard litigation will increase our net operating loss carryforwards by $18,500,000, and since we had cumulative losses during the three year period ended September 29, 2012, it was determined that a valuation allowance against the entire amount of deferred tax assets continues to be appropriate as of September 29, 2012. Income tax benefit recorded for 2012 is the reduction in the amount of federal and state income taxes paid in the prior year compared to the amount provided, primarily due to timing of expense payments, offset by the amount of state tax that is currently payable. A 2011 refund of federal alternative minimum taxes paid in prior years of $257,000, recorded as a benefit in 2011 since it was fully reserved as of December 31, 2010, was offset by state and federal alternative minimum taxes of $108,000 that were currently payable. Accordingly, we recorded an income tax benefit of ($74,000) and ($49,000) for the three and nine months ended September 29, 2012, and an income tax expense of $22,000 and an income tax benefit of ($149,000) for the three and nine months ended September 24, 2011, respectively. The effective tax benefit rate was (16.5%) and (24.7%) for the nine months ended September 29, 2012 and September 24, 2011, respectively. Actual cash outlays for taxes continue to be reduced by the available operating loss carryforwards and credits.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of September 29, 2012, we had working capital of $16,997,000 compared to working capital of $7,862,000 at December 31, 2011. The increase in working capital is primarily due to the net effect of the settlement of the Barnhard litigation during the first quarter of 2012. The Barnhard settlement payments were primarily funded with cash and the proceeds of long-term debt, and resulted in the elimination of the related litigation reserve.

For the nine months ended September 29, 2012, we used $13,936,000 of cash flow from operating activities compared to generating $5,968,000 of cash flow for the nine months ended September 24, 2011. The decrease in cash flow is predominantly due to the net effect of the settlement of the Barnhard litigation during the first quarter of 2012, offset in part by changes in working capital in 2012 as compared to 2011.

Cash used in investing activities of $2,408,000 during the nine months ended September 29, 2012 consisted of purchases of manufacturing tooling and equipment of $1,894,000, primarily for the manufacture of new products, and computer hardware and infrastructure of $514,000. Cash used in investing activities of $1,954,000 during the nine months ended September 24, 2011 consisted of purchases of manufacturing tooling and equipment of $1,389,000, primarily for the manufacture of new products and computer hardware and infrastructure of $565,000. While capital expenditures for the balance of 2012 are expected to be approximately $1,300,000, the timing and amount of these expenditures will depend on economic conditions and results of our operations and our other cash needs.

Cash provided by financing activities was $6,567,000 for the nine months ended September 29, 2012, consisting of the $8,122,000 Medway real estate loan and proceeds from the exercise of stock options of $7,000, offset by $1,411,000 of principal payments on the Citizens equipment facility and real estate loans and deferred financing costs of $151,000. Cash used in financing activities was $1,140,000 for the nine months ended September 24, 2011, consisting of principal payments on the Citizens equipment facility and real estate loan.

We have credit facilities with RBS Citizens, National Association and RBS Asset Finance, Inc. (collectively, "Citizens"). 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. In March 2012, the Citizens Credit Agreement and Loan Agreement were amended to, among other things, increase the ceiling to our revolving line of credit under the Credit Agreement to $18,000,000 and provide under the Loan Agreement an additional $8,122,000 real estate loan on our Medway facility. This additional borrowing capacity was utilized in part to finance a portion of the settlement payments in the Barnhard product liability suit (see Note 12 to our Consolidated Financial Statements). Our Citizens equipment facility provided in 2010 $4,999,000 of equipment lease financing, the proceeds of which were used to retire equipment term loans and related obligations.

The Citizens real estate loans and revolving line of credit are secured by substantially all of our assets. The Citizens equipment facility is secured by our equipment, is cross-collateralized by our accounts receivable and inventory and matures on July 1, 2015. The Citizens Owatonna real estate loan matures on July 2, 2014, the Medway real estate loan matures on March 15, 2017 and the Citizens revolving line of credit matures on July 2, 2013.

At September 29, 2012, there were no outstanding revolving credit loans, $18,164,000 in real estate loans and $2,836,000 under the Citizens equipment facility. Availability under the revolving loan fluctuates daily based on the borrowing base, and is reduced by outstanding advances and letters of credit. At September 29, 2012, the net availability under the revolving line of credit was $16,869,000.

At September 29, 2012, we were in compliance with all financial covenants included within our credit facilities. While there can be no assurance, we believe that we will remain in compliance with our financing agreements during at least the next 12 months.

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

As of December 31, 2011, we had approximately $16,161,000 in U.S. Federal and non-U.S. net operating loss carryforwards, substantially all of which will be available to offset future taxable income. These loss carryforwards do not include the charges relating to the settlement in March 2012 of the Barnhard matter, as these charges were not deductible for income tax purposes until 2012.

CONTRACTUAL OBLIGATIONS

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



                                                  Less Than One      One to Three       Four to Five
                                   TOTAL              Year               Years             Years          After Five Years
Contractual obligations:
Debt                            $ 21,000,000     $     2,061,000     $  12,712,000     $    6,227,000     $              -
Interest due including impact
of interest rate
swap (a)                           2,996,000           1,177,000         1,580,000            239,000                    -
Capital lease obligation (b)           9,000               9,000                -                  -                     -
Litigation settlement
obligation (b)                       936,000             144,000           288,000            288,000               216,000
Operating lease commitments        1,033,000             487,000           474,000             62,000                10,000
Purchase obligations              25,474,000          19,418,000         6,056,000                 -                     -

                                $ 51,448,000     $    23,296,000     $  21,110,000     $    6,816,000     $         226,000

(a) This includes a fixed rate of 8.25% per the interest rate swap agreements.

(b) Includes future interest obligations.

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 maximum cash exposure under these agreements, assuming the employment of the officers terminated effective as of December 31, 2011, was $2,340,000. 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 29, 2012, the maximum contingent liability under all recourse provisions was approximately $2,023,000. A reserve for estimated losses under recourse provisions of $126,000 has been recorded based upon historical experience, and is included in accrued liabilities at September 29, 2012.

CRITICAL ACCOUNTING POLICIES

Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.

As of September 29, 2012, there were no material changes to the items that we disclosed as our critical accounting policies in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Company's Report on Form 10-K for the year ended December 31, 2011.