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

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange Act Of 1934 For the fiscal quarter ended ~~November~~December 273, ~~2004~~2005

¨ Transition Report Under Section 13 Or 15(D) Of The Securities Exchange Act Of 1934
For the transition period from _____ to _____

~~COMMISSION~~Commission ~~FILE~~File ~~NUMBER~~Number: 333-93711

ICON HEALTH & FITNESS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE	87-0531206
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1500 South 1000 West

Logan, UT, 84321

(Address and zip code of principal executive offices)

(435) 750-5000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

~~Check~~Indicate by check mark whether the ~~issuer~~registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the ~~past~~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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange Act). Yes ¨ No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

~~ICON~~Common ~~Health~~Stock, &1000 ~~Fitness,~~shares ~~Inc.,~~outstanding 1as of December 3,~~000~~ ~~shares~~2005.

ICON HEALTH & FITNESS, INC.

INDEX

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
	Condensed Consolidated Balance Sheets as of November 27, 2004 (unaudited),
	Condensed Consolidated Balance Sheets as of December 3, 2005 (unaudited),
	May 31, 2004 and November 29, 2003 (unaudited)	3
	May 31, 2005 (audited) and November 27, 2004 (unaudited)	3
	Condensed Consolidated Statements of Operations (unaudited) for the three
	months ended November 27, 2004 and November 29, 2003	4
	months ended December 3, 2005 and November 27, 2004	4
	Condensed Consolidated Statements of Operations (unaudited) for the six
	months ended November 27, 2004 and November 29, 2003	5
	months ended December 3, 2005 and November 27, 2004	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six
	months ended November 27, 2004 and November 29, 2003	6
	months ended December 3, 2005 and November 27, 2004	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	27
Item 4.	Controls and Procedures.	27
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	28
Item 2.	Changes in Securities	28
Item 1A.	Risk Factors.	28
Item 3.	Security Defaults Upon Senior Securities	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 3.	Defaults Upon Senior Securities.	28
Item 5.	Other Information	28
Item 4.	Submission of Matters to a Vote of Security Holders.	28
Item 6.	Exhibits and Reports on Form 8-K	28
Item 5.	Other Information.	28
Item 6.	Exhibits.	28
Signatures		29
Certifications		31
Exhibit Index		32

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

ICON Health & Fitness, Inc.
Condensed Consolidated Balance Sheets
(expressed in thousands)

~~November~~December 273, ~~2004~~2005 May 31, ~~2004~~2005 November 2927, ~~2003~~2004

ASSETS		(Unaudited)		(Audited)		(Unaudited)
Current assets:
Cash	$	53,~~980~~801	$	5,~~122~~397	$	75,~~803~~980
Accounts receivable, net		~~250~~213,~~766~~934		~~177~~123,~~871~~457		~~285~~250,~~726~~766
Inventories, net:
Raw materials		7250,~~580~~392		6561,~~229~~408		7970,~~626~~043
Finished goods		~~125~~134,~~422~~217		~~107~~97,~~363~~174		~~110~~125,~~882~~576

Total inventories, net	~~198~~184,~~002~~609	~~172~~158,~~592~~582	~~190~~195,~~508~~619
Deferred income taxes	161,~~933~~133	~~6,974~~177	616,~~727~~933
Income taxes receivable	152,~~305~~249	-25,610	-15,305
Other current assets	148,~~755~~628	1310,~~067~~652	1014,~~829~~756
Current assets of discontinued operations	~~43,140~~71	579,~~828~~542	4445,~~914~~522

Total current assets	~~544~~414,~~881~~425		~~433~~333,~~454~~417		~~546~~544,~~507~~881
Property and equipment	~~123~~118,~~064~~550		~~107~~140,~~743~~603		~~105~~123,~~508~~064
Less accumulated depreciation	(5572,~~678~~141	)	(5163,~~080~~274	)	(5355,~~217~~678	)

Property and equipment, net	6746,~~386~~409	5677,~~663~~329	5267,~~291~~386
Intangible assets, net	35,987	38,681	30,194
Goodwill	6,156	5,719	5,074
Deferred income taxes	9,665	6,309	6,577
Intangible assets, net	19,692	25,976	30,913
Other assets, net	23,823	23,388	20,836
Deferred income taxes	89	83	9,665
Other assets, net	22,154	18,191	23,823

$ ~~681~~508,~~742~~925 $ ~~558~~460,~~495~~715 $ ~~656~~681,~~405~~742

LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	~~247~~205,~~943~~157		$	~~135~~134,~~879~~240	$	5247,~~000~~943
Accounts payable		~~167~~147,~~637~~251			~~137~~143,~~524~~444		~~196~~167,~~301~~637
Accrued expenses		2736,~~614~~020			30,~~811~~452		3130,~~641~~405
Income taxes payable		~~(172~~-	)		~~574~~21		~~4,001~~(172	)
Interest payable		78,~~546~~230			7,~~544~~576		7,~~517~~546
Current liabilities of discontinued operations		224,~~027~~707			98,~~420~~473		619,~~933~~236

Total current liabilities	~~472~~401,~~595~~365	~~321~~324,~~752~~206	~~251~~472,~~393~~595
Long-term debt	153,~~179~~351	153,~~111~~263	~~331~~153,~~341~~179
Other liabilities	1518,~~687~~584	1217,~~797~~370	1115,~~293~~687

	641,461		487,660		594,027
	573,300		494,839		641,461
Minority interest	~~5,591~~-		35,~~500~~137		35,~~500~~591
Stockholder's equity
Stockholder's equity (deficit)
Common stock and additional paid-in capital	204,155		204,155		204,155
Receivable from Parent	(2,200	)	(2,200	)	(2,200	)
Receivable from parent	(2,200	)	(2,200	)	(2,200	)
Accumulated deficit	(~~172~~274,~~695~~557	)	(~~133~~243,~~863~~850	)	(~~143~~172,~~577~~695	)
Accumulated other comprehensive income (loss)	5,430		(757	)	500
Accumulated other comprehensive income	8,227		2,634		5,430

Total stockholder's equity 34(deficit) (64,~~690~~375 67) (39,~~335~~261 58) 34,~~878~~690

$ ~~681~~508,~~742~~925 $ ~~558~~460,~~495~~715 $ ~~656~~681,~~405~~742

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

ICON Health & Fitness, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(expressed in thousands)

For the Three Months Ended

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

Net sales	$	~~275~~265,~~388~~391		$	~~309~~283,~~031~~410
Cost of sales		~~210~~197,~~270~~499			~~216~~211,~~056~~570

Gross profit 6567,~~118~~892 9271,~~975~~840

Operating expenses:
Selling	3129,~~396~~155	3037,~~734~~962
Research and development	32,~~142~~795	3,~~046~~142
General and administrative	2324,~~598~~012	23,~~927~~568

Total operating expenses 5855,~~136~~962 5764,~~707~~672

Income from operations	611,~~982~~930	357,~~268~~168
Interest expense	7,~~056~~400	67,~~359~~056
Amortization of deferred financing fees	~~277~~331	277
Loss on extinguishment of debt	1,679	-

Income (loss) before income taxes	~~(351~~2,520	)	~~28,632~~(165	)
(Benefit of) provision for income taxes	(156	)	10,629
Provision (benefit) for income taxes	724		(2,147	)

Income (loss) from continuing operations	(195	)	18,003
Income from continuing operations	1,796		1,982
Discontinued operations:
Loss from discontinued operations, net of tax benefit
of $14,271 in fiscal 2005 and $1,536 in fiscal 2004.	(17,855	)	(2,602	)
of $0 in the second quarter of fiscal 2006 and $12,279
in the second quarter of fiscal 2005.	(7,681	)	(20,033	)

Net income (loss)	(18,050	)	15,401
Net loss	(5,885	)	(18,051	)
Other comprehensive income (loss):
Other comprehensive income:
Foreign currency translation adjustment,
net of tax expense of $2,474 in fiscal 2005
net of tax expense of $825 in the second quarter of fiscal 2006
and $1,009 in fiscal 2004	4,037		1,645
and $2,474 in the second quarter of fiscal 2005	1,345		4,037

Comprehensive ~~income (~~loss) $ (144,~~013~~540 ) $ 17(14,~~046~~014 )

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

ICON Health & Fitness, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(expressed in thousands)

For the Six Months Ended

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

Net sales	$	~~406~~409,~~142~~621		$	~~473~~417,~~344~~994
Cost of sales		~~309~~302,~~916~~532			~~323~~312,~~271~~388

Gross profit 96107,~~226~~089 ~~150~~105,~~073~~606

Operating expenses:
Selling	5856,~~006~~323	6166,~~157~~984
Research and development	65,~~171~~671	6,~~069~~171
General and administrative	4548,~~434~~017	4345,~~511~~375

Total operating expenses ~~109~~110,~~611~~011 ~~110~~118,~~737~~530

Income (loss) from operations	(13,385)		39,336
Loss from operations	(2,922	)	(12,924	)
Interest expense	1314,~~094~~083		1213,~~352~~094
Amortization of deferred financing fees	~~554~~763		~~318~~554
Loss on extinguishment of debt	1,679		-

Income (loss) before income taxes	(27,033	)	26,666
Loss before income taxes	(19,447	)	(26,572	)
(Benefit of) provision for income taxes	(10,418	)	10,970
Provision (benefit) for income taxes	1,080		(10,437	)

Income (loss) from continuing operations	(16,615	)	15,696
Loss from continuing operations	(20,527	)	(16,135	)
Discontinued operations:
Loss from discontinued operations, net of tax benefit
of $13,931 in fiscal 2005 and $1,413 in fiscal 2004.	(22,218	)	(2,021	)
of $0 in the second quarter of fiscal 2006 and $13,912
in the second quarter of fiscal 2005.	(10,180	)	(22,698	)

Net income (loss)	(38,833	)	13,675
Net loss	(30,707	)	(38,833	)
Other comprehensive income (loss):
Other comprehensive income:
Foreign currency translation adjustment,
net of tax expense of $3,792 in fiscal 2005
net of tax expense of $3,428 in the second quarter of fiscal 2006
and $530 in fiscal 2004	6,187		865
and $3,792 in the second quarter of fiscal 2005	5,593		6,187

Comprehensive ~~income (~~loss) $ (3225,~~646~~114 ) $ 14(32,~~540~~646)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

ICON Health & Fitness, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(expressed in thousands)

For the Six Months Ended

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

OPERATING ACTIVITIES:
Net income (loss)	$	(38,832	)	$	13,675
Net loss	$	(30,707	)	$	(38,833	)
Adjustments to reconcile net income (loss) to net cash
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision (benefit) for deferred taxes		(17,846	)		1,868
Benefit for deferred taxes		(4,390	)		(17,846	)
Amortization of deferred financing fees		~~554~~763			~~318~~554
Amortization of debt discount		72			127
(Gain) loss on disposal of fixed assets		(38	)		72
Loss on disposal of fixed assets		14			-
Amortization of debt discount		89			14
Depreciation and amortization		11,399			11,116
Loss on extinguishment of debt		1,679			-
Depreciation and amortization		15,410			11,399
Disposal of China		847			-
Changes in operating assets and liabilities:
Accounts receivable, net		(7290,~~895~~477	)		(~~132~~76,~~752~~450	)
Inventories, net		(2926,~~094~~098	)		(4423,~~388~~714	)
Other assets, net		~~984~~2,322			~~(84~~984	)
Accounts payable and accrued expenses		2919,~~239~~992			7931,~~531~~285
Income taxes receivable		~~(15~~23,~~305~~327	)		(~~227~~15,305	)
Interest payable		2654			332
Other liabilities		46564			~~(228~~46	)

Net cash used in operating activities (~~131~~86,~~662~~063 ) (71127,~~011~~792 )

INVESTING ACTIVITIES:
Purchase of property and equipment	(115,~~639~~448	)	(911,~~123~~639	)
Purchase of property and equipment-China	~~(6,428~~-	)	(36,~~088~~428	)
Purchase of intangible assets	(~~1,557~~596	)	(51,~~145~~557	)

Net cash used in investing activities (196,~~624~~044 ) (1719,~~356~~624 )

FINANCING ACTIVITIES:
Borrowings on revolving credit facility, net	114,560		94,457
Borrowings on revolving credit facilities, net	42,387		125,810
Payments on term note	~~(2,500~~-	)	(213,~~500~~750	)
Minority interest	2,091		3,500
Proceeds from junior term loan	40,000		-
Payments for debt financing fees	(824	)	-
Minority interest	-		2,091
Payment of debt fees	(7,015	)	(824	)

Net cash provided by financing activities ~~113~~75,~~327~~372 95113,~~457~~327

DISCONTINUED OPERATIONS:
Changes in assets and liabilities from discontinued operations	28,838	(5,332	)
Changes from discontinued operations	6,118	24,968
Effect of exchange rates on cash	9,~~979~~021	19,~~395~~979

Net increase in cash	858		3,153
Net increase (decrease) in cash	(1,596	)	858
Cash, beginning of period	5,~~122~~397		45,~~650~~122

Cash, end of the period $ 53,~~980~~801 $ 75,~~803~~980

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

ICON Health & Fitness, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE A - BASIS OF PRESENTATION

This report covers ICON Health & Fitness, Inc. and its subsidiaries (collectively, "the Company"). The Company's parent company, HF Holdings, Inc. ("HF Holdings"), is not a registrant. The Company is one of the world's leading manufacturers and marketers of fitness equipment. The Company is headquartered in Logan, Utah and has approximately 43,~~500~~600 employees worldwide. The Company develops, manufactures and markets fitness equipment under the following company-owned brand names: ProForm, NordicTrack, Weslo, HealthRider, Image, ~~JumpKing,~~ Weider, Epic, Free Motion Fitness and, under license, Reebok and Gold's Gym. ~~The~~ In the opinion of management, the accompanying unaudited condensed ~~consolidated~~consilidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. ~~Accordingly,~~All ~~they~~adjustments ~~do not~~were ~~include~~comprised ~~all~~ of ~~the~~normal ~~information~~recurring ~~and~~adjustments, ~~footnotes~~except ~~required~~as bynoted ~~accounting principles generally accepted~~ in the ~~United~~Notes ~~States~~to ofConsolidated ~~America~~Condensed ~~for~~Financial ~~complete financial statement presentation~~Statements. InDue ~~addition,~~to ~~certain~~the ~~minor~~seasonal ~~reclassifications~~ nature of ~~previously reported financial information were made to conform to~~ the ~~current period presentation. The~~ Company,'s ~~in its opinion~~business, ~~has~~interim results ~~included~~are ~~all~~not ~~adjustments,~~necessarily ~~consisting~~indicative ~~only~~ of ~~normal~~results ~~recurring~~for ~~accruals,~~the ~~necessary~~entire ~~for~~fiscal ayear. ~~fair~~Our ~~presentation~~revenue ofand ~~the~~earnings ~~results~~are typically ofgreater ~~operations~~during ~~for~~our ~~the~~fiscal ~~three~~second ~~months~~ and ~~six~~third ~~months~~quarters, ~~ended~~which ~~November~~includes ~~27,~~the ~~2004~~majority ~~and November~~of ~~29,~~the ~~2003.~~holiday ~~The~~selling ~~condensed~~season. These ~~consolidated~~interim financial statements and the related notes ~~thereto~~ should be read in conjunction with the ~~audited~~ financial statements and notes ~~for~~ ~~the~~included ~~year~~in ~~ended~~our ~~May~~Annual ~~31,~~Report ~~2004~~on ~~included~~Form in10-K for the ~~Company's~~fiscal ~~annual~~year ~~report~~ended onMay ~~Form 10-K~~31, as2005 filed with the Securities and Exchange Commission (the “SEC”) on ~~August~~September 302, ~~2004~~ 2005. During ~~Interim~~the ~~results,~~first ~~including~~quarter ~~comparative~~of ~~balance~~fiscal ~~sheets~~2006, ~~are~~we ~~not~~reclassified ~~necessarily indicative~~changes in our consolidated statements of ~~results~~cash ~~for~~flows ~~the~~from operating ~~full~~activities ~~fiscal~~to changes in discontinued activities. Prior-year ~~due~~amounts were reclassified to ~~the~~conform ~~inherent~~to ~~seasonality~~the incurrent-year ~~the Company's business~~presentation. ~~See~~These ~~"Seasonality"~~reclassifications inhad ~~Management's~~no ~~Discussion~~effect ~~and Analysis~~on ofpreviously ~~Financial~~reported ~~Condition~~operating ~~and~~income ~~Results~~or ofnet ~~Operations~~earnings.

Critical Accounting Policies

The Company's discussion of results of operations and financial condition relies on its consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. The Company believes that investors need to be aware of these policies and how they impact its financial statements as a whole, as well as its related discussion and analysis presented herein. While the Company believes that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in the Company's annual report on Form 10-K as filed with the Securities and Exchange Commission on ~~August~~September 302, ~~2004~~2005 are those that depend most heavily on these judgments and estimates. As of ~~November~~December 273, ~~2004~~2005, there have been no material changes to any of the critical accounting policies contained therein.

Stock-Based CompensationStatement of Financial Accounting Standards No. 123 (“SFAS 123”), "Accounting for Stock-Based Compensation" ~~PlansThe~~encourages, ~~Company~~but ~~accounts~~does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation ~~arrangements~~using inthe ~~accordance~~intrinsic ~~with~~value ~~provisions~~method of prescribed in Accounting Principles Board Opinion ~~("APB")~~ No. 25 (“APB 25”), "Accounting for Stock Issued to Employees." ~~Accordingly,~~and noprovides ~~compensation~~the ~~cost~~required ~~has~~pro ~~been~~forma ~~recognized~~disclosures prescribed ~~for~~by ~~options granted~~SFAS to123 ~~employees~~and ~~under~~SFAS ~~its~~148, ~~fixed~~"Accounting ~~stock~~for ~~option~~Stock-Based ~~plan~~Compensation-Transition Disclosure-an amendment of FASB No. 123." ~~There~~The ~~were~~Company nohas ~~stock~~adopted ~~options~~the ~~granted~~disclosure-only inprovisions ~~the~~of ~~six~~SFAS ~~months~~123. ~~ended~~In ~~November~~accordance 27with those provisions, the Company ~~2004~~applies APB 25 and ~~November~~related 29interpretations in accounting for its stock option plans and, ~~2003~~accordingly, ~~respectively.~~does ~~All~~not ~~previously~~recognize compensation ~~granted~~cost ~~options~~if ~~were~~the ~~fully vested~~exercise asprice ofis ~~November~~not ~~30,~~less ~~2002.~~than ~~Therefore,~~market ~~there~~price isat nothe ~~stock-based~~date ~~employee~~ of grant. No compensation ~~for~~expense ~~the~~was recognized ~~six~~during ~~months~~the quarters ended ~~November~~December 273, ~~2004~~2005 ~~and~~ or November 2927, ~~2003~~2004.

Warranty Reserves

The Company maintains a warranty accrual for estimated future warranty obligations based upon the relationship between historical and anticipated costs and sales volumes. If actual warranty expenses are greater than those projected, additional reserves and other charges against earnings may be required. If actual warranty expenses are less than projected, prior reserves could be reduced providing a positive impact on the Company's reported results. The following table provides a reconciliation of the changes in the Company's product warranty reserve (table in thousands):

Six Months Ended

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

Beginning balance	$	23,~~505~~627		$	2,~~694~~634
Additions:
Charged to costs and expenses		-28			7954
Deductions:
Reduction in reserve		~~(187~~-	)		-

Ending balance $ 23,~~318~~655 $ 2,~~773~~688

Noncash Transactions

The following noncash transaction has been excluded from the Condensed Consolidated Statements of Cash Flows for the six months ended December 3, 2005: On July 30, 2005, the Company entered into a stock purchase agreement (the “Agreement”) with the minority shareholder of its Foreign Subsidiary to acquire our 70% interest in the Foreign Subsidiary in consideration for cancellation of debt of approximately $10.0 million. The Company's basis in the project after a year of activity was approximately $9.2 million and the Company recognized a gain of $0.8 on the sale of its interest. Pursuant to the Agreement, the Company had 45 days from the date of the Agreement to negotiate a repurchase option agreement and supply agreement. The Company did not enter into an option purchase agreement or a supply agreement within the 45 day period. The Company believes that it will have access to the Foreign Subsidiary’s capacity and will use it as well as other third party offshore vendors to meet its current and future manufacturing needs.

NOTE B - ACCOUNTING CHANGES

See "Recent Accounting Standards" under Management's Discussion and Analysis of Financial Condition and Results of Operations.

NOTE C - COMMITMENTS AND CONTINGENCIES

Due to the nature of the Company's products, the Company is subject to product liability claims involving personal injuries allegedly related to the Company's products. These claims include injuries sustained by individuals using the Company’'s products. The Company currently carries an occurrence-based product liability insurance policy. The current policy provides coverage for the period from October 1, ~~2004~~2005 to October 1, ~~2005~~2006 with limits of $105.0 million per occurrence and $105.0 million in the aggregate. The policy has a deductible on each claim of $1.0 million. For occurrences prior to October 1, ~~2004~~2005, the policy provided coverage of $10.0 million per occurrence and $10.0 million in the aggregate. The policy had a deductible on each claim of $1.0 million. For occurrences prior to October 1, 2003, the policy provided coverage of $5.0 million per occurrence and $5.0 million in the aggregate. The policy had a deductible on each claim of $1.0 million. The Company believes that its insurance is generally adequate to cover product liability claims. Nevertheless, currently pending claims and any future claims are subject to the uncertainties related to litigation, and the ultimate outcome of any such proceedings or claims cannot be predicted. Due to uncertainty with respect to the nature and extent of manufacturers' and distributors' liability for personal injuries, the Company cannot guarantee that its product liability insurance is or will be adequate to cover such claims. The Company vigorously defends any and all product liability claims brought against it and does not believe that any current pending claims or series of claims will have a material adverse effect on its results of operations, liquidity or financial position. On November 18, 2005, Cybergym Research, LLC (“Cybergym”) filed a patent infringement lawsuit against the Company in the United States District Court for the Eastern District of Texas. The complaint asserts that the Company’s iFit technology infringes on patents held by Cybergym, and seeks preliminary and permanent injunctive relief and damages in unspecified amounts. As of the date of this filing, the Company has not received service of process. If served, the Company would vigorously contest such action. In fiscal 2003, the Company formed a foreign subsidiary (the “Foreign Subsidiary”) to build a manufacturing facility in Xiamen, China. The facility was completed in the summer of 2005. The cost of the project was approximately $30.5, with $15.5 million funded in the form of equity contributed by the two shareholders, and in the form of debt. The Foreign Subsidiary arranged for the debt portion of the financing, which was provided by the Bank of China. The Company's equity interest in the Foreign Subsidiary was 70%, which was funded in the form of equity and debt. The minority interest shareholder is a long-time vendor of the Company. The Company recorded purchases from this vendor of approximately $20.4 million and $42.8 million during the second quarter of fiscal 2006 and 2005, respectively. On July 30, 2005, the Company entered into a stock purchase agreement (the “Agreement”) with the minority shareholder of the Foreign Subsidiary to acquire the Company's 70% interest in the Foreign Subsidiary in consideration for cancellation of debt of approximately $10.0 million. The Company's basis in the project after a year of activity was approximately $9.2 million and the Company recognized a gain of $0.8 on the sale of its interest. On July 30, 2005, the Foreign Subsidiary had assets of $32.5 million which included cash of $0.3 million, inventory of $1.5 million, property and equipment of $30.7 million and liabilities of $33.9 million which included payables of $4.4 million and other debt of $14.0 million. Pursuant to the Agreement, the Company had 45 days from the date of the Agreement to negotiate a repurchase option agreement and supply agreement. The Company did not enter into an option purchase agreement or a supply agreement within that 45 day period. The Company believes that it will have access to the Foreign Subsidiary’s capacity and will use it as well as other third party offshore vendors to meet its current and future manufacturing needs. As a result of the Company's controlling interest in the Foreign Subsidiary for the period ended May 31, 2005, the Company's investment interest has been reported on a consolidated basis for the fiscal year ended May 31, 2005. The Company is party to a variety of non-product liability commercial suits involving contract claims. The Company believes that adverse resolution of these lawsuits would not have a material adverse effect on its results of operations, financial position or liquidity. The Company is party to a variety of product liability lawsuits, arising in the ordinary course of its business, as a result of injuries sustained by customers while using a variety of its products. The Company vigorously defends any and all product liability claims brought against it and does not believe that any currently pending claim or series of claims will have a material adverse effect on its results of operations, financial position or liquidity. On August 30, 2002, the Company filed suit against the Nautilus Group, Inc. (“Nautilus”) in the United States District Court in Utah claiming false advertising and trademark infringement. On November 15, 2005, a jury sided for the Company on both claims and awarded the Company $7.8 million. The court is currently reviewing the verdict along with any briefs submitted by the parties and is expected to make a ruling sometime in January 2006. On December 3, 2002, the Nautilus Group, Inc. (“Nautilus”) filed suit against the Company in the United States District Court, Western District of Washington (the “Court”) alleging that it infringed Nautilus’ Bowflex patents and trademarks. In May of 2005, the Court dismissed the patent infringement case against the Company. Nautilus subsequently appealed the Court’s decision. Nautilus’s trademark infringement claim remains. The Company is currently vigorously defending the case through its counsel; however, it is not possible for the Company to quantify with any certainty the extent of any potential liability. The Company is also involved in several intellectual property and patent infringement claims arising in the ordinary course of its business. The Company believes that the ultimate outcome of these matters will not have a material adverse effect upon its results of operations, financial position or liquidity. As of December 3, 2005, the Company is involved in various product reviews and recalls with the Consumer Product Safety Commission (“CPSC”). The Company believes that adverse resolutions of these reviews and recalls will not have a material adverse effect on its results of operations, financial position or liquidity.

AsNOTE ofD November 27, 2004, the Company is involved in various product reviews and recalls with the Consumer Product Safety Commission (“CPSC”). The Company believes that adverse resolutions of these reviews and recalls will not have a material adverse effect on its results of operations or financial position. The Company is party to a variety of non-~~product~~ ~~liability~~THE ~~commercial~~NEW ~~suits involving~~CREDIT contract claims. The Company believes that adverse resolution of these lawsuits would not have a material adverse effect on its results of operations or financial position. In December 2001, a claim was made against the Company alleging the Company received $1.7 million of preferential transfers in connection with the 1999 Service Merchandise bankruptcy proceedings. The claim was settled in November of 2004 for an insignificant amount. On December 3, 2002, the Nautilus Group, Inc. (“Nautilus”) filed suit against the Company in the United States District Court, Western District of Washington (the “Court”) alleging the Company infringed Nautilus’ Bowflex patents. Nautilus seeks injunctive relief and monetary damages. In May 2003, the Court denied Nautilus’ motion for a preliminary injunction and granted partial summary judgment to the Company on the issue of “literal infringement.” Nautilus appealed this motion denying the preliminary injunction on literal patent infringement, and a trial has been scheduled for sometime in April of 2005. This case is currently being vigorously defended by the Company's counsel; however, it is not possible for the Company to quantify with any certainty the extent of any potential liability. As part of the above suit, in July 2003, the Court ruled in favor of Nautilus on a motion for preliminary injunction on the issue of trademark infringement, and entered an order barring the Company from using the trademark “CrossBow” on any exercise equipment. In June of 2004, the United States Court of Appeals for the Federal Circuit affirmed the grant of a preliminary injunction as previously granted by the Federal District Court. Thus, the Company is barred from using the “CrossBow” trademark on any of its exercise equipment pending trial. The Company subsequently changed the name from “CrossBow” to “CrossBar” or “The Max” by Weider. In July of 2004, Nautilus filed an additional lawsuit in the United States District Court for the Western District of Washington alleging that the Company further infringed on the Bowflex trademark by using the “CrossBar” trademark. Nautilus seeks injunctive relief and monetary damages. The Company believes this additional lawsuit is without merit and will vigorously defend its right to use the “CrossBar” trademark. The Company is also involved in several intellectual property and patent infringement claims, arising in the ordinary course of its business. The Company believes that the ultimate outcome of these matters will not have a material adverse effect upon its results of operations or financial position.AGREEMENT

InOn ~~fiscal~~October ~~2003~~31, 2005, the Company ~~formed~~replaced its existing $275 million credit agreement with a ~~foreign~~new ~~subsidiary~~$290 tomillion ~~build~~credit agreement (the “New Credit Agreement”). The New Credit Agreement provides for a ~~manufacturing~~five-year ~~facility~~revolving ~~in Xiamen~~line of credit up to $250 million, ~~China.~~including ~~The~~issuances ~~original~~of ~~project~~letters ~~costs~~of ~~were~~credit ~~anticipated~~from time to betime ~~approximately~~and a junior term loan (the "Junior Term Loan") of $~~12.0~~40 million. ~~Due~~At to the Company's ~~decision to~~option, ~~increase~~revolving credit advances bear interest at either (a) a base rate equal to the ~~size~~higher of ~~one~~the ~~facility,~~Federal itFunds ~~now~~Rate ~~anticipates~~or the ~~total~~Bank ~~project~~of ~~cost~~America's toprime berate ~~approximately~~plus ~~$30.5~~a ~~million, with~~margin ~~$15.5~~which ~~million~~varies from 0.0% to be1.25% ~~funded~~depending inon the ~~form~~Company's level of ~~equity~~excess byavailablity or (b) the ~~subsidiary,~~LIBOR ~~and~~rate ~~approximately~~plus ~~$15~~a margin which varies from 1.5% to 3.0% ~~million~~depending inon the ~~form~~ Company's level of ~~debt~~excess availablity. ~~The~~If the Company's ~~share~~meets ofcertain EBITDA thresholds, the ~~equity~~margins ~~investment~~are iscalculated ~~expected~~at lower rates. The Junior Term Loan bears an interest rate equal to bethe ~~approximately~~greater ~~$10~~of 12.05% ~~million~~or the Bank of America's prime rate plus 6%. ~~The~~As ~~Chinese~~a result o ~~Company~~f ~~has~~the ~~arranged~~New ~~for~~Credit Agreement, the ~~debt~~remaining ~~portion~~capitalized deferred financing fees on the existing agreement were recorded as of the ~~financing,~~date ~~which~~of isthe ~~provided~~New Credit Agreement as loss on extinguishment of debt. Outstanding byborrowings under the ~~Bank~~New Credit Agreement are based on a percentage of ~~China~~eligible accounts receivable, inventory and property, plant and equipment. ~~The~~All ~~Company's~~loans ~~equity~~under the New Credit Agreement are collateralized by a first priority security interest in all existing and subsequently acquired assets of the ~~foreign~~Company ~~subsidiary~~and isits ~~70%~~domestic and Canadian subsidiaries, ~~which~~subject ~~will~~to bespecified ~~funded~~exceptions, in and a pledge of 65% of the ~~form~~stock of ~~equity~~the Company’s first-tier foreign subsidiaries. All loans are cross-collateralized and ~~debt~~contain cross default provisions. The AsNew Credit Agreement and Junior Term Loan contain a number of ~~November~~restrictive 27covenants that, ~~2004~~among other things, limit or restrict the Company's ~~has~~and ~~made~~its ~~contributions~~subsidiaries' ability to dispose of ~~$5.0~~assets, ~~million~~incur ~~and~~additional indebtedness, incur guarantee obligations, prepay other indebtedness, make restricted payments, create liens, make equity or debt investments, make certain acquisitions, modify terms of the ~~minority~~indenture, ~~interest~~engage ~~contributions~~in ~~were~~mergers ~~$5.6~~or ~~million~~consolidations, enter into operating leases or engage in transactions with affiliates. ~~The~~In ~~minority~~addition, ~~interest~~the ~~shareholder~~Company is ~~also~~expected to comply with various financial ratios and tests, including a ~~long-time~~fixed ~~vendor of~~charge coverage ratio. At December 3, 2005, the Company was in compliance with all of its debt covenants. All ~~The~~of the outstanding common stock of the Company, owned by HF Holdings, has ~~recorded~~been ~~purchases~~pledged ~~from~~to ~~this~~the ~~vendor~~lenders ofunder ~~approximately~~the ~~$42~~New Credit Agreement.8 ~~million~~If the Company were to default under the New Credit Agreement, the lenders would foreclose on the pledge and ~~$40~~take control of the Company.6 ~~million~~ The ~~during~~Company is also required to maintain a lockbox arrangement whereby remittances from its customers reduce the ~~six~~borrowings ~~months~~outstanding ~~ended~~under ~~November~~the ~~27,~~New ~~2004~~Credit Agreement. The New Credit Agreement also contains a material adverse effect ("MAE") clause which grants the agent and ~~November~~lenders ~~29,~~the ~~2003~~right to block, ~~respectively.~~and Asserves as a ~~result~~condition offor, the Company's ~~controlling~~requests ~~interest~~for infuture ~~the~~advances. ~~foreign~~EITF ~~subsidiary~~Issue 95-22 "Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lockbox Arrangement" requires borrowings under credit agreements with these two provisions to be classified as current obligations. Accordingly, the ~~investment~~Company has ~~been~~classified ~~reported~~the onoutstanding aborrowings ~~consolidated~~under ~~basis~~the ~~beginning in~~New ~~the~~Credit ~~first~~Agreement ~~quarter~~as ofa ~~fiscal~~short-term ~~2004~~liability.

NOTE D - THE 2002 CREDIT AGREEMENT

On October 11, 2004, the Company amended its credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement increases the amount available from $210 million to $275 million. In addition, the remaining balance on the term note with accrued interest (approximately $12.5 million) is converted to and becomes a part of the revolver balance. At the Company's option, revolving credit advances bear interest at either (a) a floating rate equal to the Index Rate plus the applicable margin of 1.375% or (b) a floating rate equal to the LIBOR rate plus the applicable margin of 2.75%. If the Company meets certain fixed charge coverage ratios, the applicable margins have lower rates. The Amended Credit Agreement waives any violation of financial covenants for the first quarter of fiscal 2005 and eliminates those financial covenants going forward. The Amended Credit Agreement also provides for the formation of certain Chinese sales corporations to facilitate doing business in China.The Company is also required to maintain a lockbox arrangement whereby remittances from its customers reduce the borrowings outstanding under the Credit Agreement. The Credit Agreement also contains a Material Adverse Effect ("MAE") clause which grants the agent and lenders having more than 66 and 2/3% of the commitment or borrowings the right to block the Company's requests for future advances. EITF Issue 95-22 "Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lockbox Arrangement" requires borrowings under credit agreements with these two provisions to be classified as current obligations. The Company does not believe that any of these MAE's have occurred or can reasonably be expected to occur based upon its history and its relationship with the Credit Facility lenders. The Company intends to manage the Credit Facility as long-term debt with a final maturity date in 2007, as provided for in the Credit Agreement. A subsequent amendment was signed on December 21, 2004 relating to funding the China facility. On January 13, 2004 the Company obtained written waivers from the agent and lenders having more than 33 and 1/3% of the commitment or borrowings waiving their rights under the MAE clause for the period from January 13, 2004 to January 18, 2005. Accordingly, the Company has classified the outstanding borrowings under the credit agreement, which totaled $178.3 million at November 29, 2003 as a long-term liability.

NOTE E - DISCONTINUED OPERATIONS

During the ~~six~~second ~~months~~quarter ~~ended~~of ~~November~~fiscal 272005, ~~2004,~~ management determined that the Company's JumpKing, Inc. ("“JumpKing"”) subsidiary would discontinue ~~the manufacture~~manufacturing, marketing and ~~distribution~~ ofdistributing all outdoor recreational equipment (“~~outdoor~~Outdoor ~~recreational~~Recreational ~~equipment~~Equipment ~~operations~~Operations”) which includes trampolines, spas and other non-exercise related products. The ~~outdoor~~Outdoor ~~recreational~~Recreational ~~equipment~~Equipment Operations were not part of the Company’s core business operations or its strategic focus. In addition, it was not making a positive contribution to the Company’s earnings and required a substantial investment of working capital. The Outdoor Recreational Equipment Operations have been classified as a discontinued operation, and its expenses are not included in the results of continuing operations. The results of operations for the three months and the six months ended ~~November~~December 273, ~~2004~~2005 for the ~~outdoor~~ ~~recreational~~Outdoor ~~equipment~~Recreational ~~operations~~Equipment Operations have been ~~reclassified~~classified toas a loss from discontinued operations. ~~During~~The ~~the~~loss ~~six~~from ~~months~~operations, ~~ended~~net ~~November~~of 27tax, ~~2004,~~for the ~~Company~~Outdoor ~~wrote~~Recreational ~~down~~Equipment ~~approximately~~Operations was $337.47 million ofand ~~assets~~$20.0 ~~which~~million ~~consisted of~~for ~~inventory~~the ofthree ~~approximately~~months ~~$31.8~~ended ~~million~~December ~~and~~3, ~~fixed~~2005 ~~assets~~and ofNovember ~~approximately~~27, ~~$1.6~~2004, ~~million~~respectively. The loss from operations, net of tax, for the ~~outdoor~~Outdoor ~~recreational equipment~~Recreational Equipment Operations was $2210.2 million and $222.07 million for the six months ended ~~November~~December 273, ~~2004~~2005 and November 2927, ~~2003~~2004, respectively. ~~The~~ On January 10, 2005, the Company ~~expects~~sold toits ~~complete~~spa ~~this~~business ~~discontinuation~~comprising a portion of ~~its~~the ~~outdoor recreational~~Company's ~~operations~~JumpKing ~~within~~subsidiary ~~twelve~~to ~~months~~an unrelated third party (the “Buyer”) . The ~~outdoor~~assets ~~recreational~~ sold included all inventory, equipment, ~~operations~~business ~~were~~records ~~not~~and ~~part~~customer ofcontracts associated with the spa business. In addition, the Company’ sold a license for the use of trade names to the Buyer over a period of three years and subleased a portion of JumpKing's ~~core~~facility ~~business~~located ~~operations~~in orMesquite, ~~its~~Texas ~~strategic~~for ~~focus~~the continued manufacturing by the Buyer. The ~~outdoor recreational~~Buyer ~~operations~~paid ~~were~~approximately ~~not~~$4.0 ~~making~~million afor ~~positive~~the ~~contribution~~spa business and is obligated to pay additional amounts associated with the ~~Company’s~~license ~~earnings~~of ~~and~~trade ~~required~~names ato ~~substantial~~the ~~investment~~Company calculated as 1.5% of ~~working~~the ~~capital~~gross selling price for the spa business products sold by the Buyer over the three-year licensing period. In conjunction with the discontinuance of ~~outdoor~~the ~~recreational~~Outdoor ~~equipment~~Recreational ~~operations~~Equipment Operations, the Company performed an evaluation of its long-lived assets at the date of sale pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”) and determined that certain of the manufacturing fixed assets will be subject to an impairment loss of approximately $~~306~~0.4 million in the fiscal year ended May 31,~~000~~ 2005 and $1. 0 million in the second quarter ending December 3, 2005. Certain other manufacturing fixed assets met the “held for sale” and “discontinued operations” criteria as required by SFAS 144, at December 3, 2005. The following is a summary of the Company's discontinued operations for the three and six months ended December 3, 2005 and November 27, 2004. (in thousands):

The following is a summary of the Company's discontinued operations for the three months ended November 27, 2003 and the comparative operating information for the three months ended November 29, 2003 (in thousands):

Three Months Ended

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

Gross Profit	$	2,152		$	3,043
Gross profit	$	(5,955	)	$	2,198
Selling expenses		(~~7,537~~276	)		(56,~~087~~035	)
Research and development		~~(198~~-	)		(~~307~~198	)
General and administrative		(~~6,718~~482	)		(12,~~787~~343	)
Impairment loss		(~~306~~968	)		-(25,934	)
Loss on inventory		(15,968	)		-
Income tax benefit		-			12,279
Loss on lease		(3,551	)		-
Income tax benefit		14,271			1,536

Loss from discontinued operations $ (177,~~855~~881 ) $ (220,~~602~~033 )

The following is a summary of the Company's discontinued operations for the six months ended November 27, 2003 and the comparative operating information for the six months ended November 29, 2003 (in thousands):

Six Months Ended

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

Gross Profit	$	6,425		$	9,519
Gross profit	$	(7,676	)	$	6,397
Selling expenses		(~~13,911~~490	)		(912,~~005~~581	)
Research and development		~~(439~~-	)		(~~534~~439	)
General and administrative		(81,~~399~~046	)		(34,~~414~~053	)
Impairment loss		(~~306~~968	)		-(25,934	)
Loss on inventory		(15,968	)		-
Income tax benefit		-			13,912
Loss on lease		(3,551	)		-
Income tax benefit		13,931			1,413

Loss from discontinued operations $ (2210,~~218~~180 ) $ (222,~~021~~698 )

The assets and liabilities of the discontinued operations consisted of the following (in thousands):

~~November~~December 273, ~~2004~~2005 November 2927, ~~2003~~2004

ASSETS
Current assets:
Trade accounts receivable	$	~~25,977~~71	$	1725,~~327~~977
Assets held for sale:
Inventory		~~15,864~~-		2518,~~986~~246
Property plant and equipment		~~1,299~~-		1,~~601~~299

Total assets of discontinued
operations	$	~~43,140~~71		$	4445,~~914~~522

LIABILITIES
Current liabilities:
Trade accounts payable	$	~~9,576~~-	$	69,~~933~~576
Accrued liabilities		94,~~661~~707		-9,660
Reserves		~~2,790~~-		-

Total liabilities of discontinued
operations	$	224,~~027~~707		$	619,~~933~~236

NOTE F - GUARANTOR / NON-GUARANTOR FINCANCIAL INFORMATION

The Company's subsidiaries ~~JumpKing, Inc.,~~ 510152 N.B. Ltd., Universal Technical Services, Inc., ICON International Holdings, Inc., NordicTrack, Inc. and Free Motion Fitness, Inc. (“Subsidiary Guarantors”) have fully and unconditionally guaranteed on a joint and several basis, the obligation to pay principal and interest with respect to the 11.25% Notes. A significant portion of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the 11.25% Notes. Although holders of the 11.25% Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has indirect subsidiaries located primarily in Europe (“Non-Guarantor Subsidiaries”) that are not included among the Guarantor Subsidiaries, and such subsidiaries will not be obligated with respect to the 11.25% Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the 11.25% Notes. The following supplemental condensed consolidating financial statements are presented (in thousands):

1. Condensed consolidating balance sheets as of ~~November~~December 273, ~~2004~~2005 (unaudited), May 31, ~~2004~~2005 ~~(unaudited)~~ and November 2927, ~~2003~~2004 (unaudited), condensed consolidating statements of operations for the three months ended December 3, 2005 (unaudited) and ~~six~~the three months ended November 27, 2004 (unaudited), condensed consolidating statements of operations for the six months ended December 3, 2005 (unaudited) and the six months ended November 2927, ~~2003~~2004 (unaudited), and condensed consolidating statements of cash flows for the six months ended ~~November~~December 273, ~~2004~~2005 (unaudited) and the six months ended November 2927, ~~2003~~2004 (unaudited). 2. The Company's combined Subsidiary Guarantors and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Company and all of its subsidiaries.

Supplemental Condensed Consolidating Balance ~~SheetNovember~~SheetDecember 273, ~~2004~~2005

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

ASSETS
Current assets:
Cash	$	2(1,~~175~~199	)	$	13,~~840~~057	$	1,~~965~~943	$	-		$	53,~~980~~801
Accounts receivable, net		~~204~~188,~~156~~553			5841,~~555~~477		2016,~~940~~849		(32,~~885~~945	)		~~250~~213,~~766~~934
Inventories, net		~~130~~128,~~723~~151			5144,~~803~~551		1613,~~647~~219		(1,~~171~~312	)		~~198~~184,~~002~~609
Deferred income taxes		~~16,515~~572			-		~~418~~561		-			161,~~933~~133
Other current assets		20,110			5,069		4,881		-			30,060
Income tax receivable		2,249			-		-		-			2,249
Current assets of discontinued operations		5,380			37,760		-		-			43,140
Other current assets		3,484			2,917		2,227		-			8,628
Current assets of discontinued operations		-			71		-		-			71

Total current assets ~~379~~321,~~059~~810 ~~155~~92,~~027~~073 4434,~~851~~799 (34,~~056~~257 ) ~~544~~414,~~881~~425

Property and equipment, net	4038,~~970~~715		246,~~979~~661	1,~~437~~033	-		6746,~~386~~409
Receivable from affiliates	~~149~~122,~~051~~487		52,~~290~~674	-	(~~201~~175,~~341~~161	)	-
Intangible assets, net	28,654		6,115	1,218	-		35,987
Goodwill and intangible assets, net	18,736		6,236	876	-		25,848
Deferred income taxes	7(1,~~947~~771	)	1,~~718~~860	-	-		~~9,665~~89
Investment in subsidiaries	944,~~502~~909		-	-	(944,~~502~~909	)	-
Other assets, net	1821,~~184~~500		~~4,699~~325	~~940~~329	-		2322,~~823~~154

Total assets $ ~~633~~566,~~367~~386 $ ~~244~~159,~~828~~829 $ 4837,~~446~~037 $ (~~244~~254,~~899~~327 ) $ ~~681~~508,~~742~~925

LIABILITIES & STOCKHOLDER'S EQUITY

Current liabilities:
Current portion of long-term debt	$	~~243~~205,~~758~~157	$	~~4,185~~-		$	-		$	-		$	~~247~~205,~~943~~157
Accounts payable		~~122~~111,~~434~~017		3328,~~165~~139			4441,~~923~~849			(3233,~~885~~754	)		~~167~~147,~~637~~251
Accrued liabilities		14,551		8,140			4,923			-			27,614
Accrued expenses		20,415		11,981			3,624			-			36,020
Accrued income taxes		519,~~530~~393		(518,~~510~~821	)		(~~192~~572	)		-			~~(172~~-	)
Interest payable		78,~~546~~230		-			-			-			78,~~546~~230
Current liabilities of discontinued operations		~~2,790~~-		194,~~237~~707			-			-			224,~~027~~707

Total current liabilities ~~396~~364,~~609~~212 5926,~~217~~006 4944,~~654~~901 (3233,~~885~~754 ) ~~472~~401,~~595~~365

Long-term debt	153,~~174~~351		5-		-		-		153,~~179~~351
Other long-term liabilities	9,055		6,632		-		-		15,687
Other liabilities	8,345		10,086		153		-		18,584
Payable to affiliates	3948,~~839~~112		~~138~~101,~~064~~285		2324,~~439~~955		(~~201~~174,~~342~~352	)	-
Minority interest	-		-		-		5,591		5,591
Stockholder's equity (deficit):
Common stock and additional
paid-in capital	~~204~~206,~~155~~324		4737,~~850~~259		5,481		(5344,~~331~~909	)	204,155
Receivable from Parent	(2,200	)	-		-		-		(2,200	)
Receivable from parent	(2,200	)	-		-		-		(2,200	)
Retained earnings
Accumulated deficit	(212,240	)	(23,234	)	(37,771	)	(1,312	)	(274,557	)
(accumulated deficit)	(172,695	)	(13,726	)	(28,290	)	42,016		(172,695	)
Accumulated other comprehensive
income (loss)	~~5,430~~482		68,~~786~~427		(~~1,838~~682	)	~~(4,948~~-	)	58,~~430~~227

Total stockholder's equity (deficit) 34(7,~~690~~634 40) 22,~~910~~452 (2432,~~647~~972 ) (1646,~~263~~221 ) 34(64,~~690~~375 )

Total liabilities & stockholder's
equity (deficit)	$	633,367	$	244,828	$	48,446	$	(244,899	)	$	681,742
equity	$	566,386	$	159,829	$	37,037	$	(254,327	)	$	508,925

Supplemental Condensed Consolidating Balance ~~SheetMay~~SheetYear ended May 31, ~~2004~~2005

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

ASSETS
Current assets:
Cash	$	~~1,246~~793	$	2,~~450~~348	$	12,~~426~~256	$	-		$	5,~~122~~397
Accounts receivable, net		~~132~~105,~~027~~071		5230,~~505~~369		1514,~~045~~662		(2126,~~706~~645	)		~~177~~123,~~871~~457
Inventories, net		~~118~~115,~~310~~574		4332,~~891~~404		11,~~096~~547		(~~705~~943	)		~~172~~158,~~592~~582
Deferred income taxes		~~6,469~~-		-		~~505~~177		-			~~6,974~~177
Other current assets		4,716		4,156		4,195		-			13,067
Income tax receivable		25,610		-		-		-			25,610
Current assets of discontinued operations		-		57,828		-		-			57,828
Other current assets		1,598		5,251		3,803		-			10,652
Current assets of discontinued
operations		3,818		5,724		-		-			9,542

Total current assets ~~262~~252,~~768~~464 ~~160~~76,~~830~~096 32,~~267~~445 (2227,~~411~~588 ) ~~433~~333,~~454~~417

Property and equipment, net	38,302	17,193	1,168	-		56,663
Property & equipment, net	41,127	34,993	1,209	-		77,329
Receivable from affiliates	~~141~~134,~~561~~552	5571,~~579~~199	-	(~~197~~205,~~140~~751	)	-
Intangible assets, net	30,868	6,595	1,218	-		38,681
Goodwill and intangible assets, net	24,441	6,280	974	-		31,695
Deferred income taxes	~~5,570~~-	-83	~~739~~-	-		~~6,309~~83
Investment in subsidiaries	~~39,130~~157	-	-	(~~39,130~~157	)	-
Other assets, net	15,~~071~~737	71,~~452~~577	~~865~~877	-		2318,~~388~~191

Total assets $ ~~533~~468,~~270~~478 $ ~~247~~190,~~649~~228 $ 3635,~~257~~505 $ (~~258~~233,~~681~~496 ) $ ~~558~~460,~~495~~715

LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
Current portion of long-term debt	$	~~135~~122,~~879~~770	$	-11,470		$	-	$	-		$	~~135~~134,~~879~~240
Accounts payable		97119,~~860~~674		2714,~~256~~398			3436,~~114~~017		(2126,~~706~~645	)		~~137~~143,~~524~~444
Accrued liabilities		1817,~~800~~797		89,~~340~~545			3,~~671~~110		-			30,~~811~~452
Accrued income taxes		215,~~509~~517		(215,~~299~~496	)		~~364~~-		-			~~574~~21
Interest payable		7,~~544~~576		-			-		-			7,~~544~~576
Current liabilities of discontinued operations		-		9,420			-		-			9,420
Current liabilities of discontinued
operations		-		8,473			-		-			8,473

Total current liabilities ~~262~~283,~~592~~334 4228,~~717~~390 3839,~~149~~127 (2126,~~706~~645 ) ~~321~~324,~~752~~206

Long-term debt	153,~~102~~262		91		-		-		153,~~111~~263
Other long-term liabilities	67,~~723~~695		69,~~074~~675		-		-		1217,~~797~~370
Payable to affiliates	4363,~~518~~448		~~130~~117,~~942~~867		2224,~~680~~436		(~~197~~205,~~140~~751	)	-
Minority interest	-		-		-		35,~~500~~137		35,~~500~~137
Stockholder's equity (deficit):
Common stock and additional
Common stock & additional
paid-in capital	204,155		45,759		5,481		(51,240	)	204,155
paid in capital	204,155		52,759		5,481		(58,240	)	204,155
Receivable from Parent	(2,200	)	-		-		-		(2,200	)
Retained earnings
Accumulated deficit	(243,850	)	(23,366	)	(30,789	)	54,155		(243,850	)
(accumulated deficit)	(133,863	)	20,295		(26,961	)	6,666		(133,863	)
Accumulated other comprehensive
income (loss)	~~(757~~2,634	)	14,~~853~~902		(32,~~092~~750	)	1(2,~~239~~152	)	~~(757~~2,634	)

Total stockholder's equity (deficit) 67(39,~~335~~261 67) 34,~~907~~295 (2428,~~572~~058 ) (436,~~335~~237 ) 67(39,~~335~~261 )

Total liabilities & stockholder's
Total liabilities &
equity (deficit)	$	533,270	$	247,649	$	36,257	$	(258,681	)	$	558,495
stockholder's equity	$	468,478	$	190,228	$	35,505	$	(233,496	)	$	460,715

Supplemental Condensed Consolidating Balance SheetNovember 2927, ~~2003~~2004

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

ASSETS

Current assets:

Cash

~~113~~2,175

61,~~223~~840

1,~~467~~965

75,~~803~~980

Accounts receivable, net

~~236~~204,~~587~~156

5958,~~700~~555

1820,~~070~~940

(2832,~~631~~885

)

~~285~~250,~~726~~766

Inventories, net

~~126~~129,~~933~~093

4651,~~687~~050

1716,~~622~~647

(~~734~~1,171

)

~~190~~195,~~508~~619

Deferred income taxes

616,~~469~~515

~~254~~-

4418

616,~~727~~933

Other current assets

~~569~~20,111

65,~~557~~069

34,~~703~~881

1030,~~829~~061

Current assets of discontinued operations

15,~~987~~395

4240,~~927~~127

4445,~~914~~522

Total current assets ~~372~~377,~~658~~445 ~~162~~156,~~348~~641 4044,~~866~~851 (2934,~~365~~056 ) ~~546~~544,~~507~~881

Property and equipment, net

3940,~~642~~970

1124,~~328~~979

1,~~321~~437

5267,~~291~~386

Receivable from affiliates

~~123~~149,~~363~~057

1852,~~866~~290

(~~142~~201,~~229~~347

)

Intangible assets, net

2128,~~901~~654

76,~~075~~115

1,218

3035,~~194~~987

Deferred income taxes

47,~~950~~947

1,~~627~~718

69,~~577~~665

Investment in subsidiaries

3249,~~327~~909

(3249,~~327~~909

)

Other assets, net

1418,~~473~~184

64,~~337~~699

26940

2023,~~836~~823

Total assets $ ~~609~~672,~~314~~166 $ ~~207~~246,~~581~~442 $ 4348,~~431~~446 $ (~~203~~285,~~921~~312 ) $ ~~656~~681,~~405~~742

LIABILITIES & STOCKHOLDER'S EQUITY

Current liabilities:
Current portion of long-term debt	$	5243,~~000~~758	$	-4,185		$	-		$	-		$	5247,~~000~~943
Accounts payable		~~153~~122,~~405~~434		3133,~~546~~165			3944,~~981~~923			(2832,~~631~~885	)		~~196~~167,~~301~~637
Accrued liabilities		19,000		7,748			4,893			-			31,641
Accrued expenses		17,342		8,140			4,923			-			30,405
Accrued income taxes		25,~~591~~530		~~694~~(5,510	)		~~716~~(192	)		-			~~4,001~~(172	)
Interest payable		7,~~517~~546		-			-			-			7,~~517~~546
Current liabilities of discontinued operations		-		619,~~933~~236			-			-			619,~~933~~236

Total current liabilities ~~187~~396,~~513~~610 4659,~~921~~216 4549,~~590~~654 (2832,~~631~~885 ) ~~251~~472,~~393~~595

Long-term debt	~~331~~153,~~329~~174		125		-		-		~~331~~153,~~341~~179
Other long-term liabilities	5,845		5,448		-		-		11,293
Other liabilities	9,055		6,632		-		-		15,687
Payable to affiliates	2539,~~749~~844		94138,~~358~~065		2223,~~123~~439		(~~142~~201,~~230~~348	)	-
Minority interest	-		-		-		35,~~500~~591		35,~~500~~591
Stockholder's equity (deficit):
Common stock and additional
paid-in capital	~~204~~206,~~155~~324		4247,~~760~~850		5,481		(4855,~~241~~500	)	204,155
Receivable from Parent	(2,200	)	-		-		-		(2,200	)
Receivable from parent	(2,200	)	-		-		-		(2,200	)
Retained earnings
Accumulated deficit	(131,123	)	(12,112	)	(28,290	)	(1,170	)	(172,695	)
(accumulated deficit)	(143,577	)	14,652		(26,351	)	11,699		(143,577	)
Accumulated other comprehensive
income (loss)	~~500~~482		36,~~430~~786		(31,~~412~~838	)	~~(18~~-	)	~~500~~5,430

Total stockholder's equity (deficit) 5873,~~878~~483 6042,~~842~~524 (24,~~282~~647 ) (3656,~~560~~670 ) 5834,~~878~~690

Total liabilities & stockholder's
equity (deficit)	$	609,314	$	207,581	$	43,431	$	(203,921	)	$	656,405
equity	$	672,166	$	246,442	$	48,446	$	(285,312	)	$	681,742

Supplemental Condensed Consolidating Statement of Operations
Three months ended December 3, 2005

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

Net sales	$	193,208		$	53,510		$	18,673		$	-		$	265,391
Cost of sales		151,085			32,099			13,968			347			197,499

Gross profit		42,123			21,411			4,705			(347	)		67,892
Total operating expenses		30,464			17,411			8,087			-			55,962

Gain (loss) from operations	11,659	4,000		(3,382	)	(347	)	11,930
Interest expense	6,871	(27	)	556		-		7,400
Amortization of deferred
financing fees	331	-		-		-		331
Loss on extinguishment of debt	1,679	-		-		-		1,679
Equity in earnings
of subsidiaries	5,427	-		-		(5,427	)	-

Income (loss) before income taxes		(2,649	)		4,027			(3,938	)		5,080			2,520
Provision (benefit) for income taxes		2,340			(1,595	)		(21	)		-			724

Income (loss) from continuing operations	(4,989	)	5,622		(3,917	)	5,080	1,796
Loss from discontinued
operations	(896	)	(6,785	)	-		-	(7,681	)

Net loss

(5,885

)

(1,163

)

(3,917

)

5,080

(5,885

)

Supplemental Condensed Consolidating Statement of Operations
Three months ended November 27, 2004

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

Net sales	$	~~194~~202,~~139~~161		$	57,827		$	23,422		$	-		$	~~275~~283,~~388~~410
Cost of sales		~~161~~162,~~416~~716			33,529			15,398			(73	)		~~210~~211,~~270~~570

Gross profit		3239,~~723~~445			24,298			8,024			73			6571,~~118~~840
Total operating expenses		3036,~~646~~313			2122,~~191~~060			6,299			-			5864,~~136~~672

Income from operations	23,~~077~~132	~~3,107~~2.238	1,725	73		67,~~982~~168
Interest expense	6,553	-	503	-		7,056
Amortization of deferred
financing fees	277	-	-	-		277
Equity in earnings
of subsidiaries	2625,~~883~~268	-	-	(2625,~~883~~268	)	-

Income (loss) before income taxes	(3128,~~636~~966	)	32,~~107~~238		1,222	2625,~~956~~341	(~~351~~165	)
Provision (benefit) for income taxes	(12,704	)	(1,830	)	107	-	(14,427	)
Provision (benefit) from income taxes	(12,024	)	9,770		107	-	(2,147	)

Income from continuing operations	(18,932	)	4,937		1,115	26,956	14,076
Income (loss) from continuing operations	(16,942	)	(7,532	)	1,115	25,341	1,982
Income (loss) from discontinued
Loss from discontinued
operations	~~882~~(1,109	)	(3318,~~008~~924	)	-	-	(3220,~~126~~033	)

Net income (loss) $ (18,~~050~~051 ) $ (2826,~~071~~456 ) $ 1,115 $ 2625,~~956~~341 $ (18,~~050~~051 )

Supplemental Condensed Consolidating Statement of ~~OperationsThree~~OperationsSix months ended ~~November~~December 293, ~~2003~~2005

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

Net sales

~~230~~290,~~860~~415

5791,~~855~~115

2028,~~316~~091

~~309~~409,~~031~~621

Cost of sales

~~173~~227,~~321~~001

2954,~~232~~344

1320,~~396~~819

~~107~~368

~~216~~302,~~056~~532

Gross profit

5763,~~539~~414

2836,~~623~~771

67,~~920~~272

(~~107~~368

)

92107,~~975~~089

Total operating expenses

3262,~~549~~408

1934,~~852~~434

513,~~306~~169

57110,~~707~~011

Income from operations	24,990		8,771		1,614		(107	)	35,268
Income (loss) from operations	1,006		2,337		(5,897	)	(368	)	(2,922	)
Interest expense	513,~~860~~024		-(47	)	~~499~~1,106		-		614,~~359~~083
Amortization of deferred
financing fees	~~277~~763		-		-		-		~~277~~763
Loss on extinguishment of debt	1,679		-		-		-		1,679
Equity in earnings
of subsidiaries	(39,~~472~~468	)	-		-		3(9,~~472~~468	)	-

Income (loss) before income taxes

22(23,~~325~~928

)

82,~~771~~384

1(7,~~115~~003

)

(39,~~579~~100

)

28(19,~~632~~447

)

Provision (benefit) for income taxes

85,~~802~~309

(~~509~~4,208

)

~~800~~(21

)

91,~~093~~080

Income (loss) from continuing operations

13(29,~~523~~237

)

96,~~280~~592

~~315~~(6,982

)

(39,~~579~~100

)

19(20,~~539~~527

)

Income (loss) from discontinued

Loss from discontinued

operations

(1,~~878~~470

)

(68,~~016~~710

)

(410,~~138~~180

)

Net ~~income (~~loss) $ 15(30,~~401~~707 ) $ 3(2,~~264~~118 $) ~~315~~ $ (36,~~579~~982 ) $ 159,~~401~~100 $ (30,707 )

Supplemental Condensed Consolidating Statement of Operations
Six months ended November 27, 2004

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

Net sales	$	~~275~~287,~~270~~122		$	94,976		$	35,896		$	-		$	~~406~~417,~~142~~994
Cost of sales		~~231~~234,~~961~~433			53,985			23,505			465			~~309~~312,~~916~~388

Gross profit		4352,~~309~~689			40,991			12,391			(465	)		96105,~~226~~606
Total operating expenses		5663,~~926~~603			4042,~~070~~312			12,615			-			~~109~~118,~~611~~530

Income from operations	(13,617	)	921		(224	)	(465	)	(13,385	)
Loss from operations	(10,914	)	(1,321	)	(224	)	(465	)	(12,924	)
Interest expense	12,094		-		~~1000~~1,000		-		13,094
Amortization of deferred
financing fees	554		-		-		-		554
Equity in earnings
of subsidiaries	3534,~~816~~202		-		-		(3534,~~816~~202	)	-

Income (loss) before income taxes	(62,081	)	921		(1,224	)	35,351	(27,033	)
Loss before income taxes	(57,764	)	(1,321	)	(1,224	)	33,737	(26,572	)
Provision (benefit) for income taxes	(20,894	)	(3,561	)	106		-	(24,349	)
Provision (benefit) from income taxes	(20,125	)	9,581		107		-	(10,437	)

Income (loss) from continuing operations	(41,187	)	4,482		(1,330	)	35,351	(2,684	)
Loss from continuing operations	(37,639	)	(10,902	)	(1,331	)	33,737	(16,135	)
Income (loss) from discontinued
Loss from discontinued
operations	2(1,~~354~~194	)	(3821,~~503~~504	)	-		-	(3622,~~149~~698	)

Net ~~income (~~loss) $ (38,833 ) $ (3432,~~021~~406 ) $ (1,~~330~~331 ) $ 3533,~~351~~737 $ (38,833 )

Supplemental Condensed Consolidating Statement of ~~OperationsSix~~Cash FlowsSix months ended ~~November~~December 293, ~~2003~~2005

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

Net sales	$	343,178		$	100,744		$	29,422		$	-		$	473,344
Operating Activities:
Cost of sales		255,413			48,622			19,058			178			323,271
Net cash used in operating activities	$	(72,911	)	$	(7,296	)	$	(2,812	)	$	(3,044	)	$	(86,063	)

Gross profit	87,765		52,122		10,364	(178	)	150,073
Investing Activities:
Total operating expenses	59,123		40,755		10,859	-		110,737
Net cash provided by (used in) investing activities	(5,246	)	(895	)	97	-		(6,044	)

Income from operations	28,642		11,367	(495	)	(178	)	39,336
Financing Activities:
Interest expense	11,377		1	974		-		12,352
Borrowings on credit
Amortization of deferred
agreements, net	42,387		-	-		-		42,387
financing fees	318		-	-		-		318
Proceeds from term loan	40,000		-	-		-		40,000
Equity in earnings
Payment of fees debt	(7,015	)	-	-		-		(7,015	)
of subsidiaries	(1,411	)	-	-		1,411		-
Other	(3,271	)	3,003	520		(252	)	-

Income (loss) before income taxes	18,358	11,366	(1,469	)	(1,589	)	26,666
Net cash provided by
Provision (benefit) for income taxes	8,802	351	404		-		9,557
financing activities	72,101	3,003	520		(252	)	75,372

Income (loss) from continuing operations	9,556	11,015		(1,873	)	(1,589	)	17,109
Discontinued Operations:
Income (loss) from discontinued
Changes in assets and liabilities from discontinued operations	3,386	2,732		-		-		6,118
operations	4,119	(7,553	)	-		-		(3,434	)
Effect of exchange rates on cash	678	3,165		1,882		3,296		9,021

Net income (loss) $ 13,675 $ 3,462 $ (1,873 ) $ (1,589 ) $ 13,675

Net increase (decrease) in cash		(1,992	)		709			(313	)		-			(1,596	)
Cash, beginning of period		793			2,348			2,256			-			5,397

Cash, end of period

(1,199

)

3,057

1,943

3,801

Supplemental Condensed Consolidating Statement of Cash Flows
Six months ended November 27, 2004

ICON
Health &
Fitness, Inc.

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

Operating Activities:
Net cash used in operating activities	$	(87,~~388~~389	)	$	(4239,~~873~~003	)	$	(~~959~~958	)	$	(442	)	$	(~~131~~127,~~662~~792	)


*Investing Activities:*
Net cash used in investing activities	(10,135	)	(8,974	)	(515	)	-	(19,624	)

Financing Activities:
Borrowings on revolving credit
facility, net	~~110~~121,~~379~~629		4,181	-	-	~~114~~125,~~560~~810
Payments on term note	(213,~~500~~750	)	-	-	-	(213,~~500~~750	)
Minority interest	-		2,091	-	-	2,091
Payments for debt financing fees	(824	)	-	-	-	(824	)
Other	(11,169	)	10,410	759	-	-

Net cash provided by
financing activities		95,886			16,682			759			-			113,327

Discontinued Operations:
Changes in assets and liabilities from discontinued operations	(1,226	)	2925,~~622~~752	-	442	2824,~~838~~968
Effect of exchange rates on cash	3,792		4,933	1,254	-	9,979

Net increase (decrease) in cash		~~929~~928			(610	)		~~539~~540			-			858
Cash, beginning of period		1,~~246~~247			2,450			1,~~426~~425			-			5,122

Cash, end of period

2,175

1,840

1,965

5,980

Supplemental Condensed Consolidating Statement of Cash FlowsSix months ended November 29, 2003

ICON Health &Fitness, Inc. CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated

Operating Activities:
Net cash provided by (used in) operating activities	$	(71,967	)	$	840		$	116		$	-		$	(71,011	)

Investing Activities:
Net cash used in investing activities		(12,327	)		(4,845	)		(184	)		-			(17,356	)

Financing Activities:
Borrowings on revolving credit
facility, net	94,460		-		-	-	94,460
Payments on term note	(2,500	)			-	-	(2,500	)
Payment on other long-term debt	-		(3	)	-	-	(3	)
Minority interest	(2,000	)	5,500		-	-	3,500
Other	(7,024	)	6,253		771	-	-

Net cash provided by
financing activities		82,936			11,750			771			-			95,457

Discontinued Operations:
Changes in assets and liabilities from discontinued operations	-	(5,332	)	-		-	(5,332	)
Effect of exchange rates on cash	530	1,425		(560	)	-	1,395

Net increase (decrease) in cash		(828	)		3,838			143			-			3,153
Cash, beginning of period		941			2,385			1,324			-			4,650

Cash, end of period $ 113 $ 6,223 $ 1,467 $ - $ 7,803

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

We are one of the world's leading manufacturers and marketers of fitness equipment. We are headquartered in Logan, Utah and have approximately 43,~~500~~ 600 employees worldwide. We develop, manufacture and market fitness equipment under the following company-owned brand names: ProForm, NordicTrack, Weslo, HealthRider, Image, ~~JumpKing,~~ Weider, Epic, Free Motion Fitness and, under license, Reebok and Gold's Gym. This Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements contained in this report involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements. Forward-looking statements include, without limitation, statements containing the words "anticipates," "believes," "expects," "intends," "future" and words and terms of similar substance. Such words and terms express management's belief, expectations or intentions regarding future performance. Our actual results could differ materially from our historical operating results and from those anticipated in these forward-looking statements as a result of certain factors, including without limitation, those set forth in our Annual Report on Form 10-K and other factors and uncertainties contained in our other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date they were made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based.

~~Three~~The ~~Months~~following ~~Ended~~is a discussion of our financial condition and results of operations for the three and six months ended December 3, 2005 and November 27, 2004. ~~Compared~~The following discussion may be understood more fully by reference to ~~Three~~the ~~Months~~Financial ~~Ended~~Statements, ~~November~~Notes 29to the Condensed Financial Statements, ~~2003~~and the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Form 10-K filed on September 2, 2005.

~~Net sales for the three months ended November 27, 2004 decreased $33.6 million, or 10.9%, to $275.4 million from $309.0 million in the corresponding three~~Forward-~~month~~Looking period ended November 29, 2003. Due to the historically high sales for the three-month period ended November 29, 2003 and the continuing weak demand, sales were lower in the three months ended November 27, 2004. Sales of our cardiovascular and other equipment in the three months ended November 27, 2004 decreased $20.3 million, or 8.1%, to $230.3 million. Sales of our strength training equipment in the three months ended November 27, 2004 decreased $13.3 million, or 22.7%, to $45.1 million. Gross profit in the three months ended November 27, 2004 was $65.1 million, or 23.6% of net sales, compared to $93.0 million, or 30.1% of net sales, in the three months ended November 29, 2003. This decrease in gross profit margin was primarily due to increased transportation costs and commodities, i.e., steel, plastics and wood, and the inability to pass on to the consumer the full cost of these increases. Unfavorable manufacturing variances also negatively impacted our gross profit margin. In addition, our direct to consumer business which realizes higher margins was a smaller portion of our overall sales mix in the three months ended November 27, 2004 than in the three months ended November 29, 2003. Selling expenses increased $0.7 million, or 2.3%, to $31.4 million in the three months ended November 27, 2004. This increase reflected higher bad debt and freight expenses offset by decreased advertising costs. Expressed as a percentage of net sales, selling expenses were 11.4% in the three months ended November 27, 2004 compared to 9.9% in the three months ended November 29, 2003. Research and development expenses in the three months ended November 27, 2004 were $3.1 million, compared to $3.0 million in the three months ended November 29, 2003. Expressed as a percentage of net sales, research and development expenses were 1.1% in three months ended November 27, 2004 and 1.0% in the three months ended November 29, 2003. General and administrative expenses decreased $0.3 million, or 1.3%, to $23.6 million in the three months ended November 27, 2004. This decrease for the period can be attributed to decreased legal fees offset by increases in salary and wages related to the amended employment contracts for Scott Watterson and Gary Stevenson during their leave of absence. Expressed as a percentage of net sales, general and administrative expenses were 8.6% in the three months ended November 27, 2004 and 7.7% in the three months ended November 29, 2003. As a result of the foregoing factors, the income from operations was $7.0 million in the three months ended November 27, 2004 compared to income from operations of $35.3 million in the three months ended November 29, 2003. As a result of the foregoing factors, EBITDA (as defined under "Seasonality") was $12.6 million in the three months ended November 27, 2004 compared to EBITDA of $40.9 million in the three months ended November 29, 2003. Interest expense, including amortization of deferred financing fees, increased $0.6 million, or 9.0%, to $7.3 million in the three months ended November 27, 2004. Expressed as a percentage of net sales, interest expense, including amortization of deferred financing fees, was 2.7% in the three months ended November 27, 2004 and 2.1% in the three months ended November 29, 2003. The benefit from income taxes was $0.2 million in the three months ended November 27, 2004, compared to a provision for income taxes of $10.6 million in the three months ended November 29, 2003. This change in income taxes for the period can be attributed in part to the loss on discontinued operations and the operating results for the period. During the three months ended November 27, 2004, we determined that our JumpKing, Inc. ("JumpKing") subsidiary would discontinue the manufacture, marketing and distribution of all outdoor recreational equipment (“outdoor recreational equipment operations”) which includes trampolines, spas and related products. The outdoor recreational equipment operations have been classified as a discontinued operation and its expenses are not included in the results of continuing operations. The results of operations for the three months ended November 27, 2004 for the outdoor recreational equipment operations have been reclassified to loss from discontinued operations. During the three months ended November 27, 2004, we wrote down approximately $33.4 million of assets which consisted of inventory of approximately $31.8 million and fixed assets of approximately $1.6 million. The loss from operations, net of tax, for the outdoor recreational equipment was $17.9 million and $2.6 million for the three months ended November 27, 2004 and November 29, 2003, respectively. The Company expects to complete this discontinuation of its outdoor recreational operations within twelve months. Neither the trampoline operations nor the outdoor recreational equipment operations were part of the Company’s core business operations or its strategic focus. The outdoor recreational operations were not making a positive contribution to our earnings and also required a substantial investment in working capital. In conjunction with the discontinuance of outdoor recreational equipment operations, we performed an evaluation of long-lived assets pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”) and determined that certain of the manufacturing fixed assets will be subject to an impairment loss of approximately $306,000. Certain other manufacturing fixed assets met the “held for sale” and “discontinued operations“ criteria as required by SFAS 144, at November 27, 2004 As a result of the foregoing factors, net loss was $18.0 million in the three months ended November 27, 2004, compared to net income in the three months ended November 29, 2003 of $15.4 million, a decrease of 216.9% over the same period last year. Statements

~~Six~~ Certain ~~Months~~statements ~~Ended~~contained ~~November~~in 27this Form 10-Q and in future filings by us with the SEC may be deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, ~~2004~~and ~~Compared~~we intend that such forward-looking statements be subject to ~~Six~~the ~~Months~~safe ~~Ended~~harbor ~~November~~created 29thereby. Statements such as "will likely result", ~~2003~~"management expects", or "Company expects", "will continue", "is anticipated", "estimated", "successful", "expansion" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Act. Readers are cautioned not to place undue reliance on such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, including but not limited to: the timely development and acceptance of new products, sources of supply and concentration of customers, acceptance in the marketplace, establishment and expansion of our distribution channels, endorsement of opinion leaders in the law enforcement community, implementation risks of manufacturing automation, risks associated with rapid technology change, impact of media publicity, dependence upon sole or limited source suppliers, existing or potential lawsuits, risks of governmental regulations, dependence upon key employees and other factors detailed in our filings with the SEC.

Three ~~During~~Months ~~the~~Ended ~~six~~December ~~months ended November 27, 2004, net sales decreased $67.2 million, or 14.2%, to $406.1 million from $473.~~3 ~~million in the corresponding six-month period ended November 29~~, ~~2003.~~2005 ~~Due~~Compared to ~~the~~Three ~~historically high~~Months ~~sales~~Ended ~~in the six-month period ended~~ November ~~29, 2003 and the continuing weak demand, sales were lower in the six month period ended November~~ 27, 2004. Sales of our cardiovascular and other equipment in the six months ended November 27, 2004 decreased $41.6 million, or 11.1%, to $334.1 million. Sales of our strength training equipment in the six months ended November 27, 2004 decreased $25.6 million, or 26.2%, to $72.0 million. Gross profit in the six months ended November 27, 2004 was $96.2 million, or 23.7% of net sales, compared to $150.1 million, or 31.7% of net sales, in the six months ended November 29, 2003. This decrease in gross profit margin was primarily due to increased transportation costs and commodities, i.e., steel, plastics and wood, and the inability to pass on to the consumer the full cost of these increases. Unfavorable manufacturing variances also negatively impacted our gross profit margin. In addition, our direct to consumer business which realizes higher margins was a smaller portion of our overall sales mix in the six months ended November 27, 2004 than in the six months ended November 29, 2003. Selling expenses decreased $3.2 million, or 5.2%, to $58.0 million in the six months ended November 27, 2004. This decrease reflected lower advertising expenses offset by an increase in freight charges. Expressed as a percentage of net sales, selling expenses were 14.3% in the six months ended November 27, 2004 compared to 12.9% in the six months ended November 29, 2003. Research and development expenses in the six months ended November 27, 2004 were $6.2 million, compared to $6.1 million in the six months ended November 29, 2003. Expressed as a percentage of net sales, research and development expenses were 1.5% in six months ended November 27, 2004 and 1.3% in the six months ended November 29, 2003. General and administrative expenses increased $1.9 million, or 4.4%, to $45.4 million in the six months ended November 27, 2004. This increase for the period can be attributed in part to increased salaries and wages due to the amended employment contracts for Scott Watterson and Gary Stevenson during their leave of absence. Expressed as a percentage of net sales, general and administrative expenses were 11.2% in the six months ended November 27, 2004 and 9.2% in the six months ended November 29, 2003. As a result of the foregoing factors, the loss from operations was $13.4 million in the six months ended November 27, 2004 compared to income from operations of $39.3 million in the six months ended November 29, 2003. As a result of the foregoing factors, EBITDA (as defined under "Seasonality") was a negative $2.0 million in the six months ended November 27, 2004 compared to EBITDA of $50.4 million in the six months ended November 29, 2003. Interest expense, including amortization of deferred financing fees, increased $0.9 million, or 7.1%, to $13.6 million in the six months ended November 27, 2004. Expressed as a percentage of net sales, interest expense, including amortization of deferred financing fees, was 3.3% in the six months ended November 27, 2004 and 2.7% in the six months ended November 29, 2003. The benefit from income taxes was $10.4 million in the six months ended November 27, 2004, compared to a provision for income taxes of $11.0 million in the six months ended November 29, 2003. This change in income taxes for the period can be attributed to the loss on discontinued operations and our operating results for the period. During the six months ended November 27, 2004, we determined that our JumpKing, Inc. ("JumpKing") subsidiary would discontinue the manufacture, marketing and distribution of all outdoor recreational equipment (“outdoor recreational equipment operations”) which includes trampolines, spas and related products. The outdoor recreational equipment operations have been classified as a discontinued operation and its expenses are not included in the results of continuing operations. The results of operations for the six months ended November 27, 2004 for the outdoor recreational equipment operations have been reclassified to loss from discontinued operations. During the six months ended November 27, 2004, we wrote down approximately $33.4 million of assets which consisted of inventory of approximately $31.8 million and fixed assets of approximately $1.6 million. The loss from operations, net of tax, for the outdoor recreational equipment was $22.2 million and $2.0 million for the six months ended November 27, 2004 and November 29, 2003, respectively. The Company expects to complete this discontinuation of its outdoor recreational operations within twelve months. The outdoor recreational equipment operations were not part of the Company’s core business operations or its strategic focus. The outdoor recreational operations were not making a positive contribution to our earnings and also required a substantial investment in working capital. In conjunction with the discontinuance of outdoor recreational equipment operations, we performed an evaluation of long-lived assets pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”) and determined that certain of the manufacturing fixed assets will be subject to an impairment loss of approximately $306,000. Certain other manufacturing fixed assets met the “held for sale” and “discontinued operations” criteria as required by SFAS 144, at November 27, 2004. As a result of the foregoing factors, net loss was $38.8 million in the six months ended November 27, 2004, compared to net income in the six months ended November 29, 2003 of $13.7 million, a decrease of 383.2% over the same period last year.

Net sales for the three months ended December 3, 2005 decreased $18.0 million, or 6.4%, to $265.4 million from $283.4 million in the corresponding three-month period ended November 27, 2004. Sales of our cardiovascular and other equipment in the three months ended December 3, 2005 decreased $5.1 million, or 2.1%, to $233.1 million. Sales of our strength training equipment in the three months ended December 3, 2005 decreased $12.9 million, or a negative 28.5%, to $32.3 million. The decrease in product sales was primarily due to lower customer demand for certain products and the availability of product mix. Gross profit in the three months ended December 3, 2005 was $67.9 million, or 25.6% of net sales, compared to $71.8 million, or 25.3% of net sales, in the three months ended November 27, 2004. This slight increase in the gross profit percentage was primarily due to the timely release of products, manufacturing efficiencies and reductions in air freight. Selling expenses decreased $8.8 million, or 23.2%, to $29.2 million in the three months ended December 3, 2005. This decrease reflected reduced advertising, salaries and wages and bad debt expense of approximately $13.2 million offset by increases in freight, warranty and other costs of approximately $4.4 million. Expressed as a percentage of net sales, selling expenses were 11.0% in the three months ended December 3, 2005 compared to 13.4% in the three months ended November 27, 2004. Research and development expenses in the three months ended December 3, 2005 were $2.8 million, compared to $3.1 million in the three months ended November 27, 2004. Expressed as a percentage of net sales, research and development expenses were 1.1% in three months ended December 3, 2005 and 1.1% in the three months ended November 27, 2004. General and administrative expenses increased $0.4 million, or 1.7%, to $24.0 million in the three months ended December 3, 2005. This increase for the period can be attributed to increases in depreciation and amortization and currency transaction losses of approximately $3.3 million offset by reductions in salaries and wages and legal fees due to cost constraint measures implemented by us of approximately $2.9 million. Expressed as a percentage of net sales, general and administrative expenses were 9.0% in the three months ended December 3, 2005 and 8.3% in the three months ended November 27, 2004. As a result of the foregoing factors, income from operations was $11.9 million in the three months ended December 3, 2005 compared to income from operations of $7.2 million in the three months ended November 27, 2004. As a result of the foregoing factors, EBITDA (as defined under "Seasonality") increased by $6.4 million to $19.2 million in the three months ended December 3, 2005 compared to EBITDA of $12.8 million in the three months ended November 27, 2004. Interest expense, including amortization of deferred financing fees and the loss on extinguishment of debt, increased $2.1 million, or 28.8%, to $9.4 million in the three months ended December 3, 2005. Expressed as a percentage of net sales, interest expense, including amortization of deferred financing fees and loss on extinguishment of debt, was 3.5% in the three months ended December 3, 2005 and 2.6% in the three months ended November 27, 2004. The provision for income taxes was $0.7 million in the three months ended December 3, 2005, compared to a benefit for income taxes of $2.1 million in the three months ended November 27, 2004. The higher effective tax rate in the second quarter of fiscal 2006 is the result of deferred tax valuation allowances. As of December 3, 2005 we have a valuation allowance of approximately $40.0 million recorded against our net deferred tax asset. Accounting guidelines suggest that when a company has a cumulative loss over a three-year period that a valuation allowance should be provided. Although we had income in two of the last three years, the loss in the third year exceeded the cumulative income in the prior two years. Valuation allowances reduce deferred income tax balances to the appropriate amount of recoverable income taxes based on assessments of taxable income within the carryback or carryforward periods for each year. During the second quarter of fiscal 2005, we determined that our JumpKing, Inc. ("JumpKing") subsidiary would discontinue manufacturing, marketing and distributing all outdoor recreational equipment (“Outdoor Recreational Equipment Operations”) which includes trampolines, spas and other non-exercise related products. The Outdoor Recreational Equipment Operations were not a part of our core business operations or our strategic focus. In addition, it was not making a positive contribution to our earnings and also required a substantial investment in working capital. The Outdoor Recreational Equipment Operations have been classified as a discontinued operation and its expenses are not included in the results of continuing operations. The results of operations for the three months ended December 3, 2005 for the Outdoor Recreational Equipment Operations have been classified as a loss from discontinued operations. The loss from operations, net of tax, for the Outdoor Recreational Equipment Operations was $7.7 million and $20.0 million for the three months ended December 3, 2005 and November 27, 2004, respectively. On January 10, 2005, we sold our spa business comprising a portion of the our JumpKing subsidiary to an unrelated third party (the “Buyer”). The assets sold included all inventory, equipment, business records and customer contracts associated with the spa business. In addition, we sold a license for the use of trade names to the Buyer over a period of three years and subleased a portion of JumpKing's facility located in Mesquite, Texas for continued manufacturing. The Buyer paid approximately $4.0 million for the spa business and is obligated to pay additional amounts associated with the license of trade names to us calculated as 1.5% of the gross selling price for the Spa Business products sold by the Buyer over the three year licensing period. In conjunction with the discontinuance of the Outdoor Recreational Equipment Operations, we performed an evaluation of long-lived assets at the date of sale pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”) and determined that certain of the manufacturing fixed assets will be subject to an impairment loss of approximately $0.4 million for the fiscal year ended May 31, 2005 and $1.0 million the second quarter ended December 3, 2005. Certain other manufacturing fixed assets met the “held for sale” and “discontinued operations” criteria as required by SFAS 144, at December 3, 2005. As a result of the foregoing factors, net loss was $5.9 million in the three months ended December 3, 2005, compared to a net loss in the three months ended November 27, 2004 of $18.1 million, a decrease of 67.4% over the same period last year.

Six ~~The~~Months ~~market~~Ended ~~for~~December ~~exercise equipment is highly seasonal~~3, ~~with~~2005 ~~peak~~Compared periods occurring from late fall through early spring. As a result, the first and fourth quarters of every fiscal year are generally our weakest periods in terms of sales. During these periods, we build product inventory to ~~prepare~~Six ~~for~~Months ~~the~~Ended ~~heavy demand~~November ~~anticipated during the upcoming peak season. This operating strategy helps us to realize the efficiencies of a steady pace of year-round production. The following are net sales~~27, ~~net income (loss) and EBITDA by quarter for fiscal years 2005 and~~ 2004 ~~(in millions):~~

	First		Second		Third		Fourth
	Quarter(1)(5)		Quarter(2)(5)		Quarter(3)		Quarter(4)

Net sales for the six months ended December 3, 2005 decreased $8.4 million, or 2.0%, to $409.6 million from $418.0 million in the corresponding six-month period ended November 27, 2004. Sales of our cardiovascular and other equipment in the six months ended December 3, 2005 increased $6.4 million, or 1.9%, to $352.3 million. Sales of our strength training equipment in the six months ended December 3, 2005 decreased $14.7 million, or a negative 20.4%, to $57.3 million. The decrease in product sales was primarily due to lower customer demand for certain products and the availability of product mix.

Gross profit in the six months ended December 3, 2005 was $107.1 million, or 26.1% of net sales, compared to $105.6 million, or 25.3% of net sales, in the six months ended November 27, 2004. This increase in gross profit margin was primarily due to the timely release of products, manufacturing efficiencies and reductions in air freight.

Selling expenses decreased $10.7 million, or 16.0%, to $56.3 million in the six months ended December 3, 2005. This decrease reflected reduced advertising, salaries and wages and bad debt expense of approximately $18.7 million offset by increases in freight, warranty and other costs of approximately $8.0 million. Expressed as a percentage of net sales, selling expenses were 13.7% in the six months ended December 3, 2005 compared to 16.0% in the six months ended November 27, 2004.

Research and development expenses in the six months ended December 3, 2005 were $5.7 million, compared to $6.2 million in the six months ended November 27, 2004. Expressed as a percentage of net sales, research and development expenses were 1.4% in six months ended December 3, 2005 and 1.5% in the six months ended November 27, 2004.

General and administrative expenses increased $2.6 million, or 5.7%, to $48.0 million in the six months ended December 3, 2005. This increase for the period can be attributed to increases in depreciation and amortization and currency transaction losses of approximately $5.6 million offset by reductions in legal fees, rent and lease and other expenses due to cost constraint measures implemented by us of approximately $3.0 million. Expressed as a percentage of net sales, general and administrative expenses were 11.7% in the six months ended December 3, 2005 and 10.9% in the six months ended November 27, 2004.

As a result of the foregoing factors, the loss from operations was $2.9 million in the six months ended December 3, 2005 compared to loss from operations of $12.9 million in the six months ended November 27, 2004.

As a result of the foregoing factors, EBITDA (as defined under "Seasonality") increased $14.0 million to $12.5 million in the six months ended December 3, 2005 compared to EBITDA of negative $1.5 million in the six months ended November 27, 2004.

Interest expense, including amortization of deferred financing fees and loss on extinguishment of debt, increased $2.9 million, or 21.3%, to $16.5 million in the six months ended December 3, 2005. Expressed as a percentage of net sales, interest expense, including amortization of deferred financing fees and loss on extinguishment of debt, was 4.0% in the six months ended December 3, 2005 and 3.3% in the six months ended November 27, 2004.

The provision for income taxes was $1.1 million in the six months ended December 3, 2005, compared to a benefit for income taxes of $10.4 million in the six months ended November 27, 2004. The higher effective tax rate in the second quarter of fiscal 2006 is the result of deferred tax valuation allowances. As of December 3, 2005 we have a valuation allowance of approximately $40.0 million recorded against our net deferred tax asset. Accounting guidelines suggest that when a company has a cumulative loss over a three-year period that a valuation allowance should be provided. Although we had income in two of the last three years, the loss in the third year exceeded the cumulative income in the prior two years. Valuation allowances reduce deferred income tax balances to the appropriate amount of recoverable income taxes based on assessments of taxable income within the carryback or carryforward periods for each year.

During the second quarter of fiscal 2005, we determined that our JumpKing, Inc. ("JumpKing") subsidiary would discontinue manufacturing, marketing and distributing all outdoor recreational equipment (“Outdoor Recreational Equipment Operations”) which includes trampolines, spas and other non-exercise related products. The Outdoor Recreational Equipment Operations were not a part of our core business operations or our strategic focus. In addition, it was not making a positive contribution to our earnings and also required a substantial investment in working capital. The Outdoor Recreational Equipment Operations have been classified as a discontinued operation and its expenses are not included in the results of continuing operations. The results of operations for the six months ended December 3, 2005 for the Outdoor Recreational Equipment Operations have been classified as a loss from discontinued operations. The loss from operations, net of tax, for the Outdoor Recreational Equipment Operations was $10.2 million and $22.7 million for the six months ended December 3, 2005 and November 27, 2004, respectively.

On January 10, 2005, we sold our spa business comprising a portion of the our JumpKing subsidiary to an unrelated third party (the “Buyer”). The assets sold included all inventory, equipment, business records and customer contracts associated with the spa business. In addition, we sold a license for the use of trade names to the buyer over a period of three years and subleased a portion of JumpKing's facility located in Mesquite, Texas for continued manufacturing by the Buyer. The Buyer paid approximately $4.0 million for the spa business and is obligated to pay additional amounts associated with the license of trade names to us calculated as 1.5% of the gross selling price for the Spa Business products sold by the Buyer over the three year licensing period.

In conjunction with the discontinuance of outdoor recreational equipment operations, we performed an evaluation of long-lived assets at the date of sale pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”) and determined that certain of the manufacturing fixed assets will be subject to an impairment loss of approximately $0.4 million for the fiscal year ended May 31, 2005 and $1.0 million the second quarter ended December 3, 2005. Certain other manufacturing fixed assets met the “held for sale” and “discontinued operations” criteria as required by SFAS 144, at December 3, 2005

As a result of the foregoing factors, net loss was $30.7 million in the six months ended December 3, 2005, compared to a net loss in the six months ended November 27, 2004 of $38.8 million, a decrease of 20.9% over the same period last year.

Net Sales
2005	$	130.7		$	275.4		$	-	$	-
2004		164.3			309.0			328.0		238.1
Net income (loss)
2005	$	(20.8	)	$	(18.0	)	$	-	$	-
2004		(1.7	)		15.4			18.2		(8.5	)

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $86.0 million in the six-month period ended December 3, 2005, as compared to $127.8 million of cash used by operating activities in the six-month period ended November 27, 2004. In the six-month period ended December 3, 2005, major sources of funds were non-cash provisions of $15.4 million for depreciation and amortization; a decrease in income taxes receivable of $23.4 million and an increase in accounts payable and accrued expenses $20.0 million. The increase in accounts payable and accrued expenses can be attributed to the costs to build inventory as we enter our peak selling periods. These changes were offset by a net loss of $30.7 million, and an increase in accounts receivable of $90.5 million and inventory of $26.1 million. The increase in accounts receivable can be attributed to increase in sales. The increase in inventory can be attributed to the seasonal build-up that will carry us through our busy season. In the six-month period ended November 27, 2004, major sources of funds were non-cash provisions of $11.4 million for depreciation and amortization, and a decrease in accounts payable and accrued expenses of $31.3 million. These changes were offset by a net loss of $38.8 million, and an increase in accounts receivable of $76.5 million and inventories of $23.7 million. These increases can be attributed to increased sales and the build up of inventory for the upcoming busy season.

Net cash used in investing activities was $6.0 million in the six-month period ended December 3, 2005, compared to $19.6 million of cash used in investing activities in the six-month period ended November 27, 2004. Investing activities in the six-month period ended December 3, 2005 consisted primarily of capital expenditures of $5.4 million related to upgrades in plant and tooling and purchases of additional manufacturing equipment, and purchases of intangible assets of $0.6 million. Cash used in investing activities in the six-month period ended November 27, 2004 consisted primarily of capital expenditures of $11.6 million related to upgrades in plant and tooling, purchases of additional manufacturing equipment, purchases of intangible assets of $1.6 million and purchases related to the manufacturing facility in China of $6.4 million.

Net cash provided by financing activities was $75.4 million in the six-month period ended December 3, 2005, compared to $113.3 million of cash provided by financing activities in the six-month period ended November 27, 2004. Cash provided by financing activities in the six-month period ended December 3, 2005 resulted from borrowings less payments on our revolving credit agreements. Cash provided by financing activities in the six-month period ended November 27, 2004 resulted from borrowings less payments on the revolving Credit Facility, payments on term notes and payments on other long-term debt.

The following noncash transaction has been excluded from the Condensed Consolidated Statements of Cash Flows for the six months ended December 3, 2005: On July 30, 2005, we entered into a stock purchase agreement (the “Agreement”) with the minority shareholder of our Foreign Subsidiary to acquire our 70% interest in the Foreign Subsidiary in consideration for cancellation of debt of approximately $10.0 million. Our basis in the project after a year of activity was approximately $9.2 million and we recognized a gain of $0.8 on the sale of our interest. Pursuant to the Agreement, we had 45 days from the date of the Agreement to negotiate a repurchase option agreement and supply agreement. We did not enter into an option purchase agreement or a supply agreement within the 45 day period. We believe that we will have access to the Foreign Subsidiary’s capacity and will use it as well as other third party offshore vendors to meet our current and future manufacturing needs.

On October 31, 2005, we replaced our existing $275 million credit agreement with a new $290 million credit agreement (the “New Credit Agreement”). The New Credit Agreement provides for a five-year revolving line of credit up to $250 million, including issuances of letters of credit from time to time, and a junior term loan (the “Junior Term Loan”) of $40 million. At our option, revolving credit advances bear interest at either (a) a base rate equal to the higher of the Federal Funds Rate or the Bank of America's prime rate plus a margin which varies from 0.0% to 1.25% depending on our level of excess availability or (b) the LIBOR rate plus a margin which varies from 1.5% to 3.0% depending on our level of excess availability. If we meet certain EBITDA thresholds, the margin is calculated at lower rates. The New Credit Agreement also includes a fixed charge coverage ratio. The Junior Term Loan bears an interest rate equal to the greater of 12.5% or the Bank of America's p rime rate plus 6%. As a result of the New Credit Agreement, the remaining capitalized deferred financing fees on the existing agreement were recorded as of the date of the New Credit Agreement as loss on extinguishment of debt.

Outstanding borrowings under the New Credit Agreement are based on a percentage of eligible accounts receivable, inventory and property, plant and equipment. All loans under the New Credit Agreement are collateralized by a first priority security interest in all existing and subsequently acquired assets and our domestic and Canadian subsidiaries, subject to specified exceptions, and a pledge of 65% of the stock of the our first-tier foreign subsidiaries. All loans are cross-collateralized and contain cross default provisions.

All of our outstanding common stock, owned by HF Holdings, has been pledged to the lenders under the New Credit Agreement. If we were to default under the Credit Facility, the lenders would foreclose on the pledge and take control of our Company.

We are also required to maintain a lockbox arrangement whereby remittances from our customers reduce the borrowings outstanding under the New Credit Agreement. The New Credit Agreement also contains a Material Adverse Effect ("MAE") clause which grants the agent and lenders the right to block, and serves as a condition for, our requests for future advances. EITF Issue 95-22 "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lockbox Arrangement" requires borrowings under credit agreements with these two provisions to be classified as current obligations. Accordingly, we have classified the outstanding borrowings under the Credit Facility as a short-term liability. We do not believe that any of these MAE's have occurred and we intend to manage the New Credit Agreement as long-term debt with a final maturity date in 2012.

Our primary short-term liquidity needs consist of financing seasonal merchandise inventory buildups and paying cash interest expense under our new credit agreement facilities and on the 11.25% subordinated notes due in April 2012. Our principal source of financing for our seasonal merchandise inventory buildup and increased accounts receivable is revolving credit borrowings under the existing credit facilities. At December 3, 2005, we had $81.3 million of availability under these facilities. Our working capital borrowing needs are typically at their lowest level from April through June, increase somewhat through the summer and sharply increase from September through November to finance accounts receivable and purchases of inventory in advance of the Christmas and post-holiday selling season. Generally, in the period from November through February, our working capital borrowings remain at their highest level and then are paid down to their lowest annual levels from April through August.

As of December 3, 2005, the balance outstanding under our existing Credit Agreements was $205.2 million. As of December 3, 2005, our consolidated indebtedness was approximately $358.5 million, of which approximately $205.2 million was senior indebtedness.

As part of our cash management activities, we seek to manage accounts receivable credit risk, collections, accounts payable and payments thereof to maximize our free cash at any given time.

We incurred a net loss and negative operating cash flows through the six-month period ended December 3, 2005. We have been able to satisfy our needs for working capital and capital expenditures, due in part to our ability to access adequate financing arrangements. We expect that operations will continue, with the realization of assets and discharge of current liabilities in the ordinary course of business.

We believe that our existing cash and credit facilities at December 3, 2005 are adequate to fund our operations through the second quarter of fiscal 2007. If we fail to achieve our planned revenues, costs and working capital objectives, we believe we have the ability to curtail capital expenditures and reduce costs to levels that will be sufficient to enable us to meet our cash requirements through the second quarter of fiscal 2007.

However, demand for our products and timing of cost reductions are difficult to project. We are continuing to evaluate our current capital structure and may investigate alternative sources of financing. Alternative sources of financing may not be available if required or, if available, may not be on satisfactory terms. If we are unable to obtain alternative financing on satisfactory terms, it would have a material adverse effect on our business, and we would be required to curtail capital spending, further reduce expenses, and otherwise modify our planned operations.

SEASONALITY

The market for exercise equipment is highly seasonal, with peak periods occurring from late fall through early spring. As a result, the first and fourth quarters of every fiscal year are generally our weakest periods in terms of sales. During these periods, we build product inventory to prepare for the heavy demand anticipated during the upcoming peak season. This operating strategy helps us to realize the efficiencies of a steady pace of year-round production. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.

The following are net sales, net income (loss) and EBITDA by quarter for fiscal years 2006, 2005 and 2004 (in millions):

	First		Second		Third		Fourth
	Quarter⁽¹⁾		Quarter⁽²⁾		Quarter⁽³⁾		Quarter⁽⁴⁾

Net Sales
2006	$	144.2		$	265.4		$	-		$	-
2005		134.6			283.4			307.5			176.0
2004		167.9			313.1			312.2			199.0

Net income (loss)
2006	$	(24.8	)	$	(5.9	)	$	-		$	-
2005		(20.8	)		(18.1	)		(0.8	)		(70.3	)
2004		(1.7	)		15.4			18.2			(8.5	)

Use of Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with GAAP, we use the non-GAAP measure of earnings before income taxes, depreciation and amortization (“EBITDA”) which is adjusted from our GAAP results to exclude certain expenses. These non-GAAP adjustments are provided to enhance the reader's overall understanding of our current financial performance and our prospects for the future. We believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses that we believe are not indicative of our core operating results. The non-GAAP measures are included to provide us and investors with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between quarters. For example, EBITDA can be used to measure our ability to service debt, fund capital expenditures and expand our business. Further, these non-GAAP results are one of the primary indicators we use for planning and forecasting in future periods. In addition, since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in our financial reporting. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States. We define EBITDA as income before interest expense, income tax expense, depreciation and amortization and certain non-recurring items. The loss on ~~discontinuing~~extinguishment of debt and the loss on discontined operations incurred in the six months ended ~~November~~December 273, ~~2004~~2005 meets the definition of "non-recurring" in relevant SEC guidelines. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States, nor should it be considered as an indicator of our overall financial performance. Our calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

The following is a reconciliation of net income (loss) to EBITDA by quarter (in millions):

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter

Fiscal Year 2005
Fiscal Year 2006
Net loss	$	(2024.8	)	$	(185.09	)	$	-	$	-
Add back:
Depreciation and amortization		5.8.1			57.63			-		-
Benefit of income taxes		(10.2	)		(0.2	)		-		-
Provision for income taxes		0.3			0.8			-		-
Interest expense		6.07			7.04			-		-
Amortization of deferred financing fees		0.3			0.3			-		-
Loss on extinguishment of debt		-			1.7			-		-
Discontinued operations		4.3			17.9			-		-
Amortization of deferred financing fees		0.4			0.3			-		-
Discontinued operations		2.6			7.6			-		-

EBITDA $ (~~14.~~6.7 ) $ 1219.62 $ - $ -

Fiscal Year 2004
Fiscal Year 2005
Net income (loss)	$	(1.7	)	$	15.4		$	18.2		$	(8.5	)
Net loss	$	(20.8	)	$	(18.1	)	$	(0.8	)	$	(70.3	)
Add back:
Depreciation and amortization		5.58			5.6			6.24			47.16
Provision for income taxes		0.3			10.6			5.2			1.2
Provision for (benefit of) income taxes		(9.9	)		(14.4	)		(1.8	)		19.1
Interest expense		6.0			67.41			68.40			6.37
Amortization of deferred financing fees		-0.3			0.3			0.32			0.3
Discontinued operations		(04.63	)		232.63			-5.3			-9.2

EBITDA $ 9(14.53 ) $ 4012.98 $ 3617.3 $ 3(27.4 )

(1)	Our first quarter ended August 28 and August 30 for fiscal years 2005 and 2004, respectively.
Fiscal Year 2004
(2)	Our second quarter ended November 27 and November 29 for fiscal years 2005 and 2004, respectively.
Net income (loss)	$	(1.7	)	$	15.4	$	18.2	$	(8.5	)
(3)	Our third quarter ended February 26 and February 28 for fiscal years 2005 and 2004, respectively.
Add back:
(4)	Our fourth quarter ended May 31 for the fiscal years 2005 and 2004, respectively.
Depreciation and amortization		5.3			5.4		6.1		3.9
(5)	Sales in the first and second quarter have been restated to reflect the discontinuance of outdoor recreational equipment.
Provision for income taxes		0.5			9.1		5.2		1.1
Interest expense		6.0			6.4		6.4		6.3
Amortization of deferred financing fees		-			0.3		0.3		0.3
Discontinued operations		(0.7	)		4.4		1.9		(0.6	)

~~Liquidity~~EBITDA ~~and~~$ ~~Capital~~9.4 ~~Resources~~ $ 41.0 $ 38.1 $ 2.5

~~Working Capital Working capital decreased to $39.4 million at November 27, 2004, from $111.7 million at May 31, 2004.~~ The ~~decrease was~~following ~~attributable~~is toa anreconciliation ~~increase in the current portion~~ of ~~long-term debt and accounts payable. Both increases can be attributed to the build up of inventory in the peak periods. During the second quarter of fiscal 2005, our primary source of~~ cash ~~consisted of~~flows ~~borrowings under our credit facilities, which increased by $125.8 million to $247.9 million at November 27, 2004~~ from ~~$122.1~~ ~~million at May 31, 2004. Our primary uses of cash in the second quarter of fiscal 2005 included $131.6 million to fund~~ operating activities, ~~compared~~ to ~~$71.0~~EBITDA ~~million~~by in the same period of fiscal 2004, and $18.1 million for capital expenditures, compared to $12.2 million in the same period of fiscal 2004. Cash used in operating activities was primarily attributable to in the increase in inventory to support the busy season, higher commodity prices particularly steel, plastics and wood and changes in inventory mix. Capital Expenditures Capital expenditures were $18.1 million in the second quarter of fiscal 2005 and $12.2 million in the second quarter of fiscal 2004. Capital expenditures in the second quarter of fiscal 2005 were primarily for routine replacement of machinery and equipment, facility improvements and expansions, including $6.4 million for the facility we are building in China, and the purchase of computer hardware and software. Capital expenditures in the second quarter of fiscal 2004 were primarily for routine replacement of machinery and equipment, facility improvements and expansions, including $3.1 million for the facility we are building in China, and the purchase of computer hardware and software. Sources of Liquidity As of November 27, 2004, our primary sources of liquidity were available borrowings of $30.9 million under our domestic credit facility. China Subsidiary Liquidity Our China subsidiary has available its own credit facilities of up to $13.0 million, consisting of a term loan facility of $6.0 million and a revolving credit facility of $7.0 million. Future Needs Our ongoing cash requirements for debt service and related obligations are expected to consist primarily of interest payments under our domestic credit facility, interest payments on our 11.25% senior subordinated notes and capital expenditures. We believe our sources of liquidity and capital resources are sufficient to meet all currently anticipated short-term and long-term operating cash requirements, including debt service payment on our credit facility and 11.25% senior secured notes prior to their scheduled maturities in fiscal 2012 and fiscal 2012, respectively. However, we may need to replace or to refinance all or a portion of our credit facility and the 11.25% notes prior to their respective maturities. If we are unable to satisfy our debt obligations or to timely refinance or replace our debt, we may need to sell assets, reduce or delay capital investments or raise additional capital to be able to effectively operate our business. Total assets as of November 27, 2004 and May 31, 2004 were $681.7 million and $558.5 million, respectively. The increase in assets was primarily attributable to the increases in accounts receivable, inventory and our tax assets. Accounts receivable increased as a result of our entering into our peak periods for sales. Inventory increased as a result of peak period production, higher commodity prices i.e., steel, plastics and wood, changes in inventory mix and transportation costs. Tax assets increased to reflect the benefit going forward on the loss on discontinued operations. In addition, income taxes receivable increased as a result of the income tax refund booked for the current net operating loss that can be carried back to prior periods. Net debt (current portion of long-term debt plus long-term debt less cash) for the six-month period ended November 27, 2004 and the fiscal year ended May 31, 2004 was $395.1 million and $283.9 million, respectively. This increase represents the amounts to fund operating activities for the period, including capital expenditures purchases which were $18.1 million compared to capital expenditures of $12.2 million in ~~the three months ended November 29, 2003.~~millions):

~~The~~First ~~Credit~~Second ~~Agreement~~Third Fourth Quarter Quarter Quarter Quarter

On October 11, 2004, we amended our credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement increases the amount available from $210 million to $275 million. In addition, the remaining balance on the term note with accrued interest (approximately $12.5 million) was converted to and become a part of the revolver balance. At our option, revolving credit advances bear interest at either (a) a floating rate equal to the Index Rate plus the applicable margin of 1.375% or (b) a floating rate equal to the LIBOR rate plus the applicable margin of 2.75%. If we meet certain fixed charge coverage ratios, the applicable margins have lower rates. The Amended Credit Agreement waives any violation of financial covenants for the second quarter of fiscal 2005 and eliminates those financial covenants going forward. The Amended Credit Agreement also provides for the formation of certain Chinese sales corporations to facilitate our doing business in China. We are also required to maintain a lockbox arrangement whereby remittances from our customers reduce the borrowings outstanding under the Credit Agreement. The Credit Agreement also contains a Material Adverse Effect ("MAE") clause which grants the agent and lenders having more than 66 and 2/3% of the commitment or borrowings the right to block our requests for future advances. EITF Issue 95-22 "Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lockbox Arrangement" requires borrowings under credit agreements with these two provisions to be classified as current obligations. We do not believe that any of these MAE's have occurred. We intend to manage the Credit Facility as long-term debt with a final maturity date in 2007, as provided for in the Credit Agreement. A subsequent amendment was signed on December 21, 2004 related to funding the China facility. The balance outstanding under the existing Credit Agreement consisted of (in millions):

Fiscal Year 2006
Net cash (used in)
operating activities	$	(19.1	)	$	(66.9	)	$	-	$	-
Net change in operating assets
and liabilities		(0.2	)		69.0			-		-
Interest expense		6.7			7.4			-		-
Discontinued operations		2.6			7.6			-		-
Income tax provision-current		3.3			2.1			-		-

~~November~~EBITDA ~~27,~~$ ~~2004~~(6.7 ~~May~~) ~~31,~~$ ~~2004~~19.2 ~~November~~$ ~~29,~~- ~~2003~~$ -

Revolver	$	247.9		$	122.1		$	167.0
Fiscal Year 2005
Term Loan		-			13.8			16.3
Net cash provided by (used in)
operating activities	$	(47.8	)	$	(79.9	)	$	47.2		$	69.8
Net change in operating assets
and liabilities		18.8			64.3			(46.1	)		(134.9	)
Interest expense		6.0			7.1			8.0			6.7
Discontinued operations		4.3			32.3			5.3			9.2
Income tax (benefit) provision-current		4.4			(11.0	)		2.9			21.8

~~Total~~EBITDA $ ~~247~~(14.93 ) $ ~~135~~12.98 $ ~~183~~17.3 $ (27.4 )

As of November 27, 2004, our consolidated indebtedness was approximately $401.1 million, of which approximately $247.9 million was senior indebtedness. With the exception of the increases in the revolver noted above, our contractual cash obligations and commercial commitments remained consistent with those at the end of fiscal 2004.

Fiscal Year 2004
Net cash provided by (used in)
operating activities	$	(48.3	)	$	(22.7	)	$	31.4		$	50.2
Net change in operating assets
and liabilities		52.3			41.5			(5.9	)		(50.1	)
Interest expense		6.0			6.4			6.4			6.3
Discontinued operations		(0.7	)		4.4			1.9			(0.6	)
Income tax provision (benefit)-current		0.1			11.4			4.3			(3.3	)

OnEBITDA ~~January~~$ ~~13,~~9.4 ~~2004~~$ we41.0 ~~obtained~~$ ~~written waivers from the agent and lenders having more than 33 and~~ 38.1~~/3%~~ of the commitment or borrowings waiving their rights under the MAE clause for the period from January 13, 2004 to January 18, 2005. Accordingly, we have classified the outstanding borrowings under the credit agreement, which totaled $~~178.3~~ ~~million at November 29, 2003 as a long-term liability~~2.5

Critical Accounting Policies

⁽¹⁾	Our first quarter ended September 3, August 28 and August 30 for fiscal years 2006, 2005 and 2004, respectively.

⁽²⁾	Our second quarter ended December 3, November 27 and November 29 for fiscal years 2006, 2005 and 2004, respectively.

⁽³⁾	Our third quarter ended February 26 and February 28 for fiscal years 2005 and 2004, respectively.

⁽⁴⁾	Our fourth quarter ended May 31 for the fiscal years 2005 and 2004, respectively.

~~Our discussion of financial condition and results of operations relies on~~ ~~our~~RECENT ~~consolidated~~ACCOUNTING ~~financial statements that are prepared based on certain~~PRONOUNCEMENTS critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in our annual report on Form 10-K as filed with the Securities and Exchange Commission on August 30, 2004 are those that depend most heavily on these judgments and estimates. As of November 27, 2004, there have been no material changes to any of the critical accounting policies contained therein.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued ~~Risk~~SFAS ~~Factors~~No. 123 (Revised 2004), "Share-Based Payment" (“SFAS No. 123R”) which replaces SFAS No. 123, supercedes Accounting Principles Board (“APB”) No. 25 and related interpretations and amends SFAS No. 95, "Statement of Cash Flows." The provisions of SFAS No. 123R are similar to those of SFAS No. 123; however, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statement as compensation cost based on their fair value on the date of the grant. The fair value of the share-based awards will be determined using an option-pricing model on the grant date. SFAS No. 123R is effective at the beginning of the first fiscal year beginning after June 15, 2005. We will adopt SFAS No. 123R no later than the first quarter of fiscal 2007. Based upon our preliminary evaluation of the effects of this guidance, we do not believe that it will have a significant impact on our financial statements.

WeIn ~~may~~October be2005, ~~exposed~~the toFASB ~~potential~~issued ~~risks~~FASB ifStaff wePosition do(“FSP”) ~~not~~FAS ~~have an effective system of disclosure controls or internal controls or fail to properly implement Section 404 of Sarbanes~~13-~~Oxley. We~~1, ~~are~~"Accounting ~~now~~for ~~in the process of complying with the requirements of Section~~Rental ~~404~~Costs ofIncurred ~~the~~during ~~Sarbanes-Oxley~~a ~~Act~~Construction ~~of 2002 (~~Period"~~SOX")~~, ~~including~~which ~~those provisions~~addresses ~~that establish~~ the ~~requirements~~accounting for ~~both~~rental ~~management and~~costs ~~auditors~~associated ~~of public companies~~ with ~~respect~~operating toleases ~~reporting~~that onare ~~internal control~~incurred ~~over~~during ~~financial~~a ~~reporting.~~construction ~~These requirements will first become applicable to the Company on August 29, 2006~~period. InThis ~~2004,~~FSP ~~we have devoted~~requires ~~significant~~that ~~resources~~rental tocosts ~~review~~associated ~~and strengthen our internal controls in advance of complying~~ with ~~the~~ground ~~Section~~or ~~404~~building ~~requirements.~~operating ~~The requirements~~leases ~~and~~incurred ~~processes~~during ~~associated~~a ~~with Section 404 are new and~~construction ~~untested,~~period ~~and we cannot~~ be ~~certain~~recognized ~~that~~as ~~the~~rental ~~measures~~expense ~~we have taken,~~ and ~~will~~ ~~take,~~included ~~will~~in beincome ~~sufficient~~from orcontinuing ~~timely completed to meet the Section~~operations. ~~404~~The ~~requirements,~~guidance orin ~~that~~this weFSP ~~will~~shall be ~~able~~applied to ~~implement~~the ~~and~~first ~~maintain adequate~~reporting ~~disclosure~~period ~~controls~~beginning ~~and controls over our financial processes~~after ~~and~~December ~~reporting in the future~~15, ~~particularly in light of our rapid growth and international expansion~~2005, ~~which~~with isearly ~~expected~~adoption topermitted. ~~result~~Based inupon ~~on-going changes to~~ our ~~control~~preliminary ~~systems~~evaluation ~~and areas~~ of ~~potential risk. If we fail to maintain an effective system of disclosure controls or internal control over financial reporting, including satisfaction of~~ the ~~requirements~~effects of ~~Section~~this ~~404 of SOX~~guidance, we ~~may~~do not bebelieve ~~able~~that toit ~~accurately~~will ~~or timely~~have ~~report on our financial results or adequately identify and reduce fraud. As~~ a ~~result,~~significant ~~the~~impact ~~financial~~on ~~position of~~ our ~~business could be harmed; current and potential future security holders could lose confidence in the Company and/or its reported~~ financial ~~results, which may cause a negative effect on our securities; and we could be exposed to litigation or regulatory proceedings, which may be costly or divert management attention~~statements.

WeIn December 2004, the Financial Accounting Standards Board (“FASB”) revised SFAS No. 123, "Accounting for Stock-Based Compensation". This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are ~~exposed~~based toon the ~~risks~~fair ~~associated~~value ~~with~~of the ~~slowdown~~entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) is effective as of the Ubeginning of the first interim or annual reporting period that begins after December 31, 2005, or our first quarter of fiscal 2007.S We are evaluating the impact of the adoption of SFAS No. ~~and~~123(R) ~~worldwide~~on ~~economy~~the financial statements.

~~Among~~ In ~~other~~December ~~factors~~2004, ~~concerns~~the ~~about~~FASB ~~inflation~~issued Staff Position No. FAS 109-1, ~~decreased~~“Application ~~consumer~~of ~~confidence~~FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The Staff Position clarifies that the tax deduction for the qualified domestic production activities provided by the American Jobs Creation Act of 2004 (the “Act”) should be accounted for as a special deduction under FAS 109 as opposed to a tax-rate deduction. The phase-in of the tax deduction begins with qualifying production activities for the year ending December 31, 2005. The Act replaces the extraterritorial income (“ETI”) tax incentive with a domestic manufacturing deduction. We have not determined the impact of this pronouncement at this time. In March 2004, the FASB issued Emerging Issues Task Force Issues No. 03-1, “The Meaning of Other-Than-Temporary Impairment and ~~spending~~Its Application to Certain Investments” (“EITF No. 03-1”), which provides guidance for assessing impairment losses on debt and ~~reduced~~equity investments. Additionally, EITF No. 03-1 includes new ~~corporate~~disclosure ~~profits~~requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF No. 03-1; however, the disclosure requirements remain effective and ~~capital~~we ~~spending~~have ~~resulted~~adopted them. We do not expect the effect of implementing EITF No. 03-1, when final guidance is released, to have a material impact on our financial statements. In March 2005, the FASB issued Financial Interpretation Number (“FIN”) 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS 143 (Asset Retirement Obligations)". FIN 47 addresses diverse accounting practices that have developed with regard to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset in which the timing and/or method of settlement are conditional on a ~~downturn~~future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity should have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provision is effective for fiscal years ending after December 15, 2005. We have not determined the impact that the adoption of FIN 47 will have on our consolidated financial position, results of operations or cash flows. In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — An Amendment of Accounting Research Bulletin No. 43 (ARB No. 43), Chapter 4,” which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). We are required to adopt SFAS No. 151 in fiscal year 2007 and the Uresults of its adoption are still being assessed.S In December 2004, the FASB issued SFAS No. ~~economy~~153, ~~generally~~“Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. If29.” The amendments made by SFAS No. 153 are based on the ~~adverse~~principle ~~economic~~that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 also eliminates the exception for nonmonetary ~~conditions~~exchanges ~~continue~~of orsimilar ~~worsen~~productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of SFAS No. 153 will have a significant impact on our ~~business~~results of operations or financial position. In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements for the accounting for and reporting of a change in accounting principle. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial ~~condition~~statements of voluntary changes in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 will have a significant impact on our results of operations ~~may~~or befinancial ~~seriously effected~~position.

CRITICAL ACCOUNTING POLICIES

Our discussion of financial condition and results of operations relies on our consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in our annual report on Form 10-K as filed with the Securities and Exchange Commission on September 2, 2005 are those that depend most heavily on these judgments and estimates. As of December 3, 2005, there have been no material changes to any of the critical accounting policies contained therein.

RISK FACTORS

Our future operating results are likely to fluctuate and therefore may fail to meet expectations.

Our operating results have varied widely in the past and may continue to fluctuate in the future. In addition, our operating results may not follow any past trends. Our future operating results will depend on many factors and may fluctuate and fail to meet our expectations or those of others for a variety of reasons, including the following:

1. competitive pricing pressure, 2. price increases in raw materials and 3. the need for constant, rapid, new product introductions present an ongoing design and manufacturing challenge.

	1.	competitive pricing pressure, and

	2.	the need for constant, rapid, new product introductions present an ongoing design and manufacturing challenge.

As a result of these or other factors, we could fail to achieve our expectations as to future revenues, gross profit and income from operations. Any downward fluctuation or failure to meet expectations will likely adversely affect our financial results.

Reliance on Major Customers. Our three largest customers together accounted for approximately 53.1%, 53.8%, 54.6% and 61.8% of our revenues in fiscal years 2002, 2003, 2004, and the first six months of fiscal 2005, respectively. Our largest customer, Sears, Roebuck and Co., accounted for 44.5%, 39.3%, 38.7% and 42.2% of our revenues in fiscal years 2002, 2003, 2004, and the first six months of fiscal 2005, respectively. The level of our sales to these customers depends in large part on consumers' continuing commitment to home fitness equipment products and on the success of the customers' efforts to market and promote our products, as well as our competitiveness in terms of price, quality, product innovation, customer service and other factors. Consistent with industry practice, we do not have long-term purchase agreements or other commitments as to levels of future sales. The loss of, or a substantial decrease in the amount of purchases by, or a write-off of any significant receivables due from any of our major customers would have a material adverse effect on our business. In addition, we offer our products directly to consumers through Nordictrack stores, kiosks and direct response channels. Our direct sales to consumers, particularly through kiosks and stores in malls where our existing customers have retail sales outlets, could affect our sales and our relationships with existing customers.

Our financial results could be seriously harmed if the markets in which we sell our products do not grow.

Our continued success depends in large part on the continued growth of the exercise equipment market. Any reduction in the growth of, or decline in the demand for exercise equipment could seriously harm our business, financial condition and results of operations. In addition, certain of our products, may in the future, experience significant fluctuations in demand. We may also be seriously harmed by slower growth in the other markets in which we sell our products. Even in the absence of an industry downturn, the average selling prices of our products have historically decreased during the products’ lives and we expect this trend to continue. In order to offset selling price decreases, we attempt to decrease the manufacturing costs of our products and to introduce new, higher priced products that incorporate advanced features. If these efforts are not successful or do not occur in a timely manner, or if our newly introduced products do not gain market acceptance, our business, financial condition and results of operations could be seriously harmed.

In addition to following the general pattern of decreasing average selling prices, the selling prices for certain products fluctuate significantly with real and perceived changes in the balance of supply and demand for these products. In the event we are unable to decrease per unit manufacturing costs at a rate equal to or faster than the rate at which selling prices continue to decline, our business, financial condition and results of operations will be seriously harmed. Furthermore, we expect our competitors to invest in new manufacturing capacity and achieve significant manufacturing yield improvements in the future. These developments could dramatically increase the worldwide supply of competitive products and result in further downward pressure on prices.

Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages. We obtain materials and manufactured items from third-party suppliers. Any delay in our suppliers’ abilities to provide us with necessary materials and components may affect our manufacturing capabilities or may require us to seek alternative supply sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, such as capacity constraints, labor disputes, the impaired financial condition of a particular supplier, suppliers’ allocations to other purchasers, weather emergencies or acts of war or terrorism. Any delay in receiving supplies could impair our ability to supply products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition. Additionally, we are dependent on maintaining good relations with these third-party suppliers. The abrupt loss of any of our third-party suppliers, or a decline in the quality or quantity of materials supplied by any of our third-party suppliers could cause significant disruption in our business. We are functioning under new operating management. On July 1, 2004, we announced the appointment of David Watterson as Chairman and Chief Executive Officer, replacing the then-current Chairman and Chief Executive Officer, Scott Watterson. Until that time, David Watterson was the President of North America Operations. Additionally, Matthew Allen moved to the position of President and Chief Merchandising Officer; Joseph Brough became the Chief Operating Officer, replacing Gary Stevenson; and Jace Jergensen became the Senior Vice President. There can be no assurance that the transition to this new management, or the new structure itself, will be successful. We are subject to extensive government regulation Our business is subject to the provisions of, among other laws, the Federal Consumer Products Safety Act and the Federal Hazardous Substances Act, and rules and regulations promulgated under these acts. These statutes are administered by the Consumer Product Safety Commission (“CPSC”) which has the authority to remove products from the market that are found to be defective and present a substantial hazard or risk of serious injury or death. The CPSC can require us to recall, repair, or replace these products under certain circumstances. We cannot assure that defects in our products will not be alleged or found. Products that we develop or sell may also expose us to liability for the costs related to product recalls. These costs can include legal expenses, advertising, collection and destruction of product, and free goods. Our product liability insurance coverage generally excludes such costs and damages resulting from product recalls. Reliance on major customers. Our three largest customers together accounted for approximately 51.7% and 51.0% of our revenues in fiscal years 2005 and the first six months of fiscal 2006, respectively. Our largest customer, Sears, accounted for 40.4% and 39.2% of our revenues in fiscal years 2005 and the first six months of fiscal 2006, respectively. The level of our sales to these customers depends in large part on consumers' continuing commitment to home fitness equipment products and on the success of the customers' efforts to market and promote our products, as well as our competitiveness in terms of price, quality, product innovation, customer service and other factors. Consistent with industry practice, we do not have long-term purchase agreements or other commitments as to levels of future sales. The loss of, or a substantial decrease in the amount of purchases by, or a write-off of any significant receivables due from any of our major customers would have a material adverse effect on our business. In addition, we offer our products directly to consumers through Nordictrack stores, kiosks and direct response channels. Our direct sales to consumers, particularly through kiosks and stores in malls where our existing customers have retail sales outlets, could affect our sales and our relationships with existing customers. We are exposed to the risks associated with the slowdown in the U.S. and worldwide economy. Among other factors, concerns about inflation, decreased consumer confidence and spending and reduced corporate profits and capital spending resulted in a downturn in the U.S. economy generally. If the adverse economic conditions continue or worsen, our business, financial condition and results of operations may be seriously effected. We may face product liability claims that are disproportionately higher than the value of the products involved. Although all of our products sold are covered by our standard warranty, we could incur costs not covered by our warranties including, but not limited to, labor and other costs of replacing defective parts, lost profits and other damages. These costs could be disproportionately higher than the revenue and profits we receive from the products involved. If we are required to pay for damages resulting from quality or other defects, our business, financial condition and results of operations could be adversely affected We may be unable to protect our intellectual property rights adequately and may face significant expenses as a result of ongoing or future litigation. Protection of our intellectual property rights is essential to keep others from copying the innovations that are central to our existing and future products. Consequently, we may become involved in litigation to enforce our patents or other intellectual property rights, to protect our trade secrets and know-how, to determine the validity or scope of the proprietary rights of others or to defend against claims of invalidity. This type of litigation can be expensive regardless of whether we win or lose. We are now and may again become involved in litigation relating to alleged infringement by us of others’ patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and could consume significant amounts of management’s time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business, financial condition and results of operations. Also, although in certain instances we may seek to obtain a license under a third party’s intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all. For a variety of reasons, we have entered into license agreements that give third parties the right to use patents and other technology developed by us and that gives us the right to use patents and other technology developed by them. We anticipate that we will continue to enter into these kinds of licensing arrangements in the future. It is possible, however, that licenses we want will not be available to us on commercially reasonable terms or at all. If we lose existing licenses to key technology, or are unable to enter into new licenses that we deem important, our business, financial condition and results of operations could be seriously harmed. It is critical to our success that we are able to prevent competitors from copying our innovations. We, therefore intend to continue to seek patent, trade secret and mask work protection for our manufacturing technologies. The process of seeking patent protection can be long and expensive and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own. We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements and we may not have adequate remedies for any breach. Also, others may come to know about or determine our trade secrets through a variety of methods. In addition, the laws of certain countries in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States. Our ability to meet our cash requirements depends on a number of factors, many of which are beyond our control. Our ability to meet our cash requirements (including our debt service obligations) is dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. We cannot guarantee that our business will generate sufficient cash flows from operations to fund our cash requirements. If we were unable to meet our cash requirements from operations, we would be required to fund these cash requirements by alternative financing. The degree to which we may be leveraged could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes; could make us more vulnerable to industry downturns and competitive pressures or could limit our flexibility in planning for or reacting to changes and opportunities in our industry, which may place us at a competitive disadvantage compared to our competitors. There can be no assurance that we will be able to obtain alternative financing, that any such financing would be on acceptable terms or that we will be permitted to do so under the terms of our existing financing arrangements. In the absence of such financing, our ability to respond to changing business and economic conditions, make future acquisitions, react to adverse operating results, meet our debt service obligations or fund required capital expenditures or increased working capital requirements may be adversely affected. Interruptions in the availability of raw materials can harm our financial performance. Our manufacturing operations require raw materials that must meet exacting standards. We generally have more than one source available for these materials, but for certain of our products there are only a limited number of suppliers capable of delivering raw materials that meet our standards. If we need to use other companies as suppliers, they must go through a qualification process, which can be difficult and lengthy. In addition, the raw materials we need for certain of our products could become scarcer as worldwide demand for these materials increases. Interruption of our sources of raw materials could seriously harm our business, financial condition and results of operations. We spend heavily on equipment to stay competitive and will be adversely impacted if we are unable to secure financing for such investments. In order to remain competitive, exercise equipment manufacturers generally must spend heavily on equipment to maintain or increase technology and design development and manufacturing capacity and capability. We currently plan for approximately $15.0 million in capital expenditures in fiscal 2006, and anticipate significant continuing capital expenditures in subsequent years. In the past, we have reinvested a substantial portion of our cash flow from operations in tooling, design development and capacity expansion and improvement programs. If we are unable to decrease costs for our products at a rate at least as fast as the rate of the decline in selling prices for such products, we may not be able to generate enough cash flow from operations to maintain or increase manufacturing capability and capacity as necessary. In such a situation, we would need to seek financing from external sources to satisfy our needs for manufacturing equipment and, if cash flow from operations declines too much, for operational ca sh needs as well. Such financing, however, may not be available on terms that are satisfactory to us or at all, in which case our business, financial condition and results of operations would seriously be harmed. We depend on third parties to transport our products. We rely on independent carriers and freight haulers to move our products between manufacturing plants and our customers. Any transport or delivery problems because of their errors or because of unforeseen interruptions in their activities due to factors such as strikes, political instability, terrorism, natural disasters and accidents could seriously harm our business, financial condition and results of operations and ultimately impact our relationship with our customers.

On July 1, 2004, we announced the appointment of David Watterson as Chairman and Chief Executive Officer, replacing the then-current Chairman and Chief Executive Officer, Scott Watterson. Until that time, David Watterson was the President of North America Operations. Gary Stevenson's duties as President and Chief Operating Officer were assumed by Matthew Allen, who moved to the position of President and Chief Merchandising Officer and Joseph Brough became the Chief Operating Officer. Additionally, Jace Jergensen became a Senior Vice President. There can be no assurance that the transition to this new management, or the new structure itself, will be successful.

We may face product liability claims that are disproportionately higher than the value of the products involved.

Although all of our products sold are covered by our standard warranty, we could incur costs not covered by our warranties including, but not limited to, labor and other costs of replacing defective parts, lost profits and other damages. These costs could be disproportionately higher than the revenue and profits we receive from the products involved. If we are required to pay for damages resulting from quality or other, our business, financial condition and results of operations could be adversely affected.

We are subject to extensive government regulation.

Our business is subject to the provisions of, among other laws, the Federal Consumer Products Safety Act and the Federal Hazardous Substances Act, and rules and regulations promulgated under these acts. These statutes are administered by the Consumer Product Safety Commission (“CPSC”) which has the authority to remove products from the market that are found to be defective and present a substantial hazard or risk of serious injury or death. The CPSC can require us to recall, repair, or replace these products under certain circumstances. We cannot assure that defects in our products will not be alleged or found. Products that we develop or sell may also expose us to liability for the costs related to product recalls. These costs can include legal expenses, advertising, collection and destruction of product, and free goods. Our product liability insurance coverage generally excludes such costs and damages resulting from product recalls.

We may be unable to protect our intellectual property rights adequately and may face significant expenses as a result of ongoing or future litigation.

Protection of our intellectual property rights is essential to keep others from copying the innovations that are central to our existing and future products. Consequently, we may become involved in litigation to enforce our patents or other intellectual property rights, to protect our trade secrets and know-how, to determine the validity or scope of the proprietary rights of others or to defend against claims of invalidity. This type of litigation can be expensive, regardless of whether we win or lose. We are now and may again become involved in litigation relating to alleged infringement by us of others’ patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and could take up significant amounts of management’s time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business, financial condition and results of operations. Also, although in certain instances we may seek to obtain a license under a third party’s intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all. For a variety of reasons, we have entered into license agreements with third parties that give those parties the right to use patents and other technology developed by us and that gives us the right to use patents and other technology developed by them. We anticipate that we will continue to enter into these kinds of licensing arrangements in the future. It is possible, however, that licenses we want will not be available to us on commercially reasonable terms or at all. If we lose existing licenses to key technology, or are unable to enter into new licenses that we deem important, our business, financial condition and results of operations could be seriously harmed.

It is critical to our success that we are able to prevent competitors from copying our innovations. We, therefore intend to continue to seek patent, trade secret and mask work protection for our manufacturing technologies. The process of seeking patent protection can be long and expensive and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own.

We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements and we may not have adequate remedies for any breach. Also, others may come to know about or determine our trade secrets through a variety of methods. In addition, the laws of certain countries in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States.

Our ability to meet our cash requirements depends on a number of factors, many of which are beyond our control.

Our ability to meet our cash requirements (including our debt service obligations) is dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. We cannot guarantee that our business will generate sufficient cash flows from operations to fund our cash requirements. If we were unable to meet our cash requirements from operations, we would be required to fund these cash requirements by alternative financing. The degree to which we may be leveraged could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes, could make us more vulnerable to industry downturns and competitive pressures or could limit our flexibility in planning for, or reacting to changes and opportunities in our industry, which may place us at a competitive disadvantage compared to our competitors. There can be no assurance that we will be able to obtain alternative financing, that any such financing would be on acceptable terms or that we will be permitted to do so under the terms of our existing financing arrangements. In the absence of such financing, our ability to respond to changing business and economic conditions, make future acquisitions, react to adverse operating results, meet our debt service obligations or fund required capital expenditures or increased working capital requirements may be adversely affected.

Interruptions in the availability of raw materials can harm our financial performance.

Our manufacturing operations require raw materials that must meet exacting standards. We generally have more than one source available for these materials, but for certain of our products there are only a limited number of suppliers capable of delivering the raw materials that meet our standards. If we need to use other companies as suppliers, they must go through a qualification process, which can be difficult and lengthy. In addition, the raw materials we need for certain of our products could become scarcer as worldwide demand for these materials increases. Interruption of our sources of raw materials could seriously harm our business, financial condition and results of operations.

We spend heavily on equipment to stay competitive and will be adversely impacted if we are unable to secure financing for such investments.

In order to remain competitive, exercise equipment manufacturers generally must spend heavily on equipment to maintain or increase technology and design development and manufacturing capacity and capability. We currently plan for approximately $41.0 million in capital expenditures in fiscal 2005, and anticipate significant continuing capital expenditures in subsequent years. In the past, we have reinvested a substantial portion of our cash flow from operations in tooling, design development and capacity expansion and improvement programs. If we are unable to decrease costs for our products at a rate at least as fast as the rate of the decline in selling prices for such products, we may not be able to generate enough cash flow from operations to maintain or increase manufacturing capability and capacity as necessary. In such a situation, we would need to seek financing from external sources to satisfy our needs for manufacturing equipment and, if cash flow from operations declines too much, for operational cash needs as well. Such financing, however, may not be available on terms that are satisfactory to us or at all, in which case our business, financial condition and results of operations would seriously be harmed.

We depend on third parties to transport our products.

We rely on independent carriers and freight haulers to move our products between manufacturing plants and our customers. Any transport or delivery problems because of their errors or because of unforeseen interruptions in their activities due to factors such as strikes, political instability, terrorism, natural disasters and accidents could seriously harm our business, financial condition and results of operations and ultimately impact our relationship with our customers.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Market~~MARKET ~~Risk~~RISK

Fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations expose us to market risk. We are vulnerable to significant fluctuations in interest rates on our variable rate debt and on any future repricing or refinancing of our fixed rate debt and on future debt. We use long-term and medium-term debt as a source of capital. At ~~November~~December 273, ~~2004~~2005, we had approximately $153.24 million in outstanding fixed rate debt, consisting of 11.25% subordinated notes maturing in April 2012. When debt instruments of this type mature, we typically refinance such debt at the then-existing market interest rates, which may be more or less than the interest rates on the maturing debt. Our Credit Agreement has variable interest rates and any fluctuation in interest rates could increase or decrease our interest expense. At ~~November~~December 273, ~~2004~~2005, we had approximately $~~247~~165.92 million in outstanding variable rate debt.

In addition to the United States, we have operations or transact business in Canada, the United Kingdom, France, Italy, Germany and Asia. The operations in these foreign countries conduct business in their local currencies as well as other regional currencies. To mitigate our exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into forward exchange contracts from time to time to manage foreign currency risk related to the procurement of merchandise from foreign sources. As of ~~November~~December 273, ~~2004~~2005, ~~the~~we ~~Company~~ had no foreign currency contracts in the form of forward exchange contracts ~~in the amounts of approximately $4~~.~~3 million in U.S. dollars and $0.4 million in Canadian dollars. Unrealized gains and losses associated with these contracts were not significant.~~ These unrealized gains are included in the statement of operations. The market risk inherent in these instruments was not material to the Company’s consolidated financial condition, results of operations, or cash flow for the period ended November 27, 2004. Because of the variety of currencies in which purchases and sales are transacted, it is not possible to predict the impact of a movement in foreign currency exchange rates on future operating results. However, we intend to continue to mitigate our exposure to foreign exchange gains or losses.

ITEM 4 - CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of ~~November~~December 273, ~~2004~~2005 (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them, on a timely basis, to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic filings under the Exchange Act.

(b)

Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings
	See Note C in Item 1 of Part I.
Item 2.	Changes in Securities
Item 1A.	Risk Factors
	No material change.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	None
Item 3.	Defaults Upon Senior Securities
	None
Item 4.	Submission of Matters to a Vote of Security Holders
	None
Item 5.	Other Information
	None
Item 6.	Exhibits ~~and Reports on Form 8-K~~

(a)	Exhibits
	99.01	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Chief Executive Officer.
	99.02	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Chief Financial Officer.
	10.59	Fifth Amendment to Credit Agreement dated December 21, 2004.

(b) Reports on Form 8-K Report on Form 8-K dated October 13, 2004 containing the Company's press release dated October 12, 2004 announcing earnings for the first quarter and fiscal 2005 which ended August 28, 2004. (press release)

SIGNATURES

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

By:	/s/ David J. Watterson
	David J. Watterson, Chairman of the Board of Directors
	and Chief Executive Officer (Principal Executive Officer)
	Date: January 11, 2005
By:	/s/ S. Fred Beck
	S. Fred Beck, Vice President, Chief Financial Officer
	(Principal Accounting Officer), and Treasurer
	Date: January 11, 2005

ICON HEALTH & FITNESS, INC.
(Registrant)

By:	/s/ David J. Watterson

	David J. Watterson, Chairman of the Board of Directors
	and Chief Executive Officer (Principal Executive Officer)
	Date: January 17, 2006

By:	/s/ S. Fred Beck

	S. Fred Beck, Vice President, Chief Financial Officer
	(Principal Accounting Officer), and Treasurer
	Date: January 17, 2006

CERTIFICATION

I, David J. Watterson, certify that:

1.	I have reviewed this quarterly report of ICON Health & Fitness, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: January 11, 2005	/s/ David J. Watterson
Date: January 17, 2006	/s/ David J. Watterson
	(Signature)
	Chief Executive Officer
	(Title)

CERTIFICATION

I, S. Fred Beck, certify that:

1.	I have reviewed this quarterly report of ICON Health & Fitness, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: January 11, 2005	/s/ S. Fred Beck
Date: January 17, 2006	/s/ S. Fred Beck
	(Signature)
	Chief Financial Officer
	(Title)

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
10.59		Fifth Amendment to Credit Agreement dated December 21, 2004
99.01		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.02		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filing Compare · ICON INTERNATIONAL HOLDINGS INC