SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549

                               FORM 10-K

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934 (the "Act")

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

Commission File No.: 333-18475, 33-87930-01, 33-87930

For the fiscal year ended May 31, 1998

              Delaware                     87-0566936, 87-0531209, 87-0531206
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

    1500 South, 1000 West, Logan, UT                      84321
(Address of principal executive offices)                (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
                                        Name of Each Exchange
Title of Each Class                      on Which Registered
         None                                   None

Securities registered pursuant to Section 12(g) of the Act:
                                        Name of Each Exchange
Title of Each Class                      on Which Registered
          None                                  None

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements incorporated by reference in Part III of this Form 10-K [X].

On May 31, 1998, all of the voting stock of ICON Health & Fitness, Inc. was held
by IHF Holdings, all of the voting stock of IHF Holdings,  Inc. was held by ICON
Fitness Corporation, and all of the voting stock of ICON Fitness Corporation was
held by IHF Capital, Inc.

As of May 31, 1998, ICON Health & Fitness, Inc. had 1,000 shares of common stock
outstanding,  IHF Holdings,  Inc. had 1,000 shares of common stock  outstanding,
and ICON Fitness Corporation had 100 shares of common stock outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference: NONE

<PAGE>



           ICON   Fitness   Corporation   and  its   wholly-owned
                        subsidiaries, IHF Holdings, Inc.
                        And ICON Health & Fitness, Inc.

                              FORM 10-K INDEX

                                   PART I

                                                                         Page

Item  1.     Business                                                      3

Item  2.     Properties                                                   10

Item  3.     Legal Proceedings                                            11

Item  4.     Submission of Matters to a Vote of Security Holders          11

                                   PART II

Item  5.     Market for the Registrants' Common Equity and Related
               Stockholder Matters                                        12

Item  6.     Selected Financial Data                                      12

Item  7.     Management's Discussion and Analysis of Financial
               Condition and Results of Operations                        15

Item  8.     Financial Statements and Supplementary Data                  24

Item  9.     Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                        24

                                 PART III

Item 10.     Directors and Executive Officers of the Registrants          25

Item 11.     Executive Compensation                                       26

Item 12.     Security Ownership of Certain Beneficial Owners
               and Management                                             30

Item 13.     Certain Relationships and Related Transactions               33


                                 PART IV

Item 14.     Exhibits, Financial Statement Schedules,
               and Reports on Form 8-K                                    36













<PAGE>



                                  * * *

Reference in this Annual Report on Form 10-K is made to the following
trademarks and brand names: Accusmart(TM), Concor(TM), CRANK-IT-UP(TM),
Cross Trainer(TM), CrossWalk(r), Image(TM), INSYNC(TM), INTELEX(TM),
JumpKing(r), Legend(TM), ProForm(r), Pro-Tech(TM), Smart Card(TM), Space
Saver(TM), Speed Link(TM), Stowaway(TM), Triple Play(TM), WeiderCare(TM),
Cardioglide(r), HealthRider(r), aeROBICRider(TM), SportRider(TM), and
LifeRider(TM), which are owned by the Company; Lifestyler(TM), which is owned
by Sears Roebuck; Weider(r), which is owned by Weider Health and Fitness and
Weider Sporting Goods, Inc. in the United States and by Weider Sports
Equipment Co. Ltd. and Weider Europe B.V. in other countries.

                                  * * *

                                 PART I

ITEM 1.BUSINESS

     Except for the  historical  information  contained  herein,  the  following
'Business'  section contains  forward-looking  statements that involve risks and
uncertainties.  The Company's actual results could differ  materially from those
discussed  here.  Factors  that could cause or  contribute  to such  differences
include, but are not limited to, those discussed in the 'Business' section.

General

     ICON  Health  &  Fitness,  Inc.  ("ICON  Health")  is one  of  the  largest
manufacturers and marketers of home fitness equipment in the United States.  The
Company's focus is to address consumers' interest in a healthy, active lifestyle
with a  broad  range  of high  quality  products  at a  variety  of  price/value
relationships  specifically  targeted to meet  different  consumers'  health and
fitness needs.  The Company's  line of home fitness  aerobic  products  includes
treadmills,  ellipticals,  exercise bikes, stair steppers and upright rowers and
its line of anaerobic  fitness  products  including home gyms and weight benches
benches.  The Company also offers  trampolines,  recreational  sports  products,
sports medicine products, fitness accessories and spas and massage products. The
Company  markets the  majority of its  products  under the brand names  ProForm,
HealthRider, Image, Weslo, WeiderCare, JumpKing and the licensed brand Reebok.

     IHF Holdings,  Inc. ("IHF  Holdings") is a holding  company whose principal
asset is all of the  capital  stock of ICON  Health.  ICON  Fitness  Corporation
("ICON  Fitness" or the "Company") is a holding company whose principal asset is
all of the capital  stock of IHF Holdings.  IHF Capital,  Inc.  ("IHF  Capital")
which is not a registrant,  is a holding company whose principal asset is all of
the common stock of ICON Fitness.  Each Registrant was  incorporated in Delaware
in August of 1994  except ICON  Fitness  which was  incorporated  in Delaware in
November of 1996.  Each registrant has its principal  executive  offices at 1500
South 1000 West, Logan, Utah 84321, and its telephone number is 435-750-5000.

Marketing and Distribution

     The Company  markets its products  under multiple  brands through  multiple
distribution  channels,  including  specialty  dealers,  sporting  goods chains,
department stores, warehouse clubs, discount merchants, catalogue showrooms and,
to a limited extent,  infomercials  and direct response  marketing.  The Company
believes the marketing of its products through multiple distribution


<PAGE>



channels provides it with several competitive advantages: (i) greater growth and
increased  market  access;  (ii) the ability to maximize  revenue  throughout  a
product's life cycle by repositioning  products in different  channels and under
different  brand names as products  mature;  (iii) feedback on market trends and
changing consumer tastes;  and (iv) reduced  dependence on any single channel of
distribution.

     To enhance its  distribution  strategy,  the Company  targets its brands to
specific distribution  channels. By marketing specific brands tailored to appeal
to different  demographic  groups,  the Company is able to market  products with
varying  designs,  features and price ranges and target these products to a wide
variety of consumers with different  fitness needs and disposable  incomes.  The
Company  believes  its brand  positioning  strategy  enables it to: (I)  achieve
greater appeal to each market segment;  (ii) promote price stability  across its
product  lines as  brand  segmentation  minimizes  conflicts  between  different
distribution  channels;  and (iii) provide high-quality  products with the price
ranges and  features  desired by different  demographic  groups.  The  Company's
various brands are supported by distinct  marketing and product  strategies and,
in some cases,  separate sales forces. The Company's primary sales and marketing
group is based in Logan, Utah. For certain of its products, the Company augments
the efforts of this group with smaller  sales  forces based in Colorado,  Texas,
Canada, the United Kingdom, France, Italy and Germany.

     In keeping with its strategy of pursuing  growth  opportunities,  in August
1996, the Company purchased  substantially  all the assets of HealthRider,  Inc.
The Company markets HealthRider brand fitness equipment and other health-related
products  primarily through its own specialty retail stores and kiosks,  through
direct response  advertising in print and on television,  through its mail order
catalogs  and  through  Sears,  the  exclusive  retailer  for the  full-line  of
HealthRider  equipment.  At the end of fiscal  1998,  HealthRider  operated  103
stores in approximately 37 states.

Products

     The Company manufactures and distributes a broad line of treadmill, aerobic
and anaerobic fitness equipment.  The Company also markets  recreational  sports
products,  sports medicine  products,  fitness  accessories and spas and massage
products.  The  Company  offers a range of  technological  features  from manual
equipment  to  sophisticated  programmable  electronic  products at a variety of
price  ranges.  The  Company's  strategy  of  offering a broad range of products
enables it to: (i)offer  categories of fitness products that appeal to different
demographic groups;  (ii)respond quickly to changes in consumer  preferences and
fitness trends;  (iii)reduce its dependence on any single product category;  and
(iv)participate  in  growth  opportunities  across  a wide  variety  of  product
categories.

  Aerobic Products

     The  Company  offers  aerobic  products,  which  are  designed  to  promote
cardiovascular  fitness, under the ProForm,  HealthRider,  Image and Weslo brand
names.

     Motorized  Treadmills.  The  Company is the  leading  domestic  producer of
motorized treadmills. Motorized treadmills allow users to run at speeds of up to
12 mph. The  features  offered by the  Company's  motorized  treadmills  include
programmable  speed and incline,  electronic  feedback on speed,  elapsed  time,
distance traveled and calories burned,  and  cross-training  upper body exercise
functions.  In 1996,  the Company  introduced  a line of Space Saver  treadmills
which fold vertically for easy storage. The retail price points of the motorized
treadmills range from $199 to $2,000.

<PAGE>


      Manual Treadmills.  The Company's manual treadmills allow the user to walk
or run slowly in place,  and certain of the Company's  manual  treadmill  models
include electronic  feedback on speed,  elapsed time and distance traveled.  The
retail price points of the Company's manual treadmills range from $149 to $299.

     Ellipticals.  In the Fall of 1997,  the Company  introduced  its Ellipitcal
Cross Trainer. This product offers a low-impact, high-intensity aerobic workout.
This is possible through a patented  mechanism which harnesses the momentum of a
natural striding motion and eliminates the impact of typical running or walking.
An innovative mechanism links upper-body motion with the lower-body motion for a
synchronized rhythmic total-body workout. A four-window LED provides feedback on
speed  (steps  per  minute),  time,  distance,  and  calories  burned.  The name
"Elliptical"  refers to the oval shape of the user's footpath.  The retail price
points of the Elliptical range from $399 to $599.

     Exercise Bikes. The Company offers exercise bikes featuring  adjustable air
resistance or flywheel  resistance,  electronic  monitors which display  elapsed
time,  speed,  distance and calories  burned,  and dual or triple  action design
which allows the user to exercise upper body, lower body or both simultaneously.
Some units add motivational  electronics and programmable resistance which allow
users to design  their own  workouts.  Some  higher  end units  also  contain an
electromagnetic drive mechanism which creates less noise, offers smoother action
and requires less maintenance than traditional  motorized  drives.  Retail price
points of the Company's exercise bikes range from $79 to $799.

     Stair  Steppers.  Various stair stepper  machines sold by the Company offer
adjustable  resistance,  self-leveling  pedals,  motivational  fitness monitors,
accessory stations to hold water bottles, books and towels,  magnetic resistance
and total body conditioning, which combines upper and lower body workouts. Other
features  offered  by the  Company's  stair  steppers  include  the  Speed  Link
adjustable resistance system,  multi-window electronic monitors and programmable
electronics. Retail price points for the Company's stair steppers range from $99
to $499.

        Cardio  Family of Upright  Rowers.  The  Company  introduced  its Cardio
family of  upright  rowers  under the Weslo  brand in October  1994.  The Cardio
family of upright rowers  exercises both the arms and legs while  providing both
an aerobic and anaerobic workout through variable  resistance.  Models retail at
price points ranging from $99-$299.

Anaerobic Products

     Under the HealthRider,  Image,  ProForm,  Weslo and Weider brand names, the
Company offers anaerobic products, which are designed to develop muscle tone and
strength.

     Home Gyms.  The  Company's  home gyms range from  traditional  cast iron or
vinyl plate weight stack units to programmable  electronic units that use "smart
cards" to store a user's personalized  fitness regimen in electronic memory. New
technology and innovation within this category include home gyms which integrate
aerobic  functions  such  as  treadmills  for   cross-training   and  electronic
adjustability  allowing simple  adjustment in one pound  increments with digital
feedback.  Selected  units  are  designed  to  allow  multiple  users to use the
equipment  simultaneously,  allowing circuit  training.  The Company's home gyms
range in retail price from $99 to $1,499.

     Weight Benches. The Company offers a range of weight benches to specialty
fitness dealers through the Image brand and markets a complete line of weights


<PAGE>



and benches under the Weider brand name.  Retail price points of these  products
range from $49 to $299.

     Abdominal  Machines.  The Company introduced its first abdominal machine in
April 1996.  This product is designed  for  isolation  of the  abdominal  muscle
groups. Retail prices of the Company's abdominal products range from $29 to $99.

Other Products

     Recreational Sports Products.  JumpKing,  Inc. a subsidiary of the Company,
manufactures  and markets a trampoline line that includes both  mini-trampolines
for indoor  home  exercise  use and  full-sized  trampolines  for  outdoor  home
recreational use. The  mini-trampoline  retails at approximately $25; full-sized
trampolines have retail price points ranging from $239 to $399.

     Sports  Medicine  Products.  The Company  markets a line of sports medicine
products  under the WeiderCare  brand name,  including  support wraps,  neoprene
supports,  back support  belts and hot and cold packs.  These  products are sold
through channels of distribution that are not able to carry large exercise units
due to floor space limitations,  such as drugstore chains,  supermarkets and pro
shops. These products are also sold to corporate and industrial users.

     Exercise  Accessories.  The Company  offers a limited  line of back support
belts and workout  gloves and has  introduced  a line of  exercise  accessories,
including ankle and hand weights, grip devices and aerobic exercise step decks.

     Relaxation  Products.  Since  the  Spring  of 1996,  the  Company  has been
innovating,  manufacturing  and marketing  relaxation  products such as portable
spas,  rolling massage chairs and massage pillows.  These products are currently
distributed  through various channels:  department stores,  mass  merchandisers,
sporting  goods,  home-shopping,  catalogs and the Company's own direct response
efforts.

Product Innovation and Development

     Product  and  design  innovation  has  contributed   significantly  to  the
Company's  growth.  On an ongoing  basis,  the  Company  evaluates  new  product
concepts  and  seeks  to  respond  to the  desires  and  needs of  consumers  by
frequently  introducing new products and repositioning  existing  products.  The
Company has 157 full-time  employees in the research and development area, holds
92 patents and has 21 patent  applications  pending.  The Company  also holds 77
trademarks  registered  in the United  States and 102  trademarks  registered in
foreign  countries.  The Company has pending 103 trademarks in the United States
and 259 in foreign countries.  The Company had research and development expenses
of $7.8 million,  $7.6 million and $6.8 million in fiscal 1998,  1997, and 1996,
respectively,  and has budgeted  $8.0 million for  research and  development  in
fiscal 1999.

     The Company  conducts most of its research and development in 40,000 square
feet of space in Logan,  Utah. This facility  includes  plastic,  mechanical and
electrical  engineering  capabilities  that  are  used in  creating  proprietary
designs and  features.  The Company  also  augments  its  internal  research and
development  effort by  selectively  evaluating new products with certain of its
key customers,  who then provide feedback on acceptance by potential  end-users.
This effort has the added benefit of enhancing the Company's  relationships with
key customers.

     This focus on new  products  and  innovation  enables  the Company to begin
selling  early in a product's  life cycle and,  as sales  growth  moderates,  to
extend  product  life  cycles by  introducing  new  features  and  repositioning
products within the Company's line of brands (i.e., selling the product, with

<PAGE>



modifications,  at a different  price point).  Recent  examples of the Company's
product  developments are the  introduction of the Space Saver treadmill,  which
folds  vertically  for easy  storage,  the  development  of the Cardio family of
upright  rowers,  which  significantly  improved on upright  rower designs first
marketed by others,  and the introduction of the Company's  abdominal  machines,
which improved upon existing  products  manufactured  by others by adding a fold
for storage  feature.  The Company  believes  that its ability to take a product
from concept to delivery quickly gives the Company  significant  advantages over
its competitors.

     The Company's  research and  development  teams have helped develop many of
the innovative features that have encouraged  consumers to purchase and use home
fitness equipment. Results of the Company's product development program include:
(i)  various  electronics  systems,  which  provide  motivational  feedback  and
personalized fitness routines;  (ii) upright rowers with hydraulic shocks; (iii)
treadmills  which fold for easy  storage;  and (iv)  treadmills  with upper body
resistance.  In  addition,  the  Company  was the first to  market  successfully
cross-training home gyms equipped with aerobic stepping functions.

Customers

     The Company's  largest  customer for the past several years has been Sears,
Roebuck and Co.  ("Sears").  In fiscal 1998,  Sears accounted for  approximately
32.5% of the Company's total net sales, a 3.5% increase over fiscal 1997.  While
no other single  customer  accounted  for more than 10% of the  Company's  total
sales in fiscal 1998,  other  important  customers  include Sam's Wholesale Club
("Sam's"),  Kmart, Wal-Mart,  Service Merchandise,  and The Sports Authority. In
fiscal  1998  and  1997,  Sam's  accounted  for   approximately   50%  and  70%,
respectively, of net sales at the Company's JumpKing subsidiary.  Although sales
to Sears still account for a substantial  portion of the  Company's  sales,  the
percentage of sales has decreased  substantially  in the past several years from
approximately  68% in  fiscal  1989.  Nevertheless,  the  dollar  amount  of the
Company's  net sales to Sears has increased  during this time period.  Sears has
distinguished  the Company with several  vendor  awards for their  commitment in
providing quality and value to the American consumer.

     The Company has more than 2,500  customers,  excluding  sales to individual
consumers  through direct  response  channels of  distribution.  Consistent with
industry  practice,  the  Company  generally  does not have  long-term  purchase
agreements or other commitments from its customers as to levels of future sales.
The level of the Company's sales to its large customers depends in large part on
their  continuing  commitment to home fitness  products and the success of their
efforts to market and promote the  Company's  products as well as the  Company's
competitiveness  in terms of price,  quality,  product  innovation  and customer
service.  The Company is not the exclusive supplier of home fitness equipment to
any of its major customers. 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
the  Company's  major  customers  would  have a material  adverse  effect on the
Company's business.

Competition

     The markets for the  Company's  products are highly  competitive.  They are
characterized  by frequent  introduction of new products,  often  accompanied by
major  advertising  and  promotional  programs.  The Company  believes  that the
principal  competitive  factors  affecting its business include price,  quality,
brand name recognition, product innovation and customer service.

The Company competes in the U.S. with recreational and exercise activities


<PAGE>



offered by health clubs, as well as a number of domestic manufacturers, domestic
direct importers,  foreign companies  exporting products to the U.S. and, in its
direct sales  efforts,  with major  retailers and  distributors.  Competitors in
these areas include Precor,  Inc., CML Group Inc. (under the NordicTrack  brand)
and LifeFitness Inc. In Europe,  the Company competes  principally with Tunturi,
Inc.,  and  Kettler  Int'l  Inc.,  a number of Asian  importers  and some of its
domestic  competitors.  The  Company's  products  also  indirectly  compete with
outdoor fitness, sporting goods and other recreational products.  Competitors in
these product areas include Huffy Corporation, Canstar Sports Inc. (a subsidiary
of  Nike  Inc.),  Reebok  International  Ltd.  and  Rollerblade,   Inc.  Certain
competitors  are  better  capitalized  than the  Company  and may  have  greater
financial and other resources than those available to the Company.  In addition,
there are no significant  technological,  manufacturing or marketing barriers to
entry into the fitness  equipment or the exercise  accessory  markets,  although
many companies in the industry,  including the Company, have sought and received
numerous patents in an effort to protect their competitive position.

Pursuing Growth Opportunities

     The  Company is seeking  strategic  acquisition  opportunities  which would
complement  its existing  business and provide an  opportunity  for growth.  The
Company believes growth  opportunities  exist in its current domestic markets as
well as in selected  international markets. The North American fitness equipment
market is  significantly  more  developed  than other markets  around the world.
However,  in the first quarter of 1996, the Company began to directly market its
products in the key European markets of the U.K., France,  Italy and the Benelux
countries  and is  attempting  to increase its market  penetration  in these and
other foreign  countries.  Prior to 1996, the Company had minimal foreign sales.
Net sales from  European  markets in 1998 and 1997 were $40.4  million and $45.4
million,  respectively.  In September 1996, the Company purchased certain assets
of a Canadian  manufacturing  business ("CanCo") as well as certain distribution
rights. Net sales from Canada for fiscal 1998 were $22.3 million. Net sales from
Canada from September 6, 1996 until May 31, 1997 were $6.9 million.

     In keeping with its strategy of pursuing  growth  opportunities,  in August
1996, the Company purchased  substantially  all the assets of HealthRider,  Inc.
The Company  markets  HealthRider  brand  fitness  equipment  and other  health-
related products  primarily  through its own specialty retail stores and kiosks,
through direct response advertising in print and on television, through its mail
order  catalogs and through Sears,  the exclusive  retailer for the full-line of
HealthRider  equipment.  At the end of fiscal  1998,  HealthRider  operated  103
stores in approximately 37 states.

Manufacturing and Purchasing

     In fiscal  1998,  the Company  manufactured  or  assembled  over 80% of its
products at its facilities in Utah, Texas,  Canada and Colorado.  The balance of
the  Company's  products  were  manufactured  and  assembled  by third  parties,
principally in the Far East. The Company has longstanding  supply  relationships
with  a  number  of  offshore  Asian  vendors,  many  of  which  have  exclusive
relationships  in the fitness  industry  with the Company.  The  combination  of
internal  manufacturing  and  assembly  capacity  and the  Company's  access  to
third-party vendors has helped the Company meet customer demand on a competitive
basis.  In addition,  the third party vendors  provide  greater  flexibility  in
manufacturing capacity to satisfy seasonal demands.

     The Company follows a dual sourcing strategy on many of its components
to minimize the impact of sourcing disruptions. For example, the Company


<PAGE>



obtains  steel tubing from two to three  vendors.  When  practical,  the Company
chooses  vendors  that will supply the Company  exclusively  in the home fitness
category.  The  Company's  two primary  sources of  electronic  components,  for
example, do not supply any other home fitness equipment companies.  In addition,
the Company has  identified  alternative  sources for many key raw materials and
components. Despite these precautions, however, the Company's ability to deliver
itsproducts on time is susceptible to disruptions in its supply of raw materials
and  components,  in part  because  it may take as long as  approximately  three
months  to  retool  alternative  component  manufacturers  to  produce  required
components. Since the Company purchases certain components and finished products
from  foreign  suppliers  located in Canada,  China,  Taiwan and  various  other
countries, the Company is subject to the general risks of doing business abroad,
particularly  with  respect to its  purchases  from China,  including  delays in
shipment,   transportation  delays,  work  stoppages,  adverse  fluctuations  in
currency  exchange  rates,  increases in import  duties and tariffs,  changes in
foreign  regulations,   changes  in  most-favored-nation  status  and  political
instability.  In particular,  the  imposition of trade  sanctions on China could
have a material adverse effect on the Company.

     Sales to the Company's  customers are highly price  sensitive.  The Company
sets many product  prices on an annual basis but  purchases  raw  materials  and
components under purchase orders providing  components for periods less than one
year.  Accordingly,  the  Company  sets prices for many  products  before it has
complete  knowledge of the costs of raw materials and  components  and sometimes
before product  development  is complete and  production  costs have been firmly
established.  After it has established prices, the Company may be unable to pass
cost  increases  along to its customers or to compete as effectively if it seeks
to pass such costs along.

     The Company  utilizes more than 1.4 million square feet for  manufacturing,
including  a 300,000  square foot  facility  in Logan where the  majority of the
Company's  treadmills  are  manufactured  or assembled.  In the past,  the Logan
facility has also manufactured stair steppers, exercise bikes and home gyms. The
Company  constructed  its Logan plant in 1990 and  equipped  the  facility  with
modern  manufacturing  and assembly  features,  including fully integrated metal
fabrication,  powder  coat  painting,  robotic  welding  and  injection  molding
equipment. The facility, like the Company's other manufacturing facilities,  was
designed  to  permit  flexible  and  efficient  changes  in the  products  being
manufactured  to match  customer  demand.  In 1996,  the  Company  expanded  its
manufacturing  capacity by 233,000 square feet through the  acquisition of CanCo
in St. Jerome, Canada. In 1991, the Company began operating its Smithfield, Utah
plant,  which is smaller than, but very similar to the Logan facility.  In 1994,
the Company began  operating its Clearfield,  Utah  manufacturing  facility.  In
addition to its facilities in Utah, the Company has manufacturing  facilities in
Texas and Colorado.

     The Company  applies a  management  system to control and monitor  freight,
labor,  overhead and material cost components of its finished goods. The Company
emphasizes product quality by monitoring operations according to uniform quality
control  standards.  In fiscal 1994, the Company received ISO 9001 certification
for its Logan facility.  ISO is a nonprofit association that monitors industrial
companies'  manufacturing  processes,   quality  assurance  controls,  personnel
management and customer  service in order to improve plant  efficiency,  product
quality, customer satisfaction and company profitability.


<PAGE>

Employees

     The Company currently employs  approximately  4,200 people, 142 of whom are
represented by a Canadian labor union. Factory employees are compensated through
a targeted  incentive system.  Managerial  employees receive bonuses tied to the
achievement of performance  targets.  Approximately 252 employees are engaged in
research and development, 802 in sales and marketing, 2,139 in manufacturing and
1,018 in other areas.

Environmental Matters

     The  Company's   operations  are  subject  to  federal,   state  and  local
environmental  and health and safety laws and regulations  that impose workplace
standards and  limitations on the discharge of pollutants  into the  environment
and  establish  standards  for  the  handling,  generation,  emission,  release,
discharge,  treatment, storage and disposal of certain materials, substances and
wastes.  The  nature of the  Company's  manufacturing  and  assembly  operations
exposes it to the risk of claims  with  respect to  environmental  matters,  and
although compliance with local, state and federal  requirements  relating to the
protection  of the  environment  has not had a  material  adverse  effect on the
Company's  financial  condition  or  results  of  operations,  there  can  be no
assurance that material costs or liabilities  will not be incurred in connection
with such environmental matters. Future events, such as changes in existing laws
and  regulations or enforcement  policies or the discovery of  contamination  on
sites owned or operated by the Company,  may give rise to additional  compliance
costs or operational interruptions which could have a material adverse effect on
the Company's financial condition.

Seasonality

     Historically,  the  Company has sold the  majority  of its  products to its
customers in its second and third fiscal quarters (i.e.,  from September through
February).  Increased  sales and  distribution  typically  have  occurred in the
Christmas  retail  season and the  beginning of a new  calendar  year because of
increased customer promotions, increased consumer purchases and seasonal changes
that prompt people to exercise inside. The Company has in the past, from time to
time,  incurred net losses in the first and fourth  quarters of its fiscal year.
If actual  sales for a quarter  do not meet or exceed  projected  sales for that
quarter,  expenditures and inventory levels could be disproportionately high for
such  quarter and the  Company's  cash flow and  earnings  for that  quarter and
future  quarters  could be adversely  affected.  The timing of large orders from
customers and the mix of products sold may also contribute to quarterly or other
periodic  fluctuations.  See Item 7  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations--Seasonality."



















<PAGE>



ITEM 2.  PROPERTIES

The location,  square footage, status and primary use of the Company's principal
properties are set forth below:
<TABLE>

                       Square
       Location        Footage            Status                        Primary Uses
---------------------- -------    ------------------------        ---------------------------------
<S>                   <C>         <C>                             <C>

Logan,UT              300,000     Owned                            Manufacturing, Offices, R&D
Logan,UT              206,606     Leased(Month to Month)           Offices, Manufacturing,
Warehousing
Smithfield,UT          71,575     Leased (Expires 9/98)            Manufacturing
Clearfield,UT         180,000     Leased (Month to Month)          Manufacturing,Warehousing
Clearfield,UT         329,075     Leased (Expires 6/99)            Manufacturing,Warehousing
Clearfield,UT         390,400     Leased (Expires 5/00,7/00,6/02)  Warehouse
Hyrum,UT               27,000     Leased (Month to Month)          Warehouse
Garland,TX            247,670     Leased (Expires 1/99,11/99,1/01) Offices,Manufacturing,Warehousing
Clearfield,UT         782,652     Leased (Expires 6/99,6/00,9/00)  Warehousing
Weatherford,TX         22,000     Leased (Expires 1/01)            Offices,Manufacturing
Denver,CO              72,485     Leased (Expires 4/99)            Manufacturing,Warehousing
South Brunswick,NJ    203,972     Leased (Expires 5/00)            Warehouse
Englewood,CO           10,012     Leased (Expires 5/99)            Sales Office
Logan,UT               68,750     Leased (Expires 5/01)            Warehouse
Smithfield, UT        108,187     Leased (Expires 11/02)           Warehouse
Anzin,FR                8,097     Leased (Month to Month)          Warehouse,Offices,Apartment
Carrieres Sur Seine,FR  2,966     Leased (Expires 12/98)           Warehouse,Office
Neailly Sur Seine,FR      262     Leased (Expires 9/98)            Apartment
Leeds,UK                6,000     Leased (Expires 1/99)            Offices
Perugia,IT              3,360     Leased (Expires 6/01)            Offices
Perugia,IT              6,600     Leased (Month to Month)          Warehouse
Salt Lake City,UT       6,635     Leased (Expires 12/98)           Offices
Marabel,QC            413,000     Leased (Expires 6/99)            Warehouse
San Luis Obispo,CA      4,950     Leased (Expires 12/98)           Warehouse
St. Jerome,QC          65,835     Owned                            Manufacturing,Offices
St. Jerome,QC         105,984     Leased (Expires 7/02)            Warehouse
St. Jerome,QC          61,852     Owned                            Manufacturing,Offices
Providence,UT           4,140     Leased (Month to Month)          Warehouse
</TABLE>



     The Company believes that its existing  facilities are well maintained,  in
good  operating  condition  and adequate for its expected  level of  operations.
Although  a number of the  Company's  facilities  are rented on a month to month
basis,  the Company does not  anticipate  difficulty  in  maintaining  access to
facilities required for the conduct of its business.




<PAGE>



ITEM 3. LEGAL PROCEEDINGS

Product Liability

     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.  The Company currently carries an  occurrence-based  product
liability  insurance  policy.  The policy provides  coverage for the period from
November  1, 1996 to October 1, 1998 of up to $5 million per  occurrence  and $5
million  in the  aggregate  each for the  period of  November  1,  1996  through
November  1, 1997 and  November  1, 1997  through  October 1, 1998.  The current
policy  has a  deductible  on each  claim of  $250,000  for  claims  related  to
trampolines and $100,000 for claims related to all other  products.  The Company
believes  that its insurance is generally  adequate to cover  product  liability
claims.  Previously,  the Company  maintained  similar occurrence based policies
with  somewhat  lower  coverage  limits  and higher  deductibles.  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,  there is also
no assurance that the product  liability  insurance of the Company is or will be
adequate to cover such claims.  In addition,  there can be no assurance that the
Company's  insurers  will be solvent when  required to make  payments on claims.
Furthermore,  there can be no assurance that insurance will remain available, or
if available, that it will not be prohibitively expensive. The loss of insurance
coverage or claims  exceeding that coverage could have a material adverse effect
on the Company's results of operations and financial condition.

Other

     The Company is party to a variety of non-product liability commercial suits
involving contract claims and intellectual property claims. The Company believes
that adverse  resolution of these suits would not have a material adverse effect
on the Company.

     The Company is also involved in several 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 on the Company.



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

 ICON Health,  IHF  Holdings and ICON Fitness did not submit any matters  during
the  fourth  quarter  of the fiscal  year  covered  by this  report to a vote of
security holders through the solicitation of proxies or otherwise.


<PAGE>



                                 PART II


ITEM 5.  MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

     As of  August  28,  1998,  ICON  Health  had 1,000  shares of common  stock
outstanding  all of which were held by IHF Holdings,  and IHF Holdings had 1,000
shares of common stock outstanding all of which were held by ICON Fitness.  ICON
Fitness had 100 shares of common stock outstanding all of which were held by IHF
Capital.  There is no  established  trading  market for the common stock of ICON
Health, IHF Holdings or ICON Fitness.  ICON Health's ability to pay dividends is
limited under an indenture dated as of November 14, 1994 between ICON Health and
State  Street Bank & Trust Co.  ("State  Street") in Boston,  Massachusetts,  as
trustee,  and by ICON Health's Credit  Agreement.  IHF Holding's  ability to pay
dividends is limited  under an  indenture  dated as of November 14, 1994 between
IHF  Holdings  and State  Street,  as  trustee.  ICON  Fitness's  ability to pay
dividends is limited  under an  indenture  dated as of November 20, 1996 between
ICON Fitness and State Street, as trustee.



ITEM 6.  SELECTED FINANCIAL DATA

     The  selected  financial  data for the  year  ended  May 31,  1994 has been
derived from the historical audited  consolidated  financial  statements of ICON
(formerly  known as Weslo,  Inc.,  and its  wholly-owned  subsidiaries,  ProForm
Fitness Products, Inc. and its wholly-owned subsidiaries,  and American Physical
Therapy, Inc.) and subsidiaries. The selected financial data for the years ended
May 31, 1995, 1996, 1997 and 1998 have been derived from the historical  audited
consolidated financial statements of ICON Health, IHF Holdings and ICON Fitness.
The  selected  financial  data  should  be  read  in  conjunction  with  Item  7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations,"  and  the  historical  consolidated  financial  statements  of ICON
Health, IHF Holdings and ICON Fitness and the notes thereto contained  elsewhere
in this report.





<PAGE>


<TABLE>


                                                        For the Year Ended May 31,
                                                          (dollars in millions)
                                      -----------------------------------------------------------
                                                ICON     IHF     ICON     ICON     IHF     ICON
                                               Health  Holdings Fitness  Health  Holdings Fitness
                                       1994     1995     1995    1995     1996     1996    1996
                                      ------  -------  -------- -------  ------- -------- -------
<S>                                   <C>     <C>      <C>      <C>      <C>     <C>      <C>
Operating Data:
  Net sales. . . . . . . . . . . .    $403.0   $530.8   $530.8   $530.8  $747.6  $747.6   $747.6
  Cost of sales. . . . . . . . . .     288.2    378.4    378.4    378.4   541.5   541.5    541.5
                                      ------   ------   ------   ------  ------  ------   ------
  Gross profit . . . . . . . . . .     114.8    152.4    152.4    152.4   206.1   206.1    206.1
                                       -----    -----    -----    -----   -----   -----    -----


  Operating expenses:
   Selling . . . . . . . . . . . .      52.1     68.7     68.7      68.7    93.9    93.9    93.9
  Research and development . . . .       2.8      5.2      5.2       5.2     6.8     6.8     6.8
  General and administrative . . .      28.6     31.1     31.1      31.1    47.8    47.8    47.8
  Compensation expense
   attributable to options(1). . .         -     39.0     39.0      39.0     2.8     2.8     2.8
                                        ----    -----    -----     -----   -----   -----   -----
  Total operating expenses . . . .      83.5    144.0    144.0     144.0   151.3   151.3   151.3
                                        ----    -----    -----     -----   -----   -----   -----

  Income from operations . . . . .      31.3      8.4      8.4       8.4    54.8    54.8    54.8
  Interest expense . . . . . . . .       6.2     17.3     21.5      21.5    27.9    36.7    36.7
  Dividends on cumulative redeemable
   preferred stock of subsidiary held by
   minority interest . . . . . . .         -        -        -       2.8       -       -     5.1
  Amortization of deferred
  financing fees . . . . . . . . .         -      1.2      1.7       1.7     2.5     3.5     3.5
                                        ----     -----    ----      ----    ----    ----     ---

  Income before income taxes . . .      25.1    (10.1)   (14.8)    (17.6)   24.4    14.6     9.5
  Provision for (benefit from)
     income taxes. . . . . . . . .       9.8     (3.6)    (4.7)     (4.7)   10.8     7.9     7.9
                                       -----    ------   ------    ------  -----    -----    ----
  Net income (loss). . . . . . . .     $15.3    $(6.5)  $(10.1)   $(12.9)  $13.6    $6.7     $1.6
                                       =====    ======  =======   =======  =====    ====     ====

Balance Sheet Data (at end of period):
  Cash . . . . . . . . . . . . . .      $0.1     $4.1     $4.1      $4.1   $19.3   $19.3    $19.3
  Working capital. . . . . . . . .      97.8    137.7    137.7     137.7   157.3   157.6    157.6
  Total assets . . . . . . . . . .     184.7    281.9    290.2     290.2   306.5   316.7    316.7
  Total indebtedness(2). . . . . .      65.4    207.8    268.1     268.1   213.6   282.8    282.8
  Preferred stock of subsidiary
  (including accrued dividends). .         -        -        -      42.8       -       -     47.9
  Cumulative redeemable preferred stock
  (including accrued dividends). .         -        -     42.8         -       -    47.9        -
  Stockholders' equity . . . . . .      54.5    (14.8)  (109.6)   (109.6)    2.0  (104.8)   (104.8)

Other Data:
  Depreciation and amortization. .       4.0      6.9     11.6      11.6     9.9    19.7      19.7
  Capital expenditures . . . . . .       6.9      8.0      8.0      8. 0    15.4    15.4      15.4
--------------
</TABLE>




<PAGE>


<TABLE>


                                                     For the Year Ended May 31,
                                                       (dollars in millions)
                                       ---------------------------------------------------------
                                        ICON     IHF     ICON       ICON       IHF      ICON
                                       Health  Holdings Fitness    Health    Holdings  Fitness
                                        1997     1997     1997      1998      1998      1998
                                       ------- ------- --------    -------   --------  --------
<S>                                    <C>     <C>     <C>         <C>       <C>       <C>
perating Data:
 Net sales. . . . . . . . . . . . .    $836.2  $836.2  $836.2      $749.3    $749.3    $749.3
  Cost of sales. . . . . . . .          583.8   583.8   583.8       535.7     535.7     535.7
  Amortization of step-up HealthRider
   and  ICON of Canada inventory . . .   14.0    14.0    14.0         0.3       0.3       0.3
                                       ------  ------   ------     ------    ------    ------

  Gross profit . . . . . . . . . . . .  238.4   238.4   238.4       213.3     213.3     213.3
                                       ------   ------  -------     -----    ------     -----

Operating expenses:
  Selling. . . . . . . . . . . . . . .  132.4    132.4      132.4   120.7     120.7     120.7
  Research and development . . . . . .    7.6      7.6        7.6     7.8       7.8       7.8
  General and administrative . . . . .   56.7     56.7       56.7    60.9      60.9      60.9
  Weider settlement. . . . . . . . . .   16.6     16.6       16.6      -         -         -
  HealthRider integration costs. . . .    4.9      4.9        4.9      -         -         -
                                        -----    -----      -----   -----     -----     -----
  Total operating expenses . . . . . .  218.2    218.2      218.2   189.4     189.4     189.4
                                        -----    -----      -----   -----     -----     -----

  Income from operations . . . . . . .   20.2     20.2       20.2    23.9      23.9      23.9
  Interest expense . . . . . . . . . .   33.6     44.1       49.7    35.0      47.4      59.4
  Dividends on Cumulative
  Redeemable preferred stock of a
   subsidiary held by minority interest    -        -         2.1      -         -         -
  Amortization of deferred
   financing fees. . . . . . . . . . .    3.0      4.2        4.6     4.8       6.2       6.9
  Other (income)/expense . . . . . . .    (.5)     (.5)       (.5)    (.5)      (.5)      (.5)

  Income before income taxes . . . . .  (15.9)   (27.6)     (35.7)  (15.4)    (29.2)    (41.9)
  Provision for income taxes . . . . .   (4.0)    (7.2)      (9.2)   (5.9)    (10.0)    (14.3)
                                       -------  -------    -------  ------    ------    ------
  Net income (loss). . . . . . . . . . $(11.9)  $(20.4)    $(26.5)  $(9.5)   $(19.2)    $(27.6)
                                       ======= ========    =======  =======  ========   =======

Balance Sheet Data (at end of period):
  Cash . . . . . . . . . . . . . . . .  $ 5.6    $ 5.6      $ 5.6   $ 3.9     $ 3.9      $ 3.9
  Working capital. . . . . . . . . . .  220.1    220.4      220.5   152.9     152.9      152.9
  Total assets . . . . . . . . . . . .  456.9    468.7      474.8   363.1     378.1      387.9
  Total indebtedness(2). . . . . . . .  327.0    406.6      494.8   274.5     366.5      466.8
  Stockholders' equity (deficit) . . .  (10.7)   (78.1)    (160.2)  (20.3)    (97.3)    (187.8)

Other Data:
  Depreciation and amortization. . . .   16.6     28.2       34.3    21.7      35.5       48.2
  Capital expenditures . . . . . . . .   16.0     16.0       16.0    11.8      11.8       11.8
--------------
</TABLE>

(1) Consists of compensation  expense attributable to the difference between the
    fair value of the underlying stock and the exercise price of related options
    granted to certain members of management.
(2) Total indebtedness is defined as current portion of long term debt plus long
    term debt.



<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The following  should be read in conjunction  with the  historical  audited
combined financial  statements and the related notes thereto appearing elsewhere
in this report.  The Company's  fiscal year ends on May 31 of the  corresponding
calendar year. For example, fiscal 1998 ended on May 31, 1998.

     This Annual Report on Form 10-K 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.  For this purpose,  any  statements  contained
herein  that  are  not  statements  of  historical  fact  may  be  deemed  to be
forward-looking   statements.   Without   limiting  the  foregoing,   the  words
"believes", "anticipates", "plans", "expects", "intends" and similar expressions
are  intended to  identify  forward-looking  statements.  The  Company's  actual
results  could  differ  materially  from those set forth in the  forward-looking
statements.

Year 2000 Compliance

     The Company  utilizes and is  dependent  upon data  processing  systems and
software to conduct  its  business.  The data  processing  systems and  software
include  those  developed  and  maintained  by the  Company's  third-party  data
processing  vendors and  software  which is run on in-house  computer  networks.
During  fiscal  1998,  the  Company  initiated  a review and  assessment  of all
hardware  and  software to confirm  that it will  function  properly in the year
2000. With respect to internal  systems,  the results of that evaluation to date
have not revealed any year 2000 issues that, in the Company's opinion,  create a
material  risk of  disruption of  operations.  With respect to outside  vendors,
those vendors that have been  contacted  have  indicated  that their hardware or
software is or will be Year 2000  compliant in time frames that meet  regulatory
requirements.  Evaluation  of these  issues  is  continuing  and there can be no
assurance that additional issues,  not presently known to the Company,  will not
be discovered which could present a material risk of disruption to the Company's
operations.

New Accounting Pronouncements

     In June 1997, the FASB issued Statement of Financial  Accounting  Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130") and Statement of Financial
Accounting  Standards No. 131  "Disclosures  about Segments of an Enterprise and
Related  Information" ("SFAS 131"). The Company will implement SFAS 130 and SFAS
131 as required  in fiscal  1999,  which will  require the Company to report and
display  separately  certain  information  related to  comprehensive  income and
operating  segments  but will not result in any changes to  previously  recorded
amounts.

Overview

     The Company,  is one of the largest  manufacturers and marketers of fitness
equipment  in the  United  States and in the first  quarter  of 1996,  commenced
direct marketing of its products in Europe.  The Company's  fitness products are
targeted to home use. The  Company's  sales grew from $202.4  million in 1991 to
$836.2 million in 1997 and then declined to $749.3 in 1998. The Company believes
that during that period its growth rate exceeded the industry growth rate due to
the Company's  emphasis on product  innovation through research and development,
its broad distribution strategy and its flexible manufacturing  capacity.  While
the Company's growth rate to date has been high, its annual percentage  increase
in domestic  sales  cannot be expected to continue at  historical  levels and in
fact declined in 1998 compared to 1997.


<PAGE>


     Margins.  The Company's  sales and gross margins depend upon its success in
innovating,  developing  and marketing  new products.  Products tend to generate
higher  gross  margins  earlier  in the  product  life cycle  (after  production
efficiencies  have been realized  following an initial  start-up  period),  when
there are fewer companies offering similar products,  and tend to generate lower
gross margins over time as competition increases.

     Direct  Sales;  European  Operations.  In 1992,  the Company  began selling
products directly to the public through television  infomercials and print media
campaigns (i.e.,  direct marketing).  Products sold through direct marketing are
sold at retail prices, and therefore, at higher gross margins than products sold
through the Company's other  distribution  channels.  However,  direct marketing
sales  have  higher  associated  selling,  advertising,  distribution  and other
roll-out expenses.  The Company is currently  focusing  principally on 30 and 60
second  television  advertisements  designed  to enhance  both retail and direct
response   sales  of  its  products  as  opposed  to  30  minute   infomercials.
Notwithstanding  the  foregoing,  the  Company may  continue  to utilize  direct
response  marketing  with  respect  to its  HealthRider  products  and its other
brands.

     During the first  quarter of 1996,  the Company  established  its own sales
operations in Europe.  Prior to that, the Company's products were distributed in
Europe  primarily by third  parties.  The Company  began to directly  market its
products in Canada in September  of 1996.  The  Company's  European and Canadian
operations  have been  consolidated  in the statement of operations for 1998 and
the balance sheet at May 31, 1998. Certain of the Company's European  operations
are not  currently  profitable,  and there can be no assurance  that the Company
will be successful in selling its products in non-U.S. markets.

     Non-Recurring  Items and Other  One-time  Expenses.  In 1997,  the  Company
incurred (i)  approximately  $4.9 million of integration  expenses in connection
with the HealthRider Acquisition;  (ii) one-time selling expenses related to the
liquidation of certain HealthRider  inventory at the time of acquisition of $6.4
million; (iii) a significant,  non-recurring, non-cash increase in cost of goods
sold of approximately $14.0 million (due to the fact that the Company's purchase
accounting  for the  HealthRider  Acquisition  and the  Weider  Sports and CanCo
Acquisitions  included  writing-up  the book value of the acquired  inventory to
fair market value less estimated sales costs);  (iv) approximately $16.6 million
in settlement  expenses  related to the WHF Settlement;  and (v) the tax benefit
related to items (i) through (iv) of $15.9 million.

     In 1995,  the Company  incurred a $39.0 million  compensation  expense with
respect to the  exchange of  management  stock  options in  connection  with the
Recapitalization,  including the redemption of the Redeemable Options at a price
of $26.4  million and  related tax  payments  of $.3  million.  Such  redemption
resulted in a $26.7  million cash  compensation  expense for the period in which
the  redemption  occurred.  The Company  also  recorded in 1995 a $12.3  million
non-cash compensation expense at the Recapitalization Closing as a result of the
exchange of options to purchase capital stock of the Recapitalized Companies for
$4.0 million of options to buy IHF Holdings  Preferred Stock and $8.3 million of
options to buy common  stock of IHF  Capital and the  Company  also  recorded an
offsetting  tax benefit to account for the future tax benefit when these options
are exercised.  In connection with the 1997 redemption of the options to buy IHF
Holdings  Preferred  Stock,  the Company  realized a tax benefit  related to the
redemption price of such options of $3.7 million.

Results of Operations

     The  following  table  sets forth  certain  financial  data of the  Company
expressed as a percentage of net sales for fiscal 1996, 1997 and 1998:


<PAGE>


<TABLE>


                                                    For the Year Ended May 31,
                                  -------------------------------------------------------------
                                   1996       1996        1996     1997        1997      1997
                                   ICON       ICON        IHF      ICON        ICON      ICON
                                  Health     Holdings    Fitness   Health     Holdings  Fitness
                                  ------     --------    -------   ------     --------  -------
<S>                               <C>        <C>         <C>      <C>         <C>       <C>

Net sales 100% . . . . . .        100.0%     100.0%      100.0%    100.0%      100.0%    100.0%
Cost of sales. . . . . . .         72.4       72.4        72.4      69.8        69.8      69.8
Amortization of step-up of
  HealthRider and ICON of
   Canada inventory                  -          -           -        1.7         1.7       1.7
                                   ----       ----        ----      -----       ----      ----

Gross profit . . . . . . .         27.6       27.6        27.6      28.5        28.5      28.5
                                   ----       ----        ----      ----        ----      ----
Operating expenses:
     Selling . . . . . . .         12.6       12.6        12.6      15.8        15.8      15.8
     Research and development       0.9        0.9         0.9       0.9         0.9       0.9
     General and administrative     6.4        6.4         6.4       6.8         6.8       6.8
     Weider settlement . .            -          -         2.0       2.0         2.0       2.0
     HealthRider integration costs    -          -           -       0.6         0.6       0.6
     Stock option compensation
      expense                       0.4        0.4         0.4         -           -         -
                                   ----       ----        ----      ----        ----      ----
     Total operating expenses      20.3       20.3        20.3      26.1        26.1      26.1

Income from operations. . .         7.3        7.3         7.3       2.4         2.4       2.4
Interest expense and amortization
  of deferred financing fees        4.0        5.3         5.3       4.4         5.8       6.5
Dividends on cumulative
    redeemable preferred stock of
    a subsidiary held by minority
    interest. . . . . . . .           -          -         0.7         -           -       0.3
Other (income)/expense. . .           -          -           -      (0.1)       (0.1)     (0.1)
                                    ---        ---         ---      -----       -----     -----
Income (loss) before income taxes   3.3        2.0         1.3      (1.9)       (3.3)     (4.3)
Provision (benefit) for income
    taxes                           1.5        1.1         1.1      (0.5)       (0.9)     (1.1)
                                    ---        ---         ---      -----       -----     -----

Net income (loss). . . . . .        1.8%       0.9%        0.2%     (1.4%)      (2.4%)    (3.2%)
                                    ====       ====        ====     ======      ======    ======
</TABLE>
<TABLE>

                                    For the Year Ended May 31,
                                  ------------------------------
                                   1998       1998       1998
                                   ICON       ICON        IHF
                                  Health     Holdings    Fitness
                                  ------     --------    -------
<S>                               <C>        <C>         <C>
Net sales 100% . . . . . .        100.0%     100.0%      100.0%
Cost of sales. . . . . . .         71.5       71.5        71.5
                                  ------     ------      ------
Gross profit . . . . . . .         28.7       28.5        28.5
                                  ------     ------      ------
Operating expenses:
     Selling . . . . . . .         16.1       16.1        16.1
     Research and development       1.1        1.1         1.1
     General and administrative     8.1        8.1         8.1
                                  ------     -----       -----
     Total operating expenses      25.3       25.3        25.3

Income from operations. . .         3.2        3.2         3.2
Interest expense and amortization
  of deferred financing fees        5.3        7.1         8.8
                                   ----        ----        ----
Income (loss) before income taxes  (2.1)      (3.9)       (5.6)
Provision (benefit) for income
    taxes                          (0.8)      (1.3)       (1.9)
                                   -----      -----       -----

Net income (loss). . . . . .       (1.3%)     (2.6%)      (3.7%)
                                   ======     ======      ======
</TABLE>




<PAGE>



Year Ended May 31, 1998 Compared to the Year Ended May 31, 1997

     Net sales decreased by $86.9 million,  or 10.4% from $836.2 million in 1997
to $749.3 million in 1998. The decrease in sales was primarily  attributable  to
upright rower sales and ab shaper sales which  decreased $77.8 million and $41.2
million,   respectively.   Also,   airwalker   sales  decreased  $16.5  million,
rower/skier  sales  decreased by $5.2  million and sales in Europe  decreased by
approximately $4.9 million.  These decreases were offset by increased  treadmill
sales of $21.1 million,  increased bike sales of $13.3 million, a new elliptical
product  introduced in fiscal 1998  accounted for $21.8 million in new sales and
other various product sales including  softgoods increased by approximately $2.5
million. Treadmill sales increased from $452.9 million in 1997 to $474.0 million
in 1998.  Treadmill sales accounted for approximately 54.2% of net sales in 1997
and 63.3% of net sales in 1998.

     Gross profit for 1998 was $213.3  million,  or 28.5% of net sales.  In 1997
gross profit was also 28.5% of net sales at $238.4 million.

     Selling  expenses  were  $120.8  million,  or 16.1% of net  sales,  in 1998
compared to $132.4 million, or 15.8% of net sales in 1997. The dollar decline is
attributed  to a  decrease  in direct  response  and other  advertising  of $6.0
million as well as a one time charge of $6.4 million  related to the Healthrider
acquisition in fiscal 1997. In addition,  commissions  expense decreased by $0.9
million  during fiscal 1998.  These  decreases were offset by an increase in bad
debt  expense  of $1.4  million  primarily  due to one  company  that  filed for
bankruptcy  in fiscal 1998 and other  various  increases of  approximately  $0.3
million.

     Research and  development  expense was $7.8 million,  or 1.1% of net sales,
for 1998 compared to $7.6 million, or 0.9% of net sales, for 1997. This increase
is due to continued efforts to develop both current and future products.

     General and  administrative  expense totaled $60.9 million,  or 8.1% of net
sales,  for 1998 compared to $56.7 million,  or 6.8% of net sales, for 1997. The
largest  single  increase  in 1998 over  1997 is  depreciation  expense  of $3.1
million,   which  increased  due  to  the  recent  acquisition  of  assets  from
HealthRider and CanCo. Product liability insurance claims increased $1.4 million
during fiscal 1998 due to a concerted  effort by the legal  department to settle
outstanding  claims.  Also,  legal  expense  and  rent  expense  have  increased
approximately $1.1 million and $0.9 million,  respectively,  in fiscal 1998 over
fiscal 1997.  These increases were offset by decreases in the salaries and bonus
expenses of $2.3 million in fiscal 1998 compared to fiscal 1997.

     In the  second  quarter  of  fiscal  1997,  the  Company  and  WHF  and its
affiliates  settled  litigation  through a number of agreements.  The settlement
included  the  release  of certain  claims  previously  asserted  by WHF and its
affiliates,  amendments to certain  agreements  existing between the Company and
WHF and its affiliates and certain new agreements  among the Company and WHF and
its affiliates. Expenses related to the WHF settlement amounted to $16.6 million
for fiscal 1997.  There were no expenses  related to this  settlement  in fiscal
1998.

     HealthRider  integration  costs totaled $4.9 million for fiscal 1997. These
charges were incurred to eliminate the  duplication in staff and facilities with
those of ICON Health.  There were no charges related to HealthRider  integration
during fiscal 1998.



<PAGE>



     As a result of the foregoing  factors,  operating income was $23.9 million,
or 3.2% of net sales in fiscal 1998,  compared to $20.2 million,  or 2.4% of net
sales in fiscal 1997.

     Interest  expense,   including  amortization  of  deferred  financing  fees
increased to $39.9  million for ICON Health,  $53.6 million for IHF Holdings and
$66.3 million for ICON Fitness in fiscal 1998 compared to $36.7 million for ICON
Health,  $48.3  million for IHF Holdings and $54.3  million for ICON Fitness for
fiscal  1997.  The  increase in interest  expense and  amortization  of deferred
financing  fees in fiscal 1998 is the result of  additional  levels of borrowing
under the Company's credit agreement and accretion of the principal  balances of
the Company's outstanding indentures.

     Dividends on cumulative redeemable preferred stock totaled $2.1 million for
ICON Fitness for fiscal 1997.  This  Preferred  Stock was redeemed in the second
quarter of fiscal 1997.

     The income tax benefit was $5.9 million for ICON Health,  $10.0 million for
IHF Holdings and $14.3 million for ICON Fitness for fiscal 1998, compared with a
tax benefit of $4.0 million for ICON  Health,  $7.2 million for IHF Holdings and
$9.2 million for ICON Fitness  during fiscal 1997.  This is a result of the loss
before  income tax for fiscal  1998 and 1997.  At the end of fiscal  1998,  ICON
Fitness has a net deferred tax asset of $33.7  million.  No valuation  allowance
has been recorded  against this asset because the Company  believes that it will
generate  sufficient future taxable income through operations to realize the net
deferred assets prior to expiration of any net operating losses (NOL). NOL's can
be carried  forward up to 20 taxable years.  There can be no assurance  however,
that the Company will generate any specific level of earnings or that it will be
able to realize any of the deferred tax asset in future periods.  If the Company
is unable to generate  sufficient taxable income in the future through operating
results, a valuation allowance against this deferred tax asset would result in a
charge to earnings.

     As a result of the  foregoing  factors,  the net loss was $9.5  million for
ICON Health,  $19.2  million for IHF Holdings and $27.6 million for ICON Fitness
for fiscal 1998, compared to net losses of $12.0 million for ICON Health,  $20.4
million for IHF  Holdings  and $26.5  million for ICON  Fitness  during the same
period of fiscal 1997.

     Advertising  allowances due to retail customers totaled $2.5 million at May
31, 1998.  Advertising  allowances are generally a fixed  percentage of sales to
customers.  Fluctuations  in the balance of this allowance are  attributable  to
changes in customer sales mix and the timing of when allowances are taken.


Year Ended May 31, 1997 Compared to the Year Ended May 31, 1996

     Net sales increased by $88.6 million, or 11.8%, from $747.6 million in 1996
to $836.2  million in 1997.  The increase was  primarily  attributable  to sales
increases of $140.5  million of the Company's  treadmill  products and the sales
from the HealthRider Acquisition.  Treadmill sales were $452.9 million, or 54.2%
of net sales in 1997 compared to $312.4 million,  or 41.8% of net sales in 1996.
During  1997,  upright  rower  sales  were  $85.2  million or 10.2% of net sales
compared to $259.1  million or 34.7% during 1996.  The decline in upright rowers
is due to a general  softening of demand for that particular  product  category.
European sales totaled $45.4 million in 1997 compared to $33.3 million in 1996.



<PAGE>



Gross  profit for 1997 was $238.4  million,  or 28.5% of net sales,  compared to
$206.1 million,  or 27.6% of net sales, for 1996. The step-up of HealthRider and
ICON of  Canada  inventory  increased  cost of sales by $14.0  million  in 1997.
Without this charge, the gross profit would have increased to 30.2% due to gross
margin improvements in the Company's line of treadmill products and higher gross
margin on HealthRider brand products.

     Selling  expenses  were  $132.4  million,  or 15.8% of net  sales,  in 1997
compared to $93.9 million,  or 12.6% of net sales,  in 1996. The dollar increase
in selling  expenses  resulted  primarily from the initial  inclusion of selling
expenses at HealthRider of $42.9 million which includes $6.4 million of one-time
expenses  to  dispose  of  upright  rowers   acquired  in  connection  with  the
Acquisition.  These one time selling  expenses will continue until  discontinued
products  purchased in the HealthRider  Acquisition are liquidated.  The Company
had no comparable expenses during fiscal 1996.

     Research and  development  expense was $7.6 million,  or 0.9% of net sales,
for 1997 compared to $6.8 million,  or 0.9% of net sales,  for 1996. This dollar
increase is related to on-going  development  of both current and future product
offerings.

     General and  administrative  expense totaled $56.7 million,  or 6.8% of net
sales,  for 1997  compared  to $47.9  million,  or 6.4% of net sales,  for 1996.
HealthRider's  general and administrative  expenses totaled $4.9 million with no
comparable  expense  during  1996.  The  increase in general and  administrative
expenses as a percentage  of sales was primarily due to expansion and the higher
costs associated with operating the Company's business.

     The Company  recorded no compensation  expense related to management  stock
options in 1997 compared to $2.8 million of such compensation expense in 1996.

     As a result of the foregoing  factors,  operating income decreased to $20.2
million,  or 2.4% of net sales, in 1997, from operating income of $54.8 million,
or 7.3% of net sales, in 1996.  Operating income before inventory  step-up,  one
time HealthRider  selling  expenses,  HealthRider  integration  expenses and the
expense of the Weider  Settlement would have been $62.1 million,  or 7.4% of net
sales.

     Interest  expense,  including  amortization  of  deferred  financing  fees,
increased to $36.7  million for ICON Health,  $48.3 million for IHF Holdings and
$54.3 million for ICON Fitness in 1997 compared to $30.4 million for ICON Health
and $40.2 million for IHF Holdings and ICON Fitness for 1996.  Interest  expense
has  increased  due to the  Company's  growth  and the high  level of  borrowing
incurred in connection with the HealthRider Acquisition, the WHF Settlement, the
Weider Sports and CanCo  Acquisitions  and the interest  associated with the 14%
Series A Senior Discount Notes of ICON Fitness issued in November 1996. In 1997,
ICON Fitness recorded interest expense of $2.1 million, compared to $5.1 million
in 1996,  related to  dividends  accruing  on IHF  Holdings  which was issued in
connection  with the  Recapitalization  and which was held by  affiliates of the
Company.  The IHF Holdings preferred stock was redeemed with the proceeds of the
14% Series A Senior Secured Discount Notes.

     The income tax  benefit  was $4.0 for ICON  Health,  $7.2  million  for IHF
Holding and $9.2 million for ICON Fitness for 1997 compared with a tax provision
of $10.8  million for ICON Health and $7.9  million  for IHF  Holdings  and ICON
Fitness for 1996. The effective tax rates for 1997 differ from those for 1996 as
a result of the  non-deductibility  of the  dividends on IHF Holdings  preferred
stock (ICON Fitness) and the fact that no income tax benefits were recognized in
1997 or 1996 for losses incurred in connection with the


<PAGE>



Company's European  subsidiaries due to uncertainty  regarding the subsidiaries'
ability to  generate  future  taxable  income  against  which such losses can be
applied.

     As a result of the  foregoing  factors,  net losses were $12.0  million for
ICON Health,  $20.4  million for IHF Holdings and $26.5 million for ICON Fitness
in 1997  compared to net income of $13.6  million for ICON Health,  $6.7 million
for IHF Holdings and $1.6 million for ICON Fitness in 1996.

Seasonality

     The  following  are the net sales and  operating  income of the  Company by
quarter for the fiscal years 1998, 1997 and 1996:
<TABLE>
                                           (in millions)
                               First     Second     Third   Fourth
                              Quarter    Quarter   Quarter  Quarter
                              --------   -------   -------  -------
<S>                           <C>        <C>        <C>      <C>

Net Sales
     1998 . . . . . . .       $127.5     $236.3     $252.0   $133.5
     1997 . . . . . . .        125.8      249.5      248.7    212.2
     1996 . . . . . . .        124.8      228.5      240.9    153.4
Operating Income
     1998 . . . . . . .        $(7.6)     $15.7      $21.5    $(5.7)
     1997 . . . . . . .          2.0        1.2        8.5      8.5
     1996 . . . . . . .          6.4       20.0       25.4      3.0
Net Income (Loss)
     1998 . . . . . . .       $(15.4)     $(0.7)      $2.1   $(13.6)
     1997 . . . . . . .         (5.8)      (8.9)      (3.2)    (8.6)
     1996 . . . . . . .         (3.4)       4.2        7.1     (6.3)
-----------------------
</TABLE>

     Historically,  the Company has sold a majority of its products to customers
in its second and third fiscal quarters (i.e., from September through February).
Increased sales and distribution typically have occurred in the Christmas retail
season and the beginning of a new calendar year because of increased  promotions
by customers,  increased  consumer  purchases  and seasonal  changes that prompt
people to exercise  inside.  If actual sales for a quarter do not meet or exceed
projected  sales for that quarter,  expenditures  and inventory  levels could be
disproportionately  high for such quarter and the  Company's  cash flow for that
quarter and future  quarters  could be adversely  affected.  The timing of large
orders  from  customers  and the mix of  products  sold may also  contribute  to
periodic  fluctuations.  While  seasonality  has been the  trend,  it may not be
indicative  of the results to be expected for this fiscal year or for any future
years.

Liquidity and Capital Resources

     In  1998,  the  Company  provided  $47.6  million  of cash  from  operating
activities  compared to a usage of cash in the amount of $37.7  million in 1997.
The  majority of this cash  provided by  operating  activities  is a result of a
decrease  in  accounts  receivable.  The  Company  received  $6.4  million  from
investing  activities  for fiscal  1998 due to the sale of a building  for $18.3
million,  offset by $11.8 million of cash used for capital  expenditures related
to  upgrades  in  plant  and  tooling,  purchases  of  additional  manufacturing
equipment.  Also, the Company used $55.7 million for financing activities during
1998 to pay down lines of credit  and other  long term debt.  As a result of the
foregoing factors, the Company had a net decrease in cash of


<PAGE>



$1.7 million from May 31, 1997 to May 31, 1998.

     In 1997,  the Company used $37.7  million of cash in  operating  activities
primarily  as a result of  increases  in accounts  receivable.  The Company used
$16.0 million in cash for capital  expenditures related to upgrades in plant and
tooling,  purchases of additional manufacturing equipment and building expansion
and $6.3  million  for  repayments  of long term debt.  The  Company  used $25.8
million  in cash to acquire  HealthRider  and $11.1  million  to acquire  Weider
Sports and CanCo.  In  addition,  the effect of  exchange  rates  decreased  the
Company's  cash  balances  at May 31, 1997 by $1.0  million.  During  1997,  the
Company had a net decrease in cash of $13.8 million.

     In 1996,  the  Company  generated  $24.5  million  of cash  from  operating
activities  and had net  borrowings  of  approximately  $6.4  million  under the
Amended  Credit  Agreement's  ("Credit  Agreement")  revolving  credit  facility
primarily to finance  increases in accounts  receivable.  The Company used $15.4
million  in cash for  capital  expenditures  related  to  upgrades  in plant and
tooling,  purchases of additional manufacturing equipment and building expansion
and $.7 million for  repayments  of long term debt.  In addition,  the effect of
exchange  rates  increased  the  Company's  cash balances at May 31, 1996 by $.4
million. As a result of the foregoing factors, the Company had a net increase in
cash of $15.2 million from May 31, 1995 to May 31, 1996.

     The  Company's  primary  short-term  liquidity  needs  consist of financing
seasonal  merchandise  inventory buildups and paying cash interest expense under
its  Credit  Agreement  and on the  Senior  Subordinated  Notes.  The  Company's
principal  source of financing for seasonal  merchandise  inventory  buildup and
increased receivables is revolving credit borrowings under the Credit Agreement.
The  Company's  working  capital  borrowing  needs are typically at their lowest
level in 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, the Company's
working capital  borrowings remain at their highest level and then are paid down
to their lowest annual levels by April.

     At May 31,  1998,  the  Company  had  $148.5  million of  revolving  credit
borrowings  outstanding  under the Credit  Agreement.  Advances under the Credit
Agreement's  revolving  credit  facility  are  subject to the amount of Eligible
Accounts and Eligible Inventory (each as defined in the Credit Agreement) of the
Company.  The Company's  ability to make revolving  credit  borrowings under the
Credit  Agreement  expires on November 14, 1999. At May 31, 1998 the Company had
$7.3  million of  additional  indebtedness  available to be drawn on a revolving
credit basis under the newly amended Credit Agreement. The Company believes that
availability  under the  Credit  Agreement  is  adequate  to meet the  Company's
obligations in the near term.  Revolving  credit  borrowings have primarily been
used to increase inventory levels, to finance normal trade credit for customers,
to make interest payments on debt issued in connection with the Recapitalization
and to make  capital  expenditures.  The Credit  Agreement  contains a number of
covenants,  all of which the  Company  was in  compliance  with after  obtaining
appropriate  amendments and waivers as of the date hereof.  The Company  amended
the Credit  Agreement in August of 1996 to permit total borrowings of up to $310
million  in order to meet the  Company's  longer  term  needs.  There  can be no
assurance  that the Company will be able to increase its available  credit under
the Credit Agreement. The Company believes for the near-term that cash flow from
operations and  availability  of revolving  credit  borrowings  under the Credit
Agreement  will provide  adequate funds for its working  capital needs,  planned
capital  expenditures  and debt  service  obligations.  The  Company  is  highly
leveraged,  and its  ability to fund its  operations  and make  planned  capital
expenditures, to make scheduled payments and to refinance its indebtedness

<PAGE>



depends on its future  operating  performance and cash flow,  which in turn, are
subject to prevailing economic  conditions and to financial,  business and other
factors, some of which are beyond its control.

     At May 31,  1997,  the  Company  had  $178.8  million of  revolving  credit
borrowings  outstanding under the Credit Agreement.  At May 31, 1997 the Company
had  $19.8  million  of  additional  indebtedness  available  to be  drawn  on a
revolving credit basis under the Credit  Agreement.  Revolving credit borrowings
were used in 1997 to increase  inventory  levels, to finance normal trade credit
for customers,  to make interest  payments on debt issued in connection with the
Recapitalization,  to fund the HealthRider, Weider Sports and CanCo Acquisitions
and to make  capital  expenditures.  The  Company  was in  compliance  with  the
restated and amended credit agreement at May 31, 1997.

     On November 20,  1996,  ICON  Fitness  issued 14% Series A Senior  Discount
Notes with a face value of  $162,000,000.  These Senior Discount Notes generated
gross  proceeds of $82.5  million.  The Company used the net  proceeds  from the
Senior Discount Notes to finance the purchase of some of the outstanding  shares
of common  stock of IHF Capital,  Inc.  and warrants to purchase  shares of such
stock held by certain  stockholders  and the purchase of all of the  outstanding
shares of preferred stock of IHF Holdings and options to purchase shares of such
stock.  Interest on the Notes will begin  accruing on November 15, 2001 and will
be payable  semi-annually  on each May 15 and  November 15,  commencing  May 15,
2002.  The principal and accrued  interest on the Senior  Discount Notes will be
due on November 15, 2007.

     The Company's  longer term liquidity  needs include (a) required  quarterly
amortization  payments on the term loans under the Credit Agreement,  consisting
of $1.3  million  from March 31, 1998 and $1.6 million from March 31, 1999 until
the final payment of $5.6 million in December  2002, (b) payments of interest on
the 13% Senior  Subordinated Notes of $13.2 million in fiscal years 1999 through
2002 and  principal  of $101.25  million due on July 15,  2002,  (c) payments of
interest on the 15% Senior Secured Discount Notes of $10.1 million due May 2000,
these interest  payments  increase to $18.6 million for fiscal years ending 2001
through 2004 and interest and principal of $132.2 million is due on November 15,
2004, and (d) semi-annual  interest  payments of $11.3 million on the 14% Senior
Discount Notes beginning May 15, 2002 and ending on November 15, 2007 and $162.0
million in principal on November 15, 2007.

     The Company made capital expenditures of approximately $11.8 million during
fiscal 1998 and expects to make  capital  expenditures  of  approximately  $14.3
million in 1999.  Such  expenditures  are  primarily  for  expansion of physical
plant,  purchases of  additional  or  replacement  manufacturing  equipment  and
revisions  and upgrades in plant  tooling.  The Company  also made  research and
development  expenditures in 1998 of approximately $7.8 million,  and expects to
make research and  development  expenditures  of  approximately  $8.0 million in
1999.

Inflation and Foreign Currency Fluctuations

     Although  the Company  cannot  accurately  predict  the  precise  effect of
inflation  on its  operations,  it does not  believe  that  inflation  has had a
material  effect on sales or results of operations in recent years.  The Company
does import some  finished  products and  components  from Canada and Asia.  All
purchases from Asia have been fixed in U.S. dollars and, therefore,  the Company
has not  been  subject  to  foreign  currency  fluctuations  on such  purchases,
although the Company's  vendors may respond to foreign currency  fluctuations by
seeking to raise their  prices.  Purchases  of  inventory  from Canada have been
settled in Canadian  dollars  and  therefore  the  Company  has been  subject to
fluctuations in the value of the Canadian dollar which could


<PAGE>



have an  impact on the  Company's  operating  results.  In  connection  with the
importation  of products and  components  from Canada,  the Company from time to
time engages in hedging  transactions by entering into forward contracts for the
purchase  of  Canadian  dollars  which are  designed  to  protect  against  such
fluctuations.  The Company's hedging  transactions do not subject it to exchange
rate risk because gains and losses on these contracts offset losses and gains on
the transaction  being hedged.  The unhedged portion of purchases from Canada is
not significant.




<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     Index to Consolidated
                     Financial Statements
                         and Schedules


                                      Page
Report of Independent Accountants of
       Price Waterhouse LLP. . . . . . . . . . . . . . . . . . . . 43

Consolidated Financial Statements:

Consolidated Balance Sheets, May 31, 1998 and 1997 . . . . . . . . 44

Consolidated Statements of Income for the Years Ended
       May 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . 45

Consolidated Statements of Stockholders' Equity (Deficit)
       for the Years Ended May 31, 1998, 1997 and 1996 . . . . . . 46

Consolidated Statements of Cash Flows for the Years Ended
       May 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . 49

Notes to Consolidated Financial Statements . . . . . . . . . . . . 51

Financial Statement Schedules:

Schedule VIII -
Valuation Accounts for the Three Years Ended May 31, 1998. . . . . 73



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None



<PAGE>



                                Part III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
MANAGEMENT

Directors and Executive Officers

     The directors and executive officers of the Company, and their ages, are as
follows:

<TABLE>
          Name            Age               Position
------------------------ ----  -------------------------------------------
<S>                      <C>   <C>
  Scott R. Watterson . .   43    Chairman of the Board and Chief Executive
                                   Officer
  Gary E. Stevenson. . .   43    President, Chief Operating Officer and
                                   Director
  Robert C. Gay. . . . .   46    Vice Chairman of the Board
  Ronald P. Mika . . . .   37    Director
  Geoffrey S. Rehnert. .   40    Director
  S. Fred Beck . . . . .   40    Chief Financial and Accounting Officer, Vice
                                   President and Treasurer
  David J. Watterson . .   39    Vice President, Marketing and
                                   Research and Development
  Jon M. White . . . . .   50    Vice President, Manufacturing
  William T. Dalebout. .   50    Vice President, Design
  Brad H. Bearnson . . .   44    General Counsel and Secretary
</TABLE>

     Scott R. Watterson. Mr. Watterson has served as President and Chief
Executive Officer of Weslo since he co-founded Weslo in 1977 and has served as
President and Chief Executive Officer of ProForm since 1988. Effective as of
the Recapitalization Closing, Mr. Watterson became Chairman of the Board and
Chief Executive Officer of the Company. In addition, Mr. Watterson is a
director of American Pad and Paper Company. David Watterson is Mr. Watterson's
brother.

     Gary E. Stevenson. Mr. Stevenson has served as Chief Operating Officer of
Weslo since he co-founded Weslo in 1977 and has served as Chief Operating
Officer of ProForm since 1988. Effective as of the Recapitalization Closing,
Mr. Stevenson became President, Chief Operating Officer and a Director of the
Company.

     Robert C. Gay. Mr. Gay became Vice Chairman of the Board of Directors of
the Company effective as of the Recapitalization Closing. Mr. Gay has been a
Managing Director of Bain Capital since April 1993 and has been a General
Partner of Bain Venture Capital since February 1989. From 1988 through 1989,
Mr. Gay was a principal of Bain Venture Capital. In addition, Mr. Gay is a
director of Alliance Entertainment Corp., American Pad & Paper Company, GT
Bicycles, Inc., GS Industries, Inc. and its subsidiary GS Technologies
Operating Co., Inc., and Physio-Control International Corporation.

     Ronald P. Mika.  Mr. Mika became a Director of the Company effective as
of the Recapitalization Closing. Mr. Mika has been a Managing Director of Bain
Capital since December 1996, and prior to that he was a Principal of Bain
Capital from December 1992 and was an associate of Bain Capital from August
1989 through November 1992.

     Geoffrey S. Rehnert. Mr. Rehnert became a Director of the Company
effective as of the Recapitalization Closing. Mr. Rehnert has been a Managing


<PAGE>



Director of Bain Capital since April 1993 and has been a General Partner of
Bain Capital since 1986. Mr. Rehnert is also a director of GT Bicycles, Inc.,
Worldcorp, Inc., FTD, Inc., KollMorgen Corporation and U.S. Order, Inc.

     S. Fred Beck. Mr. Beck has served as the Chief Financial Officer of Weslo
since 1989. Mr. Beck became Chief Financial and Accounting Officer, Vice
President and Treasurer of the Company as of the Recapitalization Closing.

     David J. Watterson. Mr. Watterson has served as Vice President of
Marketing and Research and Development of Weslo since 1992 and has continued
in that position with the Company since the Recapitalization Closing. Prior to
1992, Mr. Watterson served as Vice President of Sales of Weslo. Scott
Watterson is David Watterson's brother.

     Jon M. White. Mr. White has served as Vice President of Manufacturing of
Weslo since 1988 and has continued in that position with the Company since the
Recapitalization Closing.

     William T. Dalebout. Mr. Dalebout has served as Vice President of Design
of Weslo since 1987 and has continued in that position with the Company since
the Recapitalization Closing.

     Brad H. Bearnson. Mr. Bearnson presently serves as General Counsel and
Secretary. Mr. Bearnson first joined the Company in March of 1995 prior to
which he represented the Company and its redecessors, ProForm and Weslo, as
outside counsel since 1983. Prior to March, 1995, Mr. Bearnson was a
shareholder with the law firm of Olson & Hoggan, P.C. Mr. Bearnson is also a
certified public accountant.


ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth information  concerning the compensation for
1998,  1997 and 1996 for Mr. Scott  Watterson and the Company's  other four most
highly  compensated  executive  officers  (collectively,  the  "Named  Executive
Officers"):


<PAGE>


<TABLE>

                                     SUMMARY COMPENSATION TABLE



                                                                       Long Term
                                                Annual Compensation   Compensation     All Other
                                                -------------------   -------------  Compensation
   Name and Principal Position            Year  Salary ($) Bonus($)   Options(#)(1)     ($)(2)
   ---------------------------            ----  ---------- --------   -------------  ------------
<S>                                       <C>    <C>      <C>        <C>            <C>
Scott R. Watterson(3)                     1998   472,500    220,300      -            1,800
  Chairman of the Board and Chief         1997   450,000  1,047,384      -            2,250
  Executive Officer                       1996   450,000    690,660  469,988(4)(5)   22,791(6)

Gary E. Stevenson(3)                      1998   420,000    220,300      -            1,800
  President and Chief Operating Officer   1997   400,000  1,047,384      -            2,250
                                          1996   400,000    690,660  375,251(4)(7)   22,952(6)

S. Fred Beck                              1998   188,000     39,300        -          2,234
  Chief Financial and Accounting Officer  1997   178,920    144,533        -         79,506(11)
  Vice President and Treasurer            1996   168,000    149,000   62,285(8)(9)    1,588

David J. Watterson                        1998   229,000     39,300        -          1,920
  Vice President, Marketing and Research  1997   218,325    144,533        -         78,696(11)
  and Development                         1996   205,000    149,000   62,285(8)(9)    1,547

Richard Hebert                            1998   318,916    187,097        -          5,939
  General Manager, ICON Du Canada, Inc.   1997   388,043(10)    -          -          9,440
-------------
</TABLE>
(1)Options to purchase shares of IHF Capital's Class A Common Stock.
(2)Includes  amounts  contributed  by the Company for the benefit of the named
     executive officers under the Company's 401(k) Plan.
(3)The table does not reflect the consulting  fees that Scott Watterson and Gary
     Stevenson  received  from CanCo equal to an aggregate of 14% of its pre-tax
     earnings  up to the time  that  the  Company  acquired  CanCo's  assets  in
     September of 1996.
(4)Includes  options  for  90,588  shares  of Class A Common  Stock  granted  in
     connection  with the  Recapitalization  at an exercise  price of $30.87 per
     share,  which was  substantially  above  market  value.  In March  1996 the
     exercise price of these options was reset to $8.92 per share, which was the
     then current fair market value of the Class A Common Stock.
(5)Includes options to purchase  341,053 shares of Class A Common Stock at $5.80
     per share which were  granted in May 1996 when the then current fair market
     value of such stock was $8.92 per share.
(6)Includes  $19,722  and  $19,802  paid on behalf of Scott  Watterson  and Gary
     Stevenson, respectively, for legal fees and expenses.
(7)Includes options to purchase  246,316 shares of Class A Common Stock at $5.80
     per share which were  granted in May 1996 when the then current fair market
     value of such stock was $8.92 per share.
(8)Includes  options  for  7,549  shares  of Class A  Common  Stock  granted  in
     connection  with the  Recapitalization  at an exercise  price of $30.87 per
     share,  which was  substantially  above market value. In September 1995 the
     exercise price of these options was reset to $5.80 per share, which was the
     then current fair market value of the Class A Common Stock.
(9)Includes  options to purchase  54,736 shares of Class A Common Stock at $5.80
     per share which were  granted in May 1996 when the then current fair market
     value of such stock was $8.92 per share.
(10)Represents Mr.  Hebert's salary from September 6, 1996, the date of the ICON
     of Canada acquisition, to May 31, 1997.
(11)Includes  forgiveness  by Company of $60,000 loan to Mr. Beck and Mr. David
     Watterson.



<PAGE>



     The following table sets forth  information as of May 31, 1998,  concerning
options of IHF Capital exercised by each of the named executive officers in 1998
and year end option values: <TABLE>
                                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                      AND FISCAL YEAR END OPTION VALUES(1)


                     Shares                  Number of Unexercised    Value of Unexercised
                    Acquired      Value            Options at         In-the-Money Options
                       On       Realized        May 31, 1998 (3)        May 31, 1998 ($)(2)
                    Exercise(#) ($)(2)     Exercisable/Unexercisable Exercisable/Unexercisable
                    ----------- ---------  ------------------------- -------------------------
<S>                 <C>         <C>        <C>         <C>           <C>          <C>
                    Class A     Class A    Class A      Class L      Class A      Class L
                     Common      Common     Common      Common       Common       Common
                     Stock       Stock       Stock       Stock        Stock        Stock

Scott Watterson. . .   -           -       469,988/0(3) 48,620/0       -/-          -/-
Gary Stevenson . . .   -           -       375,251/0(3) 37,816/0       -/-          -/-
S. Fred Beck . . . .   -           -        77,383/0         -         -/-          -/-
David J. Watterson . 15,098        -        62,285/0         -         -/-          -/-
Richard Hebert . . .   -           -              -          -          -            -

</TABLE>

(1)This table includes options issued in connection with the Recapitalization in
    exchange  for  previously  outstanding  options  to  purchase  stock  of the
    Recapitalized Companies.
(2)As of May 31, 1998 there was no market for the common  stock of IHF  Capital.
    For purposes of the  calculations in this table, the fair value of one share
    of IHF  Capital's  Class A Common  Stock was assumed to be $0.09375  and the
    fair  value of one  share of its  Class L Common  Stock  was  assumed  to be
    $.7203.
(3)The options  held by Messrs.  Watterson  and  Stevenson  include  options for
    366,784 and 285,276  shares,  respectively,  of Class A Common Stock granted
    pursuant to the Recapitalization.



1994 Stock Option Plan

     In November  1994 the  Company  adopted the IHF  Capital,  Inc.  1994 Stock
Option Plan,  as amended (the "1994 Stock Option  Plan") which  provided for the
grant  to  certain  eligible   employees  of  either  incentive  stock  options,
nonstatutory  options or both.  No employee was entitled to grants of options in
excess of 700,000  shares.  A total of 2,110,207  shares of Class A Common Stock
were  reserved  for  issuance  under  the  1994  Stock  Option  Plan,  which  is
administered by the Board of Directors or a committee thereof,  of which 802,290
shares have been issued or canceled and 1,309,299  represent  outstanding  stock
options as of May 31, 1998.

1996 Stock Option Plan

     In August 1996,  the Company  adopted the 1996 Stock Option Plan (the "1996
Stock  Option  Plan")  which  provides  for the grant to  directors  and certain
eligible employees of the Company either incentive stock options,  non-qualified
options or both. The 1996 Stock Option Plan satisfies the  requirements  of Rule
16b-3 under the 1934 Act.  Subject to  adjustment  for stock  splits and similar
events,  a total of 2,070,000 shares of Class A Common Stock has been authorized
for  issuance  under the 1996 Stock Option Plan,  which is  administered  by the
Board of Directors. Through May 31, 1998, no options have been granted under the
1996 plan.

Committee Interlocks and Insider Participation

     The Company did not maintain a compensation committee during 1998.
Messrs. Scott Watterson's and Stevenson's 1997 compensation was determined
prior to the Recapitalization pursuant to employment contracts that had been
in place since 1989 and after the Recapitalization pursuant to the newly
entered into employment agreements described below. Messrs. Watterson and


<PAGE>



Stevenson participated in the deliberations concerning the compensation of
other officers, and Mr. Beck participated in the deliberations concerning
the compensation of officers other than himself and Messrs. Watterson and
Stevenson. See Item 13 "Certain Relationships and Related Transactions."

Compensation of Directors

     The Company's directors did not receive any compensation for serving on its
Board of Directors  in 1998,  and are not  entitled to receive  compensation  in
connection  with their  current  service.  Directors  are  reimbursed  for their
out-of-pocket  expenses  incurred in connection with their service as directors.
The Company  also  maintains  liability  insurance  policies  for the  Company's
directors.   See  Item  13  "Certain   Relationships  and  Related  Transactions
Management Fees."

Employment Agreements

     Concurrent  with the  Recapitalization  Closing,  Scott  Watterson and Gary
Stevenson  entered into five-year  employment  agreements with the Company.  The
Company  and  Messrs.   Watterson  and  Stevenson  executed  amendments  to  the
employment  agreements  dated  September  6, 1996 (as amended,  the  "Employment
Agreements").  The  Employment  Agreements  provide  for the  employment  of Mr.
Watterson as Chairman and Chief Executive  Officer with a base salary as of June
1, 1995 of $450,000 and Mr.  Stevenson as President and Chief Operating  Officer
with a base  salary  of  $400,000.  These  agreements  also  provide  for  their
respective  levels of  participation in the management stock option and deferred
compensation  plans to the extent  such plans are  established.  In every  other
material respect, the contracts are substantially identical.

     Under the Employment  Agreements,  the  executive's  salary may be adjusted
upwards  at the  discretion  of the Board of  Directors,  and the  executive  is
entitled  to the  use  and  cost  of  operation  of a car of his  choice  and to
participate  in the life,  welfare and health  insurance  plans and other fringe
benefit programs made available by the Company to its senior executive  officers
(including such deferred  compensation  plans as may be established by the Board
of  Directors  for  such  executives).   Each  executive  is  also  entitled  to
participate  in a bonus  program  providing for a bonus equal to a percentage of
pre-interest   (excluding   revolving  credit  interest),   pre-tax,   pre-bonus
consolidated  profits of the Company not taking into account  certain changes in
depreciation,    amortization,   or   certain   other   changes   due   to   the
Recapitalization,  which percentage shall equal 1.3% for 1996, 1.4% for 1997 and
thereafter a percentage  established  by the Board of Directors  which cannot be
less than 1.4%;  provided,  however,  no bonus will be paid unless the Company's
pre-interest   (excluding   revolving  credit  interest),   pre-tax,   pre-bonus
consolidated profits exceed a level to be set by the Board of Directors based on
budgets  prepared by management  for periods after 1995 and which level for 1995
and 1996 is 3% of net sales.  The Employment  Agreements also provided for a one
time bonus in fiscal 1997 of $700,000 which was divided between Messrs.
Watterson and Stevenson.

     Each  executive's  employment  under his  Employment  Agreement  terminates
automatically  upon death or bankruptcy of the  executive,  and is terminable by
the  Company  for  cause  as  provided  in  each  agreement,  upon  six  months'
disability,  or without cause.  For these  purposes,  "cause"  includes  willful
misconduct,  gross  negligence,  commission of a crime involving  material harm,
commission of a crime of moral turpitude, willful insubordination and failure to
comply with certain  covenants under the Employment  Agreements.  The provisions
providing  for  termination   upon  bankruptcy  of  the  executive  may  not  be
enforceable  under  the  U.S.  Bankruptcy  Code,  however.  Each  executive  may
similarly terminate his employment immediately for cause as provided in his


<PAGE>



Employment  Agreement or for any reason upon six months' notice. In the event of
termination  by the  Company  for  cause or upon  death or  bankruptcy  (if such
termination  is legally  enforceable),  the executive is not entitled to further
salary, benefits or bonus. Upon termination by the executive, the Company may at
its  option  continue  the  executive's  employment  for the  notice  period  or
terminate the executive's  employment.  Upon  termination by the Company without
cause or upon termination by the executive with or without cause, the Company is
obligated  to pay the  executive  his salary and bonus for a period of two years
from  the  date  of  termination.  Upon  termination  by the  Company  upon  the
executive's  disability,  the Company is obligated to pay as severance an amount
equal to one month's base salary then in effect for each  calendar  year or part
thereof  elapsed  since  January 1, 1988,  provided  that such  severance pay is
reduced by payments under applicable disability insurance.

     The Employment  Agreements prohibit the executives from engaging in outside
business  activity during the term, except that the executive may sit on outside
business and charitable boards approved by the Board of Directors,  make passive
investments in noncompeting  businesses,  as defined in the Employment Agreement
and spend up to five  hours per week  subject to a maximum of 100 hours per year
counseling   noncompeting   businesses  in  which  he  invests.  The  Employment
Agreements provide for customary confidentiality obligations and, in addition, a
non-competition obligation for a period of four years following termination (two
years if the  executive  quits or is  terminated  without  cause except that the
Company may at its option extend such period for up to two  additional  years by
paying the  executive  his salary and bonus  during the  extended  period).  The
Employment  Agreements also limit each  executive's  liability to the Company to
the extent of such executive's salary,  bonus and other ompensation  received by
the  executive  during  the fiscal  year in which  termination  occurs  plus any
compensation which subsequently  accrues to uch executive.  This limitation does
not apply in the case of an xecutive's theft, fraud, embezzlement,  violation of
the  onfidentiality,  notice,  or  non-competition  provisions  of his mployment
Agreement,  breach of the executive's  non-competition greement or certain other
matters and is subject in any event to a aximum  liability  of $1.24  million in
the case of each of Messrs.  Watterson and Stevenson  (including any liabilities
under the  indemnification  provisions of the Master Transaction  Agreement,  as
defined below) for violation of the  confidentiality,  notice upon  resignation,
and non-competition provisions.

Certain Benefits of Recapitalization to Senior Management

     As a part  of the  Recapitalization,  Mr.  Scott  Watterson  and  Mr.  Gary
Stevenson  received in exchange for their  options to purchase  Capital Stock of
Weslo and ProForm: (i) the Redeemable Options,  which IHF Capital redeemed after
the Closing for $14.83  million in the case of Mr.  Watterson and $11.53 million
in the case of Mr.  Stevenson;  (ii) options to purchase an  additional  486,199
shares of Class A Common  Stock  (which  have since been  exercised)  and 48,620
shares of Class L Common Stock of IHF Capital in the case of Mr.  Watterson  and
378,155  shares of Class A Common  Stock (which have since been  exercised)  and
37,815  shares  of  Class L  Common  Stock  of IHF  Capital  in the  case of Mr.
Stevenson at an exercise price of $0.00397 per share of Class A Common Stock and
$3.93482  per share of Class L Common  Stock;  (iii)options  to  purchase  585.8
shares of Series  A-2 IHF  Holdings  Preferred  Stock  (which  have  since  been
repurchased  by the  Company) in the case of Mr.  Watterson  and 455.6 shares of
Series A-2 IHF Holdings  Preferred  Stock (which have since been  repurchased by
the  Company) in the case of Mr.  Stevenson,  with each such share of Series A-2
IHF Holdings  Preferred Stock having a liquidation  preference as of the Closing
of the  Recapitalization  of $4,000  per share  and each such  option  having an
exercise price of $158.98 per share; and (iv) Warrants to purchase 25,478 shares
of Class A Common Stock of IHF Capital in


<PAGE>



the case of Mr.  Watterson  and  Warrants to purchase  19,816  shares of Class A
Common  Stock of IHF  Capital in the case of Mr.  Stevenson,  with each  Warrant
having been  exercised at a strike price of $.10 per share.  The per share price
of Class A Common Stock being paid in the  Recapitalization  was $0.10,  and the
per share price of Class L Common Stock being paid in the  Recapitalization  was
$99.00.  See Item 12  "Security  Ownership  of  Certain  Beneficial  Owners  and
Management."  Messrs.  Watterson and  Stevenson  also  received  employee  stock
options. The Company reimbursed $199,000 of Messrs.  Watterson's and Stevenson's
legal  fees  and  expenses  in  connection  with the  Recapitalization  and will
maintain certain directors' and officers'  liability  insurance policies for the
benefit of Messrs. Watterson and Stevenson and the Company's other directors and
officers. Messrs. Watterson and Stevenson also entered into four-year agreements
not to compete with the Company in certain  specified  businesses for which they
received  $2.3 million and $1.8  million,  respectively.  Messrs.  Watterson and
Stevenson also received a consulting fee from CanCo equal to an aggregate of 14%
of its pretax earnings from the date of the  Recapitalization  through September
6,  1996,  the date of the  CanCo  Acquisition.  Prior to the  Recapitalization,
Messrs.  Watterson and Stevenson owned a 14% aggregate equity interest in CanCo.
Messrs. Watterson and Stevenson also entered into the employment agreements with
ICON Health described above under "Employment Agreements."

     In the Recapitalization,  each of Messrs. Beck, David Watterson,  White and
Dalebout  received,  in  exchange  for  his  common  stock  in  certain  of  the
Recapitalized Companies,  63,400 shares of Class A Common Stock and 6,340 shares
of Class L Common Stock of IHF Capital. Each of Messrs. Beck and David Watterson
also purchased 11,700 shares of Class A Common Stock and 1,170 shares of Class L
Common  Stock,  with the  proceeds  of loans  from IHF  Capital in the amount of
$116,987.13  and the par  value in cash.  Each of  Messrs.  White  and  Dalebout
purchased  7,750 shares of Class A Common Stock and 775 shares of Class L Common
Stock,  with the proceeds of a loan from IHF Capital in the amount of $77,491.48
and the par value in cash. The Company received from each of Messrs. Beck, David
Watterson,  White and Dalebout an option to purchase  certain of the IHF Capital
shares held by these individuals. IHF Capital exercised these options in January
of 1995. Upon exercise,  IHF Capital received from Mr. Beck 45,950 shares of its
Class A Common  Stock and 4,595  shares of its Class L Common  Stock in exchange
for $459,500;  from Mr.  Watterson 45,100 shares of its Class A Common Stock and
4,510 shares of its Class L Common Stock in exchange for $451,000; and from each
of Messrs.  White and  Dalebout  44,900  shares of its Class A Common  Stock and
4,490 shares of its Class L Common Stock in exchange for $449,000. Other members
of  management  purchased an aggregate of 82,800  shares of Class A Common Stock
and 8,280 shares of Class L Common  Stock,  for an aggregate  purchase  price of
$828,000, $560,000 of which was payable by these members of senior management in
cash,  and the balance with the proceeds of loans from IHF Capital.  All members
of the  Company's  senior  management  will also  participate  in IHF  Capital's
employee stock option arrangements.



<PAGE>



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

     IHF Capital owns all of the outstanding  common stock of ICON Fitness.  The
following table and notes thereto set forth certain  information with respect to
the beneficial ownership of IHF Capital's  outstanding shares of common stock as
of July 23, 1998 by (i) each person  known to IHF  Capital to  beneficially  own
more than 5% of the outstanding shares of common stock of IHF Capital,  and (ii)
each director and executive  officer of IHF Capital  individually  and (iii) all
directors and executive officers of IHF Capital as a group.




<PAGE>


<TABLE>
                                                  Common Stock Beneficially Owned (1)(2)
                                          ------------------------------------------------------
                                             Class L Common Stock    Class A     Common Stock
                                          -----------------------   ----------------------------
                                                       Percent of                    Percent of
                                          Number of   Outstanding   Number of        Outstanding
Names                                       Shares      Shares       Shares           Shares (3)
<S>                                       <C>         <C>           <C>              <C>
Scott R. Watterson +(3)(4)                 248,620       37.3%      3,338,956           40.55%
  c/o ICON Health & Fitness, Inc.
  1500 South 1000 West
  Logan, Utah 84321

Gary E. Stevenson +(4)(5)                  237,816       36.30      3,050,618           37.49
  c/o ICON Health & Fitness, Inc.
  1500 South 1000 West
  Logan, Utah 84321

S. Fred Beck(4)(6)                         202,915       32.87      2,098,984           26.85
  c/o ICON Health & Fitness, Inc.
  1500 South 1000 West
  Logan, Utah 84321

David S. Watterson(4)(7)                   203,000       32.88      2,084,736           26.67
  c/o ICON Health & Fitness, Inc.
  1500 South 1000 West
  Logan, Utah 84321

Robert C. Gay +(4)(8)                      559,305       90.60      5,593,050           72.06
  c/o Bain Capital, Inc.
  Two Copley Place, 7th Floor
  Boston, Massachusetts  02116

Ronald P. Mika +(4)(8)                     559,305       90.60      5,593,050           72.06
  c/o Bain Capital, Inc.
  Two Copley Place, 7th Floor
  Boston, Massachusetts 02116

Geoffrey S. Rehnert (4)(8)                 559,305       90.60      5,593,050           72.06
  c/o Bain Capital, Inc.
  Two Copley Place, 7th Floor
  Boston, Massachusetts 02116

The Bain Funds (4)(8)                      559,305       90.60      5,593,050           72.06
  c/o Bain Capital, Inc.
  Two Copley Place, 7th Floor
  Boston, Massachusetts 02116

ICON Fitness Corporation                   200,000       32.4       2,000,000           25.77
 1500 South 1000 West
 Logan, Utah 84321

All directors and executive officers as a
  group (10 persons)(4) . . . . . . . . .  654,280       92.99      8,234,896           94.12
------------
</TABLE>

* Less than one percent.
+ Director of IHF Capital.
(1)The Common Stock of IHF Capital consists of two classes of shares,  par value
$.01 per  share:  Class L Common  Stock  ("Class  L") and  Class A Common  Stock
("Class A"). There are 1.3 million  authorized  shares of Class L and 16 million
authorized  shares of Class A. At July 23,  1998  617,350  shares of Class L and
7,859,890 shares of Class A were issued and  outstanding.  Upon a liquidation of
IHF Capital, the Class L are entitled to a pro rata preference,  before anything
is paid on the Class A, equal to $99 per share  (the price at which such  shares
were issued in the Recapitalization) plus an amount equal to the non-liquidating
distributions  to which the holders of such shares would  otherwise be entitled.
After such  preference has been paid to holders of Class L, holders of the Class
A receive  $0.10 per share (the price at which such  shares  were  issued in the
Recapitalization),  and  thereafter  holders  of the  Class A and Class L shares
share in any remaining amounts to be distributed based on the number of shares


<PAGE>


of Class A which would be held by each  shareholder as of the applicable  record
date upon the conversion of all shares of Class L into shares of Class A. In the
event of  distributions,  other than those made in connection with a liquidation
of IHF Capital,  holders of Class L are entitled to first  priority with respect
to distributions up to an amount which would generate an internal rate of return
on $99 of 10% per year, compounded quarterly beginning as of the Closing.  After
such preference has been satisfied,  holders of Class A and Class L shares share
in any remaining amounts based on the number of shares of Class A which would be
held by each shareholder as of the applicable record date upon the conversion of
all shares of Class L into  shares of Class A. Upon a public  offering of shares
of Class A, each share of Class L is  convertible  at the option of IHF  Capital
into a  number  of  shares  of  Class A equal  to (a) 1.0  (subject  to  certain
adjustments),  plus (b) the quotient obtained by dividing (x) $99 plus an amount
sufficient  to  generate  an  internal  rate of  return  on $99 of 10% per year,
compounded  quarterly (adjusted downwards to reflect any distributions  actually
made to holders of Class L shares  between  the date of the Closing and the date
of the calculation),  by (y) the price per share received by IHF Capital for its
Class A issued in the public offering.  The Class L and Class A vote together as
a single class on all  matters,  with each share of Class L entitled to a number
of votes  equal to the number of shares of Class A which  would then be received
upon conversion of a share of Class L (assuming a public offering at a price per
share equal to (a) prior to a public offering,  the greater of $0.10 or net book
value and (b) after a public offering,  an average of recent market prices). The
holders of Class L and Class A are not  entitled to cumulate  their votes in the
election of  directors,  which  means that  holders of more than half the voting
power of the outstanding  Class L and Class A can elect all the directors of IHF
Capital.  (2)Except as otherwise indicated,  (i) the named owner has sole voting
and  investment  power with respect to the shares set forth and (ii) the figures
in this table are calculated in accordance  with Rule 13d-3,  as amended,  under
the Exchange Act. The table includes the ICON Unit Warrants and the IHF Holdings
Unit Warrants (which have an exercise price, subject to adjustment,  of $.01 per
share) even though such  Warrants  are not  currently  exercisable.  All current
shareholders  and warrant  holders of IHF Capital are parties to a  Stockholders
Agreement  pursuant to which certain  holders  affiliated with management of IHF
Capital are entitled to elect two directors, certain holders affiliated with WHF
are entitled to elect two directors and Bain Capital Fund IV, L.P., Bain Capital
Fund IV-B, L.P., BCIP Associates and BCIP Trust Associates,  L.P. (collectively,
the "Bain  Funds") are entitled to fix the number of directors  and to elect all
remaining  directors.  In  addition,  the Bain Funds are  entitled to direct how
these other  shareholders will cast their votes with respect to certain matters,
including a public offering of IHF Capital or the disposition of its assets. The
Stockholders  Agreement also provides for certain "drag-along",  "tag-along" and
registration rights. The shares reported in this table as owned by a shareholder
do not include the shares  over which such  shareholder  has the right to direct
the vote pursuant to such Stockholders Agreement.  (3) Includes 48,620 shares of
Class L Common  Stock and  469,988  shares of Class A Common  Stock  subject  to
purchase upon exercise of options that are exercisable within 60 days after July
23, 1998. (4)Includes the shares owned by ICON of which the named shareholder is
deemed the beneficial owner by virtue of being a director, an executive officer,
or a controlling  shareholder of ICON's parent, IHF Capital.  (5)Includes 37,816
shares  of Class L Common  Stock  and  375,251  shares  of Class A Common  Stock
subject to purchase upon exercise of options that are exercisable within 60 days
after July 23, 1998.  (6)Includes  77,383 shares of Class A Common Stock subject
to purchase upon exercise of options that are  exercisable  within 60 days after
July 23, 1998.  (7)Includes  62,285  shares of Class A Common  Stock  subject to
purchase upon exercise of options that are exercisable within 60 days after July
23, 1998.  (8)Includes  the shares owned by each of the Bain Funds, of which the
named  shareholder is deemed the  beneficial  owner by virtue of being a general
partner  or  principal,  or a general  partner  or a  principal  of the  general
partner, of such Bain Fund.







<PAGE>



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


Master Transaction Agreement.  The original shareholders,  the option holders of
the Recapitalized  Companies and the Company were parties to a First Amended and
Restated Master Transaction Agreement, dated as of October 12, 1994 (the "Master
Transaction Agreement"),  providing for certain of the transactions constituting
the Recapitalization.  Pursuant to the Master Transaction Agreement, among other
things,  the original  shareholders and the option holders of the  Recapitalized
Companies made certain  representations and warranties  regarding themselves and
the  Recapitalized  Companies and provided  certain  indemnities in favor of the
Company,  and the Company made certain  representations and warranties regarding
itself and provided  certain  indemnities in favor of the original  shareholders
and the option holders of the  Recapitalized  Companies,  subject in the case of
such  indemnities  to  certain  limitations  as to time and  amount.  The Master
Transaction  Agreement  identifies  certain  consents of third parties that were
required to  consummate  the  Recapitalization.  The Company  believes  that one
required consent was not obtained, but that the lack of such consent has not had
and will not have a  material  adverse  effect on its  financial  condition  and
results of operation.

Purchase Option.  Under the CanCo Option,  the Company had the right at any time
within 30 months after the closing of the  Recapitalization  to purchase the net
fixed assets,  inventory  and certain other assets of CanCo at a purchase  price
equal to aggregate  net book value,  which was believed by the parties to be the
fair market value of such fixed  assets,  inventory  and other  assets,  and the
assumption  of certain  related  leases and  contracts.  These assets  consisted
primarily of  manufacturing  facilities  (which were leased)  which had supplied
products to the  Recapitalized  Companies and other affiliates of WHF and Weider
Europe and are continuing to supply products to the Company. In August 1995, the
Company gave notice of its  intention to exercise the CanCo  Option,  subject to
various conditions, and consummated the acquisition on September 6, 1996.

     In 1995,  1996,  and prior to the CanCo  acquisition  in 1997,  the Company
purchased  $26.4  million,  $50.7  million and $7.0  million,  respectively,  of
products  from CanCo.  Prior the  exercise of the CanCo  Option (and the closing
thereunder),  all such  purchases  by the Company  were made on an arm's  length
basis.

     In addition, the Company provided management services to CanCo while it had
the right to exercise the CanCo  option and  received a management  fee equal to
$0.5  million  in the  second  quarter  of  1997  in  connection  with  the  WHF
Settlement.  No  management  fees were  received  from CanCo in 1995 or in 1996.
Scott  Watterson and Gary  Stevenson  received from CanCo an aggregate of 14% of
its adjusted pre-tax earnings from November 14, 1994 to September 6, 1996.

European   Operations.   The  Company   purchased   certain   fixed  assets  for
approximately $.2 million and assumed certain liabilities (primarily real estate
leases) of Weider  Europe.  It also hired  selected  former  employees of Weider
Europe and its  affiliates.  These  assets and  employees,  supplemented  by the
Company's domestic resources were used in establishing the Company's presence in
targeted  European  markets.  The Company's  European  operations  purchased $.4
million of products from affiliates of WHF in 1996.

International  Distribution  Arrangements.  Prior to the beginning of 1996,  the
Company  sold  products to  affiliates  of WHF for  international  distribution,
primarily in Europe. In 1995, 1996 and prior to the WHF settlement in 1997 sales
by the Company to such affiliates of WHF aggregated  $8.8 million,  $9.6 million
and, $3.2 million respectively. Since the beginning of 1996, the


<PAGE>



Company has been selling its products directly in Europe.

     In  connection  with the  Recapitalization,  the  Company  entered  into an
agreement  with  Weider  Sports,   under  which  Weider  Sports  had  exclusive,
perpetual,  worldwide distribution rights, except as noted below, for certain of
the  Company's  products on the same terms and  conditions as those given to the
Company's most favored customers in countries other than the United States,  the
United  Kingdom,  France,  Germany,  the  Benelux  countries,   Italy,  Austria,
Switzerland  and Mexico.  Weider  Sports did not have  distribution  rights with
respect to certain of the  Company's  products,  including  products  sold under
third party brand names.

     In connection  with the Weider Sports  Acquisition  in September  1996, the
Company paid $8.0 million to reacquire the distribution rights granted to Weider
Sports in  connection  with the  Recapitalization,  subject  to  certain  rights
granted by Weider Sports to third parties.

Non-compete  Agreement.  In connection  with the  Recapitalization,  the Company
entered  into a  non-compete  agreement  with  WHF  and  Messrs.  Watterson  and
Stevenson,  which  has been  subsequently  amended  in  connection  with the WHF
Settlement,  under which the Company paid (I) WHF $2.4 million for its agreement
not to compete with the Company in certain specified  businesses for a five-year
term and (ii) Messrs.  Watterson  and  Stevenson  $2.3 million and $1.8 million,
respectively,  for their  agreement  not to compete  with the Company in certain
specified businesses for a four year term. On June 1, 1997, ICON of Canada, Inc.
("ICON Canada") entered into a non-compete  agreement with Richard Herbert which
requires  him not to compete  with ICON Canada in certain  specified  businesses
during the term of his employment with ICON Canada and for a period of 18 months
thereafter.  In return, Mr. Herbert will receive payment of $1,000,000, of which
$600,000 was paid in cash upon execution of the agreement. The remaining balance
is  payable  at the end of the  first  nine  months  of Mr.  Hebert's  18  month
non-competition period.

Tax Sharing  Agreement.  For federal income tax purposes,  the taxable income of
ICON  Fitness,  IHF  Holdings  and Health & Fitness and their  subsidiaries  has
historically  been included in a single  consolidated  federal income tax return
under IHF Capital.  Such taxable  income may also have been  included in certain
state and local  consolidated,  combined or unitary  income tax  returns.  A tax
sharing agreement was entered into in connection with the Recapitalization among
Health & Fitness, IHF Holdings, IHF Capital and their affiliates to provide that
each company included in consolidated returns would pay its separate company tax
liability to IHF Holdings calculated as if it were not included in consolidated,
combined or unitary  returns  with its parent.  Upon the  redemption  of the IHF
Holdings preferred stock, the taxable income of IHF Capital,  ICON Fitness,  IHF
Holdings,  Health &  Fitness  and  their  affiliates  are  included  in a single
consolidated  federal tax return.  The tax sharing agreement  previously entered
into  anticipated  this  possibility  and provides that tax payments will now be
paid to IHF Capital.

Management  Fees.  Since the  closing  of the  Recapitalization,  pursuant  to a
management  agreement (the "Bain Management  Agreement"),  Bain Capital Partners
IV,  L.P.  ("Bain  IV"),  an  affiliate  of Bain  Capital,  provides  management
consulting  services  to the Company  including  providing  advice on  strategic
planning,  development  and  acquisitions  for an annual fee of $.8 million plus
reimbursement of reasonable  out-of-pocket expenses. In 1996, 1997, and 1998 the
Company  paid Bain IV $0.8,  $0.8  million,  and $0.8 million  respectively,  in
consulting   fees.   The   Bain   Management    Agreement   includes   customary
indemnification  provisions  in favor of Bain IV. In  addition,  if the  Company
enters into any acquisition  transactions involving at least $10.0 million, Bain
IV will receive a fee in an amount which will approximate 1% of the gross


<PAGE>



purchase price of the transaction  (including  assumed debt). In connection with
the HealthRider Acquisition, the Company paid Bain IV $700,000.

Loans to Employees. In connection with the exercise of options prior to the
Recapitalization, ProForm accepted as partial payment notes in the amount of
$60,000 from each of Mr. Beck and Mr. David Watterson and $57,000 from each of
Mr. White and Mr. Dalebout at an interest rate of prime plus 0.5%. Such notes
were forgiven in January of 1997. In connection with the purchase of stock in
the Recapitalization, the Company accepted as partial payments, notes bearing
interest at a per annum rate equal to 7.5% in the amount of approximately
$117,000 from each of Mr. Beck and Mr. David Watterson and $77,500 from Mr.
White.  As of May 31, 1998, $117,000, $117,000 and $134,500 remain outstanding
from Messrs. Beck, David Watterson and White, respectively.

Westwind  II. In June  1996,  the  Company  entered  into an  agreement  with FG
Aviation,  Inc.  ("FG"),  a company  which is jointly  owned by  officers of the
Company,  whereby the Company has  committed to lease a Westwind II jet from FG.
Minimum  rentals  under the lease,  which  expires in May 2005,  are $56,610 per
month. In connection with its lease  commitments,  the Company recorded $679,000
of rental expense and $34,000 of  maintenance  expense in the year ended May 31,
1998. In addition,  the Company advanced $280,000 to FG as a security deposit on
the aircraft lease.

Repurchase of Common Stock.  In connection with the settlement of its litigation
with WHF, the Company  obtained the right to purchase all of the Common Stock of
IHF Capital and certain warrants to purchase Common Stock of IHF Capital held by
the WHF  stockholders.  This right was  exercised  on  November  20,  1996 at an
aggregate  price of  approximately  $42.3  million.  This  transaction  has been
treated as a return of IHF Capital's  capital in ICON in which ICON recorded the
amounts paid to the WHF  stockholders  as a reduction in the additional  paid-in
capital of ICON.

Repurchase of IHF Holdings Preferred Stock. In connection with the settlement of
its  litigation  with WHF,  the Company  obtained  the right to purchase the IHF
Holdings Preferred Stock held by WHF and certain other stockholders. On November
20, 1996 the Company  exercised this right for $32.1 million,  which reflected a
discount of $3.9 million and the forgiveness of accrued dividends. In connection
with the repurchase of the IHF Holdings  Preferred Stock, the Company  purchased
the options to purchase IHF Holdings Preferred Stock held by certain officers of
the Company for $3.7 million,  which reflected a discount of $.3 million and the
forgiveness  of  accrued  dividends.  Upon  the  purchase  of the  IHF  Holdings
Preferred  Stock,  WHF's  representation  on the  Company's  board of  directors
ceased.  In  connection  with the above  transaction,  the  Company  recorded an
increase to the  additional  paid-in  capital of IHF Holdings of $50.0  million,
which consists of (i) $35.8 million which ICON  contributed to IHF Holdings from
its proceeds from the issuance of Senior  Discount  Notes for the  repurchase of
IHF Holdings  Preferred  Stock and options to purchase  IHF  Holdings  Preferred
Stock;  and (ii) $14.3 million  related to the discounts given on the repurchase
of IHF Holdings  Preferred Stock and options to purchase IHF Holdings  Preferred
Stock and the  forgiveness  of  accrued  dividends.  Additionally,  the  Company
recorded an increase to the additional  paid-in capital of ICON of $14.3 million
to reflect the gain recognized on the early  extinguishment  of and the forgiven
dividends  related to the IHF Holdings  Preferred  Stock and options to purchase
IHF Holdings Preferred Stock.




<PAGE>



                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K

     The following documents are filed as part of this report:

Consolidated Financial Statements (See Item 8)

     Consolidated Balance Sheets at May 31, 1998 and 1997

     Consolidated Statements of Income for the Years Ended May 31,
         1998, 1997 and 1996

     Consolidated  Statements of  Stockholders'  Equity  (Deficit) for the Years
         Ended May 31, 1998, 1997 and 1996

     Consolidated Statements of Cash Flows for the Years Ended May 31,
         1998, 1997 and 1996

     Notes to Consolidated Financial Statements

Financial Statement Schedules (See Item 8)

Schedule VIII  -  Valuation Accounts for the Three Years Ended May 31, 1998


     All  other  schedules  are  omitted  as  the  required  information  is not
applicable or is included in the financial statements or related notes or can be
derived from information contained in the consolidated  financial statements and
related notes.

Exhibits

     The  following  designated  exhibits  have  heretofore  been filed with the
Securities  and Exchange  Commission  under the  Securities  Act of 1933 and are
referred to and  incorporated  herein by  reference to such  filings.  Except as
otherwise  indicated,  all exhibits are incorporated  herein by reference to the
correspondingly numbered exhibit filed as part of the Registrants'  Registration
Statement on Form S-1 of IHF Capital, as amended (No.  33-87930/87930-1)  and on
Form S-4 of ICON Fitness, as amended (No. 333-18475).

 1.1    Purchase  Agreement  dated  November 15, 1996 regarding the issuance and
        sale of the Senior  Discount  Notes between ICON Fitness and  Donaldson,
        Lufkin & Jenrette Securities Corporation.
 3.1    Certificate of Incorporation.
 3.1A   Amendment to Certificate of Incorporation.
 3.2    By-laws.
 4.2    Indenture  dated as of November 20, 1996 between ICON Fitness as Issuer,
        and Fleet National Bank as Trustee,  with respect to the $162,000,000 in
        aggregate  principal  amount at  maturity of Senior  Discount  Notes due
        2006, including the form of the Senior Discount Note.
 4.2A   Supplemental  Indenture dated as of March 20, 1995 between IHF Holdings,
        as Issuer,  and Fleet Bank of  Massachusetts,  N.A.,  as  Trustee,  with
        respect to the $123,700,000 in aggregate principal amount at maturity of
        Discount Notes due 2004.
 4.3    Registration  Rights  Agreement  dated as of  November  20,  1996 by and
        between  ICON  Fitness  and  Donaldson  Lufkin  &  Jennette   Securities
        Corporation.


<PAGE>



 4.4    Registration  Rights  Agreement  dated  November  14, 1994  between ICON
        Health  and  Weider  Health  and  Fitness  with  respect  to the  Senior
        Subordinated Notes due 2002.
 10.1   Amended and  Restated  Credit  Agreement  dated as of November  14, 1994
        among ICON  Health,  the lenders  named  therein,  and General  Electric
        Capital Corporation.
 10.1A  Agreement of IHF Holdings, Inc. and IHF Capital, dated November 14, 1994
        in favor of General Electric Capital Corporation, as agent.
 10.1B  Amended and Restated  Credit  Agreement  dated as of July 15, 1998 among
        ICON Health & Fitness,  Inc.,  the lenders  named  therein,  and General
        Electric Capital Corporation.
 10.2   First  Amended and Restated  Master  Transaction  Agreement  dated as of
        October 12, 1994 among ICON Health and each of Weider Health and Fitness
        and Weider  Sporting  Goods,  Inc.  and each of  Hornchurch  Investments
        Limited,  Bayonne Settlement,  The Joe Weider Foundation,  Ronald Corey,
        Jon  White,  William  Dalebout,  David  Watterson,  S. Fred  Beck,  Gary
        Stevenson and Scott Watterson.
 10.3   Adjustment Agreement dated as of November 14, 1994 between Weider Health
        and Fitness and Health & Fitness.
 10.4   Stockholders  Agreement  dated as of November 14, 1994 by and among ICON
        Health,  IHF Holdings  each of the Bain Funds named  therein and certain
        other persons named therein.
 10.4A  Registration  Rights Agreement dated November 14, 1994 among ICON Health
        and IHF Holdings and Donaldson, Lufkin & Jenrette Securities Corporation
        and Bear, Stearns & Co.
 10.5   Non-Competition  Agreement  dated as of  November  14,  1994  among ICON
        Health, Weider Health and Fitness, Gary E. Stevenson and Scott R.
        Watterson.
 10.6   Management  and Advisory  Agreement  dated as of November 14, 1994 among
        ICON Health,  IHF Holdings,  the Company,  and Bain Capital Partners IV,
        L.P.
 10.7   Distribution  Agreement  dated as of September  26, 1994,  as amended by
        letter of Ben Weider  dated  October  12, 1994  between  ICON Health and
        Weider Sports Equipment Co., Ltd.
 10.8   Exclusive  License  Agreement dated as of November 14, 1994 among Weider
        Health and Fitness, Weider Sporting Goods, Inc., Weider Europe B.V., and
        Health & Fitness.
 10.9   Canada Exclusive License Agreement dated as of November 14, 1994 between
        Weider Sports Equipment Co., Ltd. and Health & Fitness.
 10.10  Employment  Agreement  dated as of November  14, 1994 among the Company,
        ICON Health, IHF Holdings and Gary E. Stevenson.
 10.11  Employment  Agreement  dated as of November  14, 1994 among the company,
        ICON Health, IHF Holdings and Scott R. Watterson.
 10.12  Asset  Option  Agreement  dated as of November  14, 1994 among  Health &
        Fitness,  Weider Sporting Goods, Inc. and Weider Europe B.V.,  including
        ICON Health's assignment of its rights thereunder.
 10.13  Asset Option Agreement dated as of November 14, 1994 between ICON Health
        and each of Athletimonde Inc., Les Industries  Rickbend Inc. and Fitquip
        International  Inc.,  including  ICON Health's  assignment of its rights
        thereunder.
 10.14  CanCo Management and Advisory Agreement dated as of November 14, 1994 by
        and among  ICON  Health,  Scott  Watterson,  Gary E.  Stevenson  and Les
        Industries Rickbend Inc.,  Athletimonde Inc., and Fitquip  International
        Inc., including Health & Fitness' assignment of its rights thereunder.
 10.15  Weider Europe  Management  Agreement dated as of November 14, 1994 among
        ICON  Health  and  Weider  Europe  B.V.,  including  Health  &  Fitness'
        assignment of its rights thereunder.
 10.16  Amended and Restated WSG Management  Agreement  dated as of June 1, 1994
        among ICON Health,  Weider Health and Fitness and Weider Sporting Goods,
        Inc.


<PAGE>



 10.17  Advertising  Space  Contract  dated as of November 14, 1994 between ICON
        Health and Weider Publications, Inc.
 10.18  Trade Payables Agreement dated as of November 14, 1994 between ICON
        Health and IHF Holdings.
 10.19  Tax Agreement dated as of November 14, 1994 among the Company and its
        subsidiaries.
 10.20  The Company's  Stock  Subscription  and Exchange  Agreement  dated as of
        November   14,  1994  among  the  Company  and  each  of  the   Existing
        Stockholders named therein.
 10.21  Warrant  Agreement  dated as of  November  14,  1994 among IHF  Capital,
        Weider Health and Fitness, Scott Watterson and Gary Stevenson.
 10.22  Bain Stock  Subscription  Agreement  dated as of November 14, 1994 among
        the  Company  and each of the Bain  Funds  and other  subscribers  named
        therein.
 10.23  IHF Capital's  Stock  Subscription  and Purchase  agreement  dated as of
        November 14, 1994 among IHF Capital and the Subscribers named therein.
 10.24  IHF  Holdings  Stock  Subscription  and Exchange  Agreement  dated as of
        November  14,  1994 among IHF  Holdings  and each of the  persons  named
        therein.
 10.25  IHF Capital's  Option Exchange  Agreement dated as of November 14, 1994,
        among the Company, Scott Watterson and Gary Stevenson.
 10.26  IHF Holdings  Option  Exchange  Agreement  dated as of November 14, 1994
        among IHF Holdings, Scott Watterson and Gary Stevenson.
 10.27  IHF Capital's Employee Stock Option Plan dated as of November 14, 1994.
 10.27.1Form of Option Certificate for Management Options.
 10.27.2Form of Option Certificate for Performance Options.
 10.28  Agreement and Plan of Merger dated as of November 14, 1994 among ICON
        Health, American Physical Therapy, Inc., Weslo, Inc. and ProForm
        Fitness Products, Inc.
 10.29  Promissory  Note  dated  December  30,  1993  and a loan  made by  David
        Watterson in favor of ProForm  Fitness  Products,  Inc. in the amount of
        $60,000.
 10.30  Promissory  Note dated  December  30,  1993 and a loan,  made by William
        Dalebout  in favor of ProForm  Fitness  Products,  Inc. in the amount of
        $57,000.
 10.31  Promissory Note dated December 30, 1993 and a loan, made by Fred Beck in
        favor of ProForm Fitness Products, Inc. in the amount of $60,000.
 10.32  Promissory Note dated December 30, 1993 and a loan, made by Jon White in
        favor of ProForm Fitness Products, Inc. in the amount of $57,000.
 10.33  Sublease  dated as of June 1, 1994 between Weider Health and Fitness and
        ProForm Fitness Products, Inc.
 10.34  Indenture dated as of November 14, 1994 between ICON Health,  as Issuer,
        and Fleet Bank of Massachusetts,  N.A., as Trustee,  with respect to the
        $101,250,000 in aggregate  principal amount of Senior Subordinated Notes
        due 2002, including the form of Senior Subordinated Note.
 10.34A Supplemental  Indenture  dated as of March 20, 1995 between ICON Health,
        as Issuer,  and Fleet Bank of  Massachusetts,  N.A.,  as  Trustee,  with
        respect to the  $101,250,000  in  aggregate  principal  amount of Senior
        Subordinated Notes due 2002.
 10.35  Indenture dated as of November 14, 1994 between IHF Holdings, as Issuer,
        and Fleet Bank of Massachusetts,  N.A., as Trustee,  with respect to the
        $123,700,000 in aggregate principal amount at maturity of Discount Notes
        due 2004, including the form of Discount Note.
 10.35A Supplemental  Indenture  dated as of March 20, 1995 between IHF Holding,
        as  Issuer,and  Fleet Bank of  Massachusetts,  N.A.,  as  Trustee,  with
        respect to the $123,700,000 in aggregate principal amount at maturity of
        Discount Notes due 2004.
 10.36 Registration Rights Agreement dated November 14, 1994 between ICON


<PAGE>



        Health  and  Weider  Health  and  Fitness  with  respect  to the  Senior
        Subordinated Notes due 2002.
 10.37  Asset Purchase Agreement dated as of July 3, 1996 by and among IHF
        Capital, Inc. HealthRider Acquisition Corp. and HealthRider, Inc.
 10.38  Asset  Purchase  Agreement for the purchase of certain assets of Parkway
        Manufacturing, Inc. dated July 3, 1996.
 10.39  Buy-Out Agreement between HealthRider Acquisition Corp. and Parkway
        Manufacturing, Inc. dated August 26, 1996.
 10.40  IHF Capital's 1996 Stock Option Plan.
 10.41  WSE Asset Purchase Agreement, dated September 6, 1996 between Weider
        Sports Equipment Co. Ltd. and ICON Health.
 10.42  CanCo Asset Purchase  Agreement,  dated  September 6, 1996 among ICON of
        Canada Inc.,  ICON Health,  ALLFITNESS,  Inc,  Scott  Watterson and Gary
        Stevenson.
 10.43  Stock and Warrants Purchase Agreement, dated September 6, 1996 among IHF
        Capital Inc., IHF Holdings,  Inc.,  Weider Health & Fitness,  Greyfriars
        Limited,  Bayonne Settlement,  Hornchurch  Investments  Limited,  Ronald
        Corey,  Bernard  Cartoon,  Ronald Novak,  Eric Weider,  Richard Bizarro,
        Robert  Reynolds,  Michael  Carr,  Thomas  Deters,  Barbara  Harris  and
        Zbigniew Kindella.
 10.44  Amendment No. 1 to Stockholders Agreement,  dated September 6,1996 among
        IHF Holdings, Inc., Weider Health & Fitness, Greyfriars Limited, Bayonne
        Settlement,  Hornchurch  Investments  Limited,  the Fund Investors,  DLJ
        Capital Corporation,  General Electric Capital Corporation,  and certain
        other signatories named therein.
 10.45  Amendment  and  Restatement  of  Stockholders  Agreement,  dated  as  of
        September 6, 1996 among IHF  Holdings,  Inc.,  Weider  Health & Fitness,
        Greyfriars Limited, Bayonne Settlement,  Hornchurch Investments Limited,
        the Fund Investors,  DLJ Capital  Corporation,  General Electric Capital
        Corporation, and certain other signatories named therein.
 10.46  Key Executive Preferred Stock Option Purchase Agreement, dated September
        6, 199 among IHF Capital, Inc., Gary Stevenson and Scott Watterson.
 10.47  First Amendment to Stevenson Employment Agreement, dated September 6, to
        the  Employment  Agreement  dated  November 14, 1994 among ICON Health &
        Fitness, IHF Capital, Inc., IHF Holdings, Inc. and Gary Stevenson.
 10.48  First Amendment to Watterson Employment Agreement, dated September 6, to
        the  Employment  Agreement  dated  November 14, 1994 among ICON Health &
        Fitness, IHF Capital, Inc., IHF Holdings, Inc. and Scott Watterson.
 10.49  Weider  Release,  dated  September  6, 1996 by Weider  Health & Fitness,
        Weider Sports Equipment Co., Ltd.,  Weider Sporting Goods,  Inc., Weider
        Europe,  B.V.,  CANCO, Ben Weider,  Eric Weider,  Richard Renaud and the
        Weider Releasors.
 10.50  ICON Release,  dated September 6, 1996 made by ICON Health, IHF Capital,
        Inc., IHF Holdings,  Inc., Scott Watterson,  Gary Stevenson and the ICON
        Releasors.
 10.51  Settlement  Agreement,  dated  September 6, 1996 among ICON Health,  IHF
        Capital, Inc., the Fund Investors,  IHF Holdings,  Inc., Weider Health &
        Fitness,  Weider Sports Equipment,  CANCO,  Weider Sporting Goods, Inc.,
        Weider  Europe,  B.V.,  and each of Ben  Weider,  Eric  Weider,  Richard
        Renaud, Gary Stevenson and Scott Watterson.
 10.52  Escrow  Agreement,  dated  September 6, 1996 among ICON Health,  ICON of
        Canada,  Inc.,  CANCO,  Lapointe  Rosenstein  and  Goodman  Phillips  of
        Vineberg.
 10.53  Representation  Agreement,  dated  September 6, 1996 between ICON Health
        and Ben Weider.
 10.54  Letter Agreement  regarding  advertising  space, dated September 6, 1996
        between Weider Publications, Inc. and ICON Health.
 10.55  Letters of Credit  issued by Royal Bank of Canada to ICON  Health  dated
        September 5, 1996.


<PAGE>



 10.56  Letters of Credit issued by Royal Bank of Canada to ICON Health and ICON
        of Canada, Inc., dated September 5, 1996.
 10.57  Letter  from  Royal  Bank  of  Canada  to ICON of  Canada,  Inc.,  dated
        September  5,1996,  outlining terms of financing by Royal Bank of Canada
        in favor of ICON of Canada, Inc.
 10.58  Letter  Agreement dated September 6, 1996 among ICON Health,  Ben Weider
        and Eric Weider regarding charitable contributions.
 10.59  Deed of Sale.
 21     Subsidiaries of the Company.
 24     Powers of Attorney (included on signature page).
 25     Statement of Eligibility of Fleet National Bank, Trustee.
 27     Financial Data Schedules
 99.1   Form of Letter of Transmittal used in connection with the Exchange
        Offer.
 99.2   Form of  Notice  of  Guaranteed  Delivery  used in  connection  with The
        Exchange Offer.
-----------------------

Reports on Form 8-K

         A Form 8-K was filed on August 19, 1998

Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:

         No annual  report  covering  the  Registrants'  last fiscal year or any
proxy  material  with respect to a meeting of security  holders has been sent to
any of the Registrants' security holders.

                                  SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, ICON Health & Fitness, Inc. has duly caused this report to
be signed on its behalf by the undersigned, there unto duly authorized.


<PAGE>





                             ICON HEALTH & FITNESS, INC.


                             By:/s/ Scott R. Watterson
                             -------------------------
                             Name: Scott R. Watterson
                             Title: Chairman of the Board and
                                     Chief Executive Officer

Date:  August 28, 1998

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons in the  capacities and on
the dates indicated.

Signatures                      Capacity                            Date



By:/s/ Scott R. Watterson
------------------------- Chairman of the Board of Directors   August 28, 1998
Scott R. Watterson          and Chief Executive Officer
                            (principal executive officer)



By:/s/ Gary E. Stevenson
------------------------   President and Chief Operating       August 28, 1998
Gary E. Stevenson           Officer



By:/s/ S. Fred Beck
-------------------        Vice President, Chief Financial     August 28, 1998
S. Fred Beck                and Accounting Officer,
                            Treasurer and



-------------              Vice Chairman of the Board of       August __, 1998
Robert C. Gay               Directors



By:/s/ Ronald P. Mika
---------------------      Director                            August 28, 1998
Ronald P. Mika



By:/s/ Geoffrey S. Rehnert
-------------------------- Director                            August 28, 1998
Geoffrey S. Rehnert





<PAGE>





                                SIGNATURES

     Pursuant to the  requirements  of the Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  IHF  Holdings,  Inc.  has duly  caused this report to be
signed on its behalf by the undersigned, there unto duly authorized.


                                  IHF HOLDINGS, INC.


                                  By:/s/ Scott R. Watterson
                                  ---------------------------
                                  Name: Scott R. Watterson
                                  Title: Chairman of the Board and
                                          Chief Executive Officer
Date:  August 28, 1998

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons in the  capacities and on
the dates indicated.

Signatures                    Capacity                            Date



By:/s/ Scott R. Watterson
-------------------------  Chairman of the Board of Directors  August 28,1998
Scott R. Watterson          And Chief Executive Officer
                            principal executive officer)



By:/s/ Gary E. Stevenson
------------------------   President and Chief Operating       August 28, 1998
Gary E. Stevenson           Officer



By:/s/ S. Fred Beck        Vice President, Chief Financial     August 28, 1998
-------------------         Accounting Officer, and Treasurer
S. Fred Beck


                           Vice Chairman of the Board of       August __, 1998
-------------               Directors
Robert C. Gay


By:/s/ Ronald P. Mika      Director                            August 28, 1998
---------------------
Ronald P. Mika



By:/s/ Geoffrey S. Rehnert Director                            August 28, 1998
--------------------------
Geoffrey S. Rehnert



<PAGE>







                                 SIGNATURES

     Pursuant to the  requirements  of the Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  IHF  Holdings,  Inc.  has duly  caused this report to be
signed on its behalf by the undersigned, there unto duly authorized.

                                ICON Fitness Corporation



                                By:/s/ Scott R. Watterson
                                -------------------------
                                Name: Scott R. Watterson
                                Title: Chairman of the Board and
                                        Chief Executive Officer

Date:  August 28, 1998


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons in the  capacities and on
the dates indicated.

Signatures                 Capacity                               Date



By:/s/ Scott R. Watterson  Chairman of the Board of Directors  August 28, 1998
-------------------------   and Chief Executive Officer
Scott R. Watterson          (principal executive officer)


By:/s/ Gary E. Stevenson   President and Chief Operating       August 28, 1998
------------------------    Officer
Gary E. Stevenson



By:/s/ S. Fred Beck        Chief Financial and Accounting      August 28, 1998
-------------------         Officer, and Treasurer
S. Fred Beck


                           Vice Chairman of the Board of       August __, 1998
-------------               Directors,
Robert C. Gay


By:/s/Ronald P. Mika       Director                            August 28, 1998
--------------------
Ronald P. Mika



By:/s/ Geoffrey S. Rehnert Director                            August 28, 1998
--------------------------
Geoffrey S. Rehnert



<PAGE>






                      Report of Independent Accountants


To the Board of Directors and Shareholders of ICON Fitness
Corporation, IHF Holdings, Inc. and ICON Health & Fitness, Inc.

In our opinion, the accompanying consolidated financial statements listed in the
index  on page 24  present  fairly,  in all  material  respects,  the  financial
position of ICON Fitness Corporation,  and its subsidiary,  IHF Holdings,  Inc.,
and its subsidiary, ICON Health & Fitness, Inc. and its subsidiaries, at May 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the  three  years in the  period  ended  May 31,  1998,  in  conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.




PRICE WATERHOUSE LLP
Boston, Massachusetts
July 23, 1998



<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc. and
ICON Health & Fitness, Inc.
Consolidated Balance Sheets
(In thousands)
<TABLE>


                                                                       May 31,
                                   ------------------------------------------------------------------------------
                                                   1998                                  1997
                                   ---------------------------------------  -------------------------------------
                                     ICON          IHF         ICON          ICON         IHF          ICON
                                    Fitness      Holdings,    Health &      Fitness     Holdings,     Health &
                                   Corporation     Inc.      Fitness,Inc. Corporation     Inc.       Fitness,Inc.
<S>                                <C>           <C>         <C>          <C>           <C>          <C>

Assets
Current assets:
     Cash                            $   3,892    $   3,892    $   3,892    $   5,560    $   5,560    $   5,560
     Accounts receivable, net          124,301      124,301      124,301      192,825      192,825      192,825
     Inventories                       121,466      121,466      121,466      121,838      121,838      121,838
     Deferred income taxes              11,177       11,177       11,177        8,401        8,301        8,006
     Other assets                        6,202        6,202        6,202       12,895       12,895       12,895
     Asset held for sale                  --           --           --         17,080       17,080       17,080
     Income taxes receivable               781          781          781        7,429        7,429        7,429
                                     ---------    ---------    ---------    ---------    ---------    ---------
           Total current assets        267,819      267,819      267,819      366,028      365,928      365,633

Property and equipment, net             48,819       48,819       48,819       51,738       51,738       51,738
Receivable from parent                   2,362        2,362        2,362        2,307        2,307        2,307
Trademarks, net                         17,244       17,244       17,244       18,236       18,236       18,236
Deferred income taxes                   22,572       16,265        4,927        8,338        6,405         --
Other assets                            29,057       25,585       21,958       28,157       24,066       19,029
                                     ---------    ---------    ---------    ---------    ---------    ---------
                                     $ 387,873    $ 378,094    $ 363,129    $ 474,804    $ 468,680    $ 456,943
                                     =========    =========    =========    =========    =========    =========
Liabilities and Stockholders'
   Equity (Deficit)
Current liabilities:
 Current portion of long-term debt   $   6,051    $   6,051    $   6,051    $   5,401    $   5,401    $   5,401
 Accounts payable                       83,965       83,965       83,965      112,079      112,079      112,079
 Interest payable                        6,596        6,596        6,596        6,220        6,220        6,220
 Accrued expenses                       18,090       18,090       18,090       20,696       20,696       20,696
 Income taxes payable                      249          249          249        1,165        1,165        1,165
                                     ---------    ---------    ---------    ---------    ---------    ---------
       Total current liabilities       114,951      114,951      114,951      145,561      145,561      145,561
                                     ---------    ---------    ---------    ---------    ---------    ---------
Long-term debt                         460,707      360,413      268,495      489,400      401,196      321,625

Deferred income taxes                     --           --           --           --           --            501
Commitments and contingencies
 (Note 13)                                --           --           --           --           --           --
Stockholders' equity (deficit):
     Common stock and additional
       paid-in capital                  49,701      127,769      166,186       49,699      127,767      166,184
     Receivable from officers for
       purchase of equity                 (656)        (656)        (656)        (656)        (656)        (656)
     Cumulative translation
       adjustment                         (547)        (547)        (547)        (506)        (506)        (506)
     Accumulated deficit              (236,283)    (223,836)    (185,300)    (208,694)    (204,682)    (175,766)
                                     ---------    ---------    ---------    ---------    ---------    ---------
   Total stockholders' deficit        (187,785)     (97,270)     (20,317)    (160,157)     (78,077)     (10,744)
                                     ---------    ---------    ---------    ---------    ---------    ---------

                                     $ 387,873    $ 378,094    $ 363,129    $ 474,804    $ 468,680    $ 456,943
                                     =========    =========    =========    =========    =========    =========

</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc. and
ICON Health & Fitness, Inc.
Consolidated Statements of Income
(In thousands)
<TABLE>

                                                                  May 31,
                       ------------------------------------------------------------------------------------------------
                                   1998                             1997                             1996
                       ------------------------------  -------------------------------  -------------------------------
                                              ICON                             ICON                             ICON
                         ICON       IHF      Health &      ICON      IHF      Health &    ICON        IHF      Health,
                       Fitness    Holdings,  Fitness,    Fitness   Holdings,  Fitness,   Fitness    Holdings,  Fitness
                         Corp       Inc.       Inc.        Corp      Inc.       Inc.       Corp       Inc.       Inc.
                       --------   --------   --------   --------   --------   --------   --------   --------   --------
<S>                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net sales              $749,313   $749,313   $749,313   $836,162   $836,162   $836,162   $747,577   $747,577   $747,577
Cost of sales           535,646    535,646    535,646    583,747    583,747    583,747    541,443    541,443    541,443
Cost of sales
 amort of step-up
 HealthRider & ICON
 of Canada inventory        330        330        330     14,009     14,009     14,009         -          -          -
                       --------   --------  ---------   --------  ---------   --------   --------   --------   --------

Gross profit            213,337    213,337    213,337    238,406    238,406    238,406    206,134    206,134    206,134
                       --------   --------  ---------   --------  ---------   --------   --------   --------   --------
Operating expenses:
     Selling            120,752    120,752    120,752    132,392    132,392    132,392     93,924     93,924     93,924
     Research and
     development          7,777      7,777      7,777      7,620      7,620      7,620      6,759      6,759      6,759
     General and
      administrative     60,912     60,912     60,912     56,689     56,689     56,689     47,859     47,859     47,859
     Weider
     settlement               -          -          -     16,583     16,583     16,583         -           -          -
     HealthRider
       Integration exp        -          -          -      4,880      4,880      4,880         -           -          -
     Compensation exp
       attributable to
       options                -          -          -          -          -          -      2,769      2,769      2,769
                       --------    -------   --------    -------   --------    -------   --------    --------  --------
     Total operating
       expenses         189,441    189,441    189,441    218,164    218,164    218,164    151,311    151,311    151,311
                       --------    --------  --------    -------   --------    --------  --------    -------   --------

Income from operations   23,896     23,896     23,896     20,242     20,242     20,242     54,823     54,823     54,823

Interest expense        (59,496)   (47,406)   (35,058)   (49,747)   (44,051)   (33,627)   (36,723)   (36,723)   (27,923)
Dividends on cumul
  redeemable preferred
  stock of a sub
  held by minority
 interest                     -          -          -     (2,125)         -          -     (5,100)         -          -
Amortization deferred
  financing fees         (6,834)    (6,215)    (4,806)    (4,597)    (4,248)    (3,058)    (3,483)    (3,483)    (2,479)
Other income              1,223      1,223      1,223        700        700        700          -          -          -
Other expense              (686)      (686)      (686)      (193)      (193)      (193)         -          -          -
                        --------  ---------  ---------   --------  --------    --------    -------   --------   -------

Income (loss) before
 income taxe            (41,897)   (29,188)   (15,431)   (35,720)   (27,550)   (15,936)     9,517     14,617     24,421

Provision for
  (benefit from)
  income taxes          (14,308)   (10,034)    (5,897)    (9,210)     7,177)    (3,988)     7,896      7,896     10,832
                        -------    --------  ---------   --------  --------   --------   ---------   --------  --------

Net income (loss)      $(27,589)  $(19,154)   $(9,534)  $(26,510)  $(20,373)  $(11,948)    $1,621     $6,721    $13,589
                       ========   =========   ========  =========  =========  =========    ======     ======    =======
</TABLE>


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


<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc. and
ICON Health & Fitness, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands, except share amounts)
<TABLE>


                                                                     Receivable from
                                                                      officers for                                 Total
                                                          Additional     exercised     Cumulative     Retained    stockholders'
                                          Common stock     paid-in        stock       translation    earnings       equity
                                         Shares   Value    capital       options       adjustment    (deficit)     (deficit)
<S>                                      <C>      <C>     <C>        <C>              <C>            <C>          <C>

ICON Fitness Corporation
    Balance, May 31, 1995                  100      -      74,957         (758)               -      (183,805)     (109,606)

     Proceeds from exercise
        of common stock options
       and contribution of capital
       by IHF Capital, Inc.                 -       -           4           -                 -            -              4
     Issuance of options to
       management and
       contribution of capital
       by IHF Capital, Inc.                 -       -       2,769           -                 -            -          2,769
     Foreign currency
       translation                          -       -          -            -                386           -            386
     Net income                             -       -          -            -                 -         1,621         1,621
                                        ------   -----    --------      -------         ---------   ----------    ----------

      Balance, May 31, 1996                100      -      77,730         (758)              386     (182,184)    $(104,826)

     Proceeds from exercise
       of common stock
       options and contribution
       of capital by
       IHF Capital, Inc.                    -       -           8            -                 -            -             8
     Loan balances forgiven                 -       -           -          102                 -            -           102
     Discount on redemption
       of and forgiveness of
       dividends on minority
       interest in cumulative
       redeemable preferred
       stock of subsidiary                  -       -      14,280            -                 -            -        14,280
     Repurchase of the capital
       stock of parent and
       return of capital to
       IHF Capital, Inc.                    -       -     (42,319)           -                 -            -       (42,319)
     Foreign currency
       translation                          -       -           -            -              (892)           -          (892)
     Net loss                               -       -           -            -                 -      (26,510)      (26,510)
                                         ------  -------  --------    ---------          --------    -----------    --------

     ICON Fitness Corporation
       balance, May 31, 1997                100     -    49,699           (656)             (506)    (208,694)     (160,157)

     Proceeds from exercise of
       Common stock options and
       Contribution of capital by
       IHF Capital, Inc.                     -      -           2           -                 -            -              2

     Foreign currency translation            -      -          -            -                (41)          -            (41)

     Net loss                                -      -          -            -                 -       (27,589)      (27,589)
                                         ------ ------- -------        --------         ---------    ---------   -----------
     ICON Fitness Corporation
       Balance, May 31, 1998                100   $ -   $49,701          $(656)            $(547)   $(236,283)    $(187,785)
                                            ===   ===   =======          ======            ======   ==========    ==========
</TABLE>


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


<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc. and
ICON Health & Fitness, Inc.
Consolidated  Statements  of  Stockholders'  Equity  (Deficit)  (continued)  (In
thousands, except share amounts) <TABLE>
                                                                         Receivable from
                                                                           officers for                                Total
                                                            Additional      exercised     Cumulative    Retained   stockholders'
                                          Common stoc        paid-in         stock        translation   earnings      equity
                                          Shares Value       capital        options       adjustment   (deficit)    (deficit)
<S>                                      <C>      <C>       <C>          <C>              <C>           <C>        <C>
IHF Holdings, Inc.
      Balance, May 31, 1995              1,000      -        74,957             (758)            -      (183,805)    (109,606)

     Proceeds from exercise
        of common stock options
       and contribution of
       capital by ICON Fitness
       Corporation                          -       -             4                -             -            -             4
     Issuance of options to
       management and
       contribution of capital
       by ICON Fitness
       Corporation                          -       -         2,769                -             -            -         2,769
     Cumulative redeemable
       preferred stock dividend             -       -            -                 -             -        (5,100)      (5,100)
     Foreign currency
       translation                          -       -            -                 -            386           -           386
     Net income                             -       -            -                 -             -         6,721        6,721
                                        -------  ------     -------           --------     --------     ---------    --------
       Balance, May 31,1996              1,000      -        77,730              (758)          386     (182,184)    (104,826)

      Proceeds from exercise
       of common stock
       options and contribution
       of capital by ICON
       Fitness Corporation                  -       -             8                -             -            -             8
     Cumulative redeemable
       preferred stock dividend             -       -            -                 -             -        (2,125)      (2,125)
     Loan balances forgiven                 -       -            -                102            -            -           102
     Redemption of cumulative
      redeemable preferred
      stock and contribution of
      capital by ICON Fitness
      Corporation                           -       -        50,029                -             -            -        50,029
    Foreign currency
      translation                           -       -            -                 -           (892)          -          (892)
    Net loss                                -       -            -                 -             -       (20,373)     (20,373)
                                        ------   -----      -------          --------         ------    ---------     --------
      Balance, May 31, 1997              1,000      -       127,767              (656)         (506)    (204,682)     (78,077)

    Proceeds from exercise of
      Common stock options and
      Contribution of capital by
      ICON Fitness Corpoation               -       -             2                -             -            -             2

    Foreign currency translation            -       -            -                 -            (41)          -           (41)

    Net loss                                -       -            -                 -             -       (19,154)     (19,154)
                                       -------  ------      -------          --------      ---------   ----------     --------
    IHF Holdings, Inc.
      Balance, May 31, 1998              1,000    $ -      $127,769            $(656)         $(547)   $(233,836)    $(97,270)
                                         =====    ====     ========            ======         ======   =========     =========
</TABLE>

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


<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc.and ICON Health & Fitness, Inc.
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
(In thousands, except share amounts)
<TABLE>
                                                                          Receivable from
                                                                            Officers for                                Total
                                                             Additional      exercised      Cumulative    Retained    stockholders'
                                            Common stock       paid-in         stock        translation   earnings      equity
                                          Shares     Value     capital        options        adjustment   (deficit)    (deficit)
<S>                                       <C>        <C>     <C>          <C>               <C>           <C>          <C>

ICON Health & Fitness, Inc.
    Balance, May 31, 1995                  1,000        -       163,403           (758)             -     (177,407)     (14,762)

    Proceeds from exercise
      of common stock
      options and contribution
      of capital by IHF
      Holdings, Inc.                          -          -           4               -              -           -             4
    Issuance of options to
      management and
      contribution of capital
      by IHF Holdings, Inc.                   -          -       2,769               -              -           -         2,769
    Foreign currency
      translation                             -          -          -                -             386          -           386
    Net income                                -          -          -                -              -       13,589       13,589
                                         -------    -------   ---------         -------        -------      -------    --------

      Balance, May 31, 1996                1,000          -    166,176             (758)           386    (163,818)       1,986

    Proceeds from exercise
      of common stock
      options and contribution
      of capital by
      IHF Holdings, Inc.                      -          -           8               -              -           -              8
    Loan balances forgiven                    -          -          -               102             -           -            102
    Foreign currency
      translation                             -          -          -                -            (892)         -           (892)
    Net loss                                  -          -          -                -              -      (11,948)      (11,948)
                                          ------   --------  ---------         --------         -------    --------      --------

    ICON Health & Fitness,
      Inc. balance,
      May 31, 1997                         1,000         -     166,184             (656)          (506)   (175,766)      (10,744)

    Proceeds from exercise of
      Common stock options and
      Contribution of capital
      By IHF Holdings, Inc.                   -          -           2               -              -           -              2

    Foreign currency translation              -          -          -                -             (41)         -            (41)

    Net loss                                  -          -          -                -              -       (9,534)       (9,534)
                                          ------   -------- ----------          -------         -------     -------       -------

    ICON Health & Fitness, Inc.
      Balance, May 31, 1998                1,000      $  -   $166,186             $(656)         $(547)  $(185,300)     $(20,317)
                                           =====      =====  ========             ======         ======  ==========     =========
</TABLE>
     The accompanying  notes are an integral part of the consolidated  financial
statements.


<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc. and
ICON Health & Fitness, Inc. Consolidated Statements of Cash Flows (In thousands)
<TABLE>
                                                                         May 31,
                                        -------------------------------------------------------------------------------
                                                      1998                                     1997
                                        ------------------------------------  -----------------------------------------
                                          ICON        IHF         ICON          ICON                           ICON
                                        Fitness     Holdings,    Health &      Fitness        IHF           Health &
                                      Corporation     Inc.       Fitness,Inc. Corporation  Holdings, Inc. Fitness, Inc.
<S>                                   <C>           <C>          <C>         <C>           <C>            <C>
Operating activities:
  Net income (loss)                     $(27,589)   $(19,154)    $(9,534)     $(26,510)      $(20,373)       $(11,948)
  Adjustments to reconcile net income
     (loss) to net cash provided
      by (used in) operating activities:
   Provision (benefit) for deferred
     taxes                               (17,010)    (12,736)     (8,599)       (3,880)        (1,847)          1,635
   Depreciation and amortization          16,658      16,658      16,658        13,351         13,351          13,351
   Amortization of deferred financing
     fees and debt discount               31,511      18,802       5,045        20,923         14,878           3,264
   Non-cash employee compensation
     expense                                   -           -           -           296            296             296
   Amortization of inventory
     step-up                                 330         330         330        14,009         14,009          14,009
   Gain on barter transaction                  -           -           -        (2,095)        (2,095)         (2,095)
   Loss on disposal of property and
     equipment                               333         333         333            67             67              67
   Interest expense attributable to
     dividends on preferred stock              -           -           -         2,125              -               -
  Changes in operating assets and
   liabilities:
     Accounts receivable                  68,524      68,524      68,524       (46,862)       (46,862)        (46,862)
     Inventories                              42          42          42        (1,465)        (1,465)         (1,465)
     Income taxes receivable/payable       5,732       5,732       5,732           803            803             510
     Other assets                           (606)       (606)       (606)       (6,466)        (6,466)         (6,466)
     Accounts payable and accrued
       expenses                          (29,932)    (29,932)    (29,932)       (2,401)        (2,401)         (2,401)
     Interest payable                       (376)       (376)       (376)          405            405             405
                                         --------    --------     -------      -------       --------          -------
   Net cash provided by (used in)
     operating activities                 47,617      47,617      47,617       (37,700)       (37,700)        (37,700)
                                        --------     --------     -------      -------       --------          -------
Investing activities:
   Proceeds from sale of building         18,250      18,250      18,250             -              -               -
   Purchases of property and
     equipment                           (11,825)    (11,825)    (11,825)      (16,039)       (16,039)        (16,039)
   Purchase of HealthRider, net of
     cash acquired (Note 3)                    -           -           -       (25,800)       (25,800)        (25,800)
   Purchase of Weider Sports and
     CanCo (Note 14)                           -           -           -       (11,058)       (11,058)        (11,058)
                                        --------    ---------    --------      --------       --------         -------
   Net cash used in investing
     activities                            6,425       6,425       6,425       (52,897)       (52,897)        (52,897)
                                        --------    ---------    --------      --------       --------        --------
Financing activities:
   Borrowings (payments) on revolving
     loans and lines of credit, net      (36,302)    (36,302)    (36,302)       89,484         89,484          89,484
   Payments on long-term debt            (16,418)    (16,418)    (16,418)       (6,341)        (6,341)         (6,341)
   Proceeds from long-term debt                -           -           -        82,508              -               -
   Proceeds from issuance of
     common stock                              2           2           2             8              8               8
   Receivable from parent                    (55)        (55)        (55)       (2,307)        (2,307)         (2,307)
   Retirement of preferred stock               -           -           -       (35,749)             -               -
   Repurchase of capital stock of
     parent                                    -           -           -       (42,319)             -               -
   Payment of debt financing fees         (2,896)     (2,896)     (2,896)       (7,463)        (3,023)         (3,023)
                                         --------    ---------   ---------    ---------      ---------         -------
   Net cash provided by financing
     activities                          (55,669)    (55,669)    (55,669)       77,821         77,821          77,821
                                         --------    ---------    --------     ---------       --------      ----------
Effect of exchange rate changes on
    cash                                     (41)        (41)        (41)         (977)          (977)           (977)
                                          -------    ---------    --------     ---------      ---------      ----------
Net increase (decrease) in cash           (1,668)     (1,668)     (1,668)      (13,753)       (13,753)        (13,753)
Cash, beginning of period                  5,560       5,560       5,560        19,313         19,313          19,313
                                          -------     ------      -------      -------        -------          -------
Cash, end of period                       $3,892      $3,892      $3,892        $5,560         $5,560          $5,560
                                          ======      ======      ======        ======         ======          ======
</TABLE>

<PAGE>



ICON Fitness Corporation, IHF Holdings, Inc. and
ICON Health & Fitness, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
                                                           May 31, 1996
                                            --------------------------------------------
                                               ICON              IHF          ICON
                                              Fitness          Holdings,     Health &
                                            Corporation          Inc.       Fitness, Inc.
<S>                                         <C>                <C>          <C>
Operating activities:
   Net income (loss)                          $1,621            $6,721       $13,589
   Adjustments to reconcile
    net income (loss) to
    net cash provided by
    (used in) operating activities:
      Provision (benefit) for
        deferred taxes                           (20)              (20)        2,623
      Depreciation and amortization            7,205             7,205         7,205
      Amortization of deferred
        financing fees and debt discount      12,458            12,458         2,654
      Non-cash employee compensation expense   2,769             2,769         2,769
      Interest expense attributable to
         dividends on preferred stock          5,100                -             -
      Changes in operating assets
        and liabilities:
          Accounts receivable                (12,544)          (12,544)      (12,544)
          Inventories                           (287)             (287)         (287)
          Income taxes
            receivable/payable                (1,012)           (1,012)         (719)
          Other assets                         7,073             7,073         7,073
          Accounts payable and
            accrued expenses                   2,149             2,149         2,149
                                             --------          -------        ------
   Net cash provided by (used in)
      operating activities                    24,512            24,512        24,512
                                              ------            ------        ------
Investing activities:
   Purchases of property and equipment       (15,356)          (15,356)      (15,356)
                                             --------          --------      --------
   Net cash used in investing activities     (15,356)          (15,356)      (15,356)
                                             --------          --------      --------
Financing activities:
   Borrowings (payments) on revolving
       credit and term loan facilities, net     6355             6,355         6,355
   Proceeds from issuance of
      common stock                                 4                 4             4
   Payments on other long-term debt             (687)             (687)         (687)
                                              -------            ------        ------
   Net cash provided by financing
      activities                               5,672             5,672         5,672
                                               ------            -----         -----
Effect of exchange rate changes on cash          386               386           386
                                               ------            -----         -----
Net increase (decrease) in cash               15,214            15,214        15,214
Cash, beginning of period                      4,099             4,099         4,099
                                             -------           -------       -------
Cash, end of period                          $19,313           $19,313       $19,313
                                             =======           =======       =======
</TABLE>

<PAGE>



1. Basis of Presentation and Description of the Business

Basis of  Presentation  - The  consolidated  financial  statements  include  the
accounts  of  ICON  Fitness  Corporation  ("ICON  Fitness"),   its  wholly-owned
subsidiary  IHF Holdings,  Inc.  ("IHF  Holdings"),  IHF Holdings'  wholly-owned
subsidiary,  ICON  Health & Fitness,  Inc.  ("ICON  Health")  and ICON  Health's
wholly-owned  subsidiaries  (collectively,   the  "Company").  ICON  Health  was
formerly known as Weslo, Inc. and its wholly-owned subsidiaries, ProForm Fitness
Products, Inc. and its wholly-owned subsidiaries, and American Physical Therapy,
Inc. (collectively, the "Recapitalized Companies"). The minority interest in IHF
Holdings  represented  cumulative  redeemable  preferred  stock  held by certain
shareholders of ICON Fitness'  parent,  IHF Capital,  Inc. ("IHF Capital") (Note
9).  Prior to the  incorporation  of ICON  Fitness on November  12, 1996 and the
concurrent  contribution  of IHF  Capital's  investment  in IHF Holdings to ICON
Fitness in exchange for all of the outstanding common stock of ICON Fitness, IHF
Holdings was a wholly-owned  subsidiary of IHF Capital.  ICON Fitness' financial
statements  carry  over  the  historical   financial  position  and  results  of
operations  of  IHF  Capital,  adjusted  to  reflect  the  fact  that  it  is  a
wholly-owned  subsidiary of IHF Capital.  Other than the Senior  Discount  Notes
(Note 8) and related  deferred  financing fees and deferred  income tax benefit,
all assets and liabilities of ICON Fitness are those of IHF Holdings. Other than
the Senior  Secured  Notes  (Note 8) and  related  deferred  financing  fees and
deferred income tax benefit and the cumulative  redeemable preferred stock (Note
9) issued by IHF Holdings,  all assets and liabilities of IHF Holdings are those
of ICON Health. The cumulative  redeemable preferred stock was redeemed with the
proceeds of the Senior Discount Notes.

Description  of  Business  -  The  Company  is   principally   involved  in  the
development,  manufacturing  and  distribution of home fitness  equipment and is
considered to operate in only one industry segment.  The Company's  revenues are
derived from the sale of various aerobic and anaerobic  fitness product lines in
domestic and foreign  markets.  Because  product life cycles can be short in the
fitness  industry,  the Company  emphasizes  new product  innovation and product
repositioning.  The Company  primarily sells its products to retailers and, to a
limited extent,  to end-users  through direct response  advertising  efforts and
retail outlets.

The  Recapitalization  -  On  November  14,  1994  the   recapitalization   (the
"Recapitalization")  took place as follows: (1) the existing shareholders of the
Recapitalized  Companies  contributed  their capital stock of the  Recapitalized
Companies  to IHF  Capital,  IHF  Holdings and ICON Health in exchange for $21.9
million of Class A and Class L Common Stock of IHF Capital, $36.0 million of IHF
Holdings  Preferred  Stock,  warrants  to purchase  Class A Common  Stock of IHF
Capital,  and $159.3  million of demand  promissory  notes of ICON  Health  (the
"Shareholder  Notes");  (2) certain senior  executives of the Company  exchanged
their options to purchase capital stock of the Recapitalized Companies for $34.7
million of  replacement  options and  warrants  to purchase  Class A and Class L
Common  Stock of IHF Capital and $4.0  million of options to purchase  preferred
stock of IHF


<PAGE>



Holdings;  (3)  affiliates of Bain Capital,  Inc.  ("Bain  Capital") and certain
other parties purchased $40.4 million of Class A and Class L Common Stock of IHF
Capital,  (4) the 13% Senior  Subordinated Notes and 15% Senior Secured Discount
Notes  were  issued  (Note  8),  the  proceeds  of which  were used to repay the
Shareholder Notes; and (5) ICON Health caused the Recapitalized  Companies to be
merged with and into itself. As a result of the  Recapitalization,  IHF Holdings
owns all of the outstanding  capital stock of ICON Health, and IHF Capital owned
all of the outstanding common stock of IHF Holdings.

Concurrent  with the  closing  of the  Recapitalization,  the  Company  obtained
exclusive licenses to market certain fitness equipment and certain non-ingestive
sports medicine products under the "Weider" and related brand names (Note 14).

2. Significant Accounting Policies

Principles  of  Consolidation  -  All  significant   intercompany  accounts  and
transactions have been eliminated in the consolidation of the Company.

Cash-  Substantially  all of the Company's  cash is held by two banks at May 31,
1998. The Company does not believe that as a result of this  concentration it is
subject to any unusual  financial  risk beyond the normal risk  associated  with
commercial banking relationships.

Inventories - Inventories consist primarily of freight-in,  raw materials, labor
and manufacturing  overhead costs and are valued at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) method.

Asset Held for Sale - In connection with the HealthRider  Acquisition  (Note 3),
the  Company  acquired  certain  real estate  which had served as  HealthRider's
headquarters.  At May 31, 1997,  the real estate was subject to a mortgage  note
payable  (Note 8).  During  fiscal  1998,  the  Company  leased a portion of the
building to tenants  (Note 13). On February 5, 1998,  the  building  and certain
other assets  associated  with the building were sold for  $18,250,000.  The net
book value of the assets sold was $18,583,000  ($17,080,000 for the building and
$1,503,000 for other fixed assets) and the Company recorded a loss of $333,000.

Property  and  Equipment  -  Property  and  equipment  is  stated  at  cost  and
depreciated  using the  straight-line  method over the estimated useful lives of
the  respective   assets.   Expenditures   for  renewals  and  improvements  are
capitalized, and maintenance and repairs are charged to expense as incurred.

Trademarks  - During the fiscal  year ended May 31,  1997 the  Company  acquired
HealthRider  (Note 3) and Weider Sports and CanCo (Note 14). In connection  with
these   acquisitions,   the  Company  recorded  trademarks  of  $12,024,000  and
$6,915,000,  respectively.  These assets are being  amortized on a straight-line
basis over 20 years. At May 31, 1998 and 1997, trademarks are net of accumulated
amortization of $1,695,000 and $703,000, respectively.


<PAGE>



Long-lived  assets are  periodically  reviewed for impairment in accordance with
Statement of Financial  Accounting  Standards ("SFAS") No. 121,  "Accounting for
the Impairment of Long-Lived  Assets and for Assets to Be Disposed Of". SFAS 121
requires the assessment of whether there has been an impairment  whenever events
or circumstances  indicate that the carrying amount of long-lived assets may not
be recoverable. As a result of its review, the Company does not believe that any
impairment currently exists related to its long-lived assets.

Non-Compete  Agreements  - Included in other  long-term  assets are  capitalized
costs  associated  with  non-compete  agreements  the Company  entered into with
certain key  executives of the Company for terms ranging from two to four years.
These assets are being amortized using the straight-line method over the life of
the agreements (Note 7).

Deferred  Financing  Costs - The Company  deferred  certain debt issuance  costs
relating to the  establishment of the Credit Agreement (Note 8) and the issuance
of the 13% Senior  Subordinated Notes, the 14% Senior Discount Notes and the 15%
Senior Secured Notes (collectively referred to as the "Notes").  These costs are
capitalized  in  other  long-term  assets  and are  being  amortized  using  the
straight-line  method for costs  associated  with the Credit  Agreement  and the
effective interest method for costs associated with the Notes (Note 7).

Advertising  Costs - The Company  expenses the costs of advertising as incurred,
except for direct response advertising,  which is capitalized and amortized over
its expected period of future benefit,  generally twelve months. Direct response
advertising  costs consist  primarily of costs to produce  infomercials  for the
Company's   products.   At  May  31,  1998  and  1997,  $273,000  and  $801,000,
respectively,  were included in other long-term assets.  For the years ended May
31,  1998,  1997  and  1996,  total   advertising   expense  was   approximately
$33,303,000, $31,810,000, and $22,537,000.

Revenue  Recognition  - The  Company  recognizes  revenue  upon the  shipment of
product to the  customer.  Allowances  are  recognized  for  estimated  returns,
discounts, advertising programs, and warranty costs associated with these sales.
Finance  charges  under the  Company's  payment  plans are  recognized  as other
income.

Concentration of Credit Risk - Financial  instruments which  potentially  expose
the Company to concentration  of credit risk include trade accounts  receivable.
To minimize  this risk,  ongoing  credit  evaluations  of  customers'  financial
condition are performed and reserves are maintained;  however, collateral is not
required. A significant portion of the Company's sales are made to Sears Roebuck
("Sears"). Sears accounted for approximately 33%, 29% and 34% of total sales for
the years ended May 31, 1998, 1997 and 1996,  respectively.  Accounts receivable
from Sears accounted for approximately 32% and 34% of gross accounts  receivable
at May 31, 1998 and 1997, respectively.

Research and Development Costs - Research and product development


<PAGE>



costs are expensed as incurred.  Research and development activities include the
design of new  products  and product  enhancements,  and are  performed  by both
internal and external sources.

Income Taxes - The Company  accounts for income  taxes  utilizing  the asset and
liability  method as prescribed by SFAS No. 109,  "Accounting for Income Taxes".
SFAS 109 requires the Company to record in its balance sheet deferred tax assets
and liabilities  for expected  future tax  consequences of events that have been
recognized in different periods for financial statements versus tax returns.

Prior  to the  redemption  of the IHF  Holdings  preferred  stock  (Note  9) and
incorporation of ICON Fitness,  IHF Capital filed a separate tax return and ICON
Health  was  included  as part  of the  consolidated  tax  return  filed  by IHF
Holdings.  Currently, ICON Fitness, IHF Holdings and ICON Health are included as
part of the  consolidated  tax  return  filed by IHF  Capital.  The  income  tax
provisions for ICON Fitness,  IHF Holdings and ICON Health have been prepared as
though they were separate companies.

Foreign  Operations  - Assets and  liabilities  of the  Company's  European  and
Canadian  subsidiaries  are translated into U.S. dollars at the applicable rates
of exchange at each period end. The Company's foreign transactions are primarily
denominated in Canadian dollars, British pounds, German marks, French francs and
Italian lire, and  transactions  with foreign entities that result in income and
expense for the Company are  translated  at the average rate of exchange  during
the period.  Translation gains and losses are reflected as a separate  component
of  stockholders'  equity.  Transaction  gains and  losses are  recorded  in the
consolidated  statements  of income and were not material in the years ended May
31, 1998,  1997 and 1996.  In the years ended May 31, 1998,  1997 and 1996,  the
Company's  foreign  operations  represented  less than 10% of the  Company's net
sales and effects of exchange rate changes have not had a material impact on the
Company's earnings.

Foreign  Currency  Hedges - The Company  enters into  foreign  currency  forward
exchange contracts to hedge foreign currency  transactions on a continuing basis
for periods  consistent  with its  anticipated  or  committed  foreign  currency
exposures on purchases in Canadian  dollars.  The effect of this  practice is to
minimize  the  impact  of  foreign  exchange  rate  movements  on the  Company's
operating  results.  The Company's hedging activities do not subject the Company
to  significant  exchange rate risk because gains and losses on these  contracts
offset losses and gains on the assets and transactions being hedged.  Unrealized
gains and losses on these  contracts  are deferred and  accounted for as part of
the hedged  transactions.  Cash flows from these contracts are classified in the
Consolidated  Statement  of  Cash  Flows  in the  same  category  as the  hedged
transactions.  As of May 31, 1998,  1997 and 1996 the Company had  approximately
$32  million   Canadian,   $22  million  Canadian  and  $25  million   Canadian,
respectively,  of open  forward  exchange  contracts  to sell  Canadian  dollars
throughout  fiscal years May 31,  1999,  1998 and 1997,  respectively.  The fair
value of these forward exchange  contracts are based on quoted market prices. At
May 31, 1998 the estimated

<PAGE>



unrealized loss on outstanding  forward exchange contracts was $459,000,  at May
31, 1997 the  estimated  unrealized  loss was  $217,000  and at May 31, 1996 the
estimated  unrealized  gain was  $163,000.  During 1998 the  Company  recognized
losses of $449,000 and in 1997 and 1996 the Company recognized gains of $149,000
and $169,000, respectively, upon the settlement of foreign currency transactions
denominated in Canadian dollars.

Barter Transaction - Included in other current and other long-term assets at May
31, 1998,  and in other current  assets at May 31, 1997,  are barter  credits of
$4,484,000 and $6,240,000, respectively, which was recorded in connection with a
barter  agreement  the Company  entered  into during  fiscal  1997.  The Company
recorded  the barter  credit at the fair value of the  inventory  exchanged  and
recorded a gain of $2,095,000 in connection  with the  transaction.  The Company
intends to use this asset primarily to purchase  advertising  during fiscal 1999
and 2000.

Accounting for Stock-Based Compensation - The Company applies APB Opinion No. 25
and related interpretations in accounting for its stock-based compensation plans
and related equity issuances.  Under these standards, no compensation expense is
recognized  for  stock  options  issued  to  employees  ("qualified  employees")
provided  the  exercise  price per share  equals  the fair  market  value of the
Company's common stock at the date of grant.

SFAS No. 123 , "Accounting for  Stock-Based  Compensation"  became  effective in
fiscal 1997 and requires that  compensation for stock options and related equity
instruments issued to qualified  employees be measured at fair value. Fair value
is determined using the minimum value pricing model and the resulting expense is
recognized  over the service period which is generally the vesting  period.  The
Company has elected to implement  SFAS No. 123 on a disclosure  basis only (Note
10).

Fair Value of Financial  Instruments  - The fair value of financial  instruments
including cash,  accounts  receivable,  accounts payable,  accrued  liabilities,
convertible  redeemable  preferred  stock and long-term  debt  approximate  book
values at May 31, 1998 and 1997,  except for the long-term  debt included in the
following  table. The carrying value for the Senior  Subordinated  Notes and the
Senior Secured Notes was established  based on market conditions at the time the
debt was issued.  The estimated  fair value for the long-term  notes is based on
quoted market prices (in thousands): <TABLE>
                                        1998                1997
                               --------------------  --------------------
                               Carrying  Estimated   Carrying  Estimated
                                Amount   Fair Value   Amount   Fair Value
<S>                            <C>        <C>         <C>      <C>
13% Snr Subordinated Notes     $99,743    $108,084    $99,503   $113,400
14% Snr Discount Notes         100,294      74,520     88,204     85,860
15% Snr Secured Discount Notes  91,919      97,775     79,571    102,713
</TABLE>



Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted accounting principles requires


<PAGE>



management to make estimates and assumptions  that affect the reported amount of
assets and liabilities  and disclosure of contingent  assets and liabilities and
the reported amounts of revenues and expenses for the periods presented.  Actual
results could differ from those estimates.

Reclassifications  -  Reclassifications  have  been  made to the 1997  financial
statements to conform to the 1998 presentation.  These  reclassifications had no
effect on net income for 1997 or 1996.

New  Accounting  Pronouncements  - In June 1997,  the FASB issued  Statement  of
Financial Accounting Standards No. 130, "Reporting  Comprehensive  Income" (SFAS
130") and Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise  and Related  Information"  ("SFAS 131").  The Company
will  implement  SFAS 130 and SFAS 131 as  required in fiscal  1999,  which will
require the Company to report and display separately certain information related
to  comprehensive  income  and  operating  segments  but will not  result in any
changes to previously recorded amounts.


3. HealthRider Acquisition

On August 16, 1996, the Company:  (i) purchased  substantially all the assets of
HealthRider,  Inc.  ("HealthRider"),  a  distributor  of  aerobic  home  fitness
equipment,   for  approximately   $16.8  million  and  assumed  (or  refinanced)
substantially  all of the  liabilities of HealthRider  (including $.7 million of
fees and expenses related to the  acquisition);  (ii) purchased  certain related
manufacturing  assets of Parkway  Manufacturing,  Inc.,  ("Parkway"),  including
Parkway's contract to manufacture and supply upright rowers to HealthRider,  for
approximately  $10.1  million  (includes  the  payment of $1.0  million of trade
payables  owed to Parkway by  HealthRider);  and (iii)  purchased  the  minority
interest of HealthRider's  European  subsidiary for approximately  $1.4 million;
(of which $1.3  million was paid in cash and $.1 million was paid in  inventory)
(together,  the  "HealthRider  Acquisition").  The  HealthRider  Acquisition was
funded through additional borrowings under the Credit Agreement (Note 8).

The  HealthRider  Acquisition  was  accounted  for under the purchase  method of
accounting. Accordingly, the purchase price plus direct costs of the acquisition
were  allocated to the assets  acquired and  liabilities  assumed based on their
relative  fair  values as of the closing  date.  The  results of  operations  of
HealthRider were consolidated with the Company's results from August 16, 1996 to
September 3, 1997, when HealthRider was merged into ICON Health.

The following  unaudited pro forma summary presents the consolidated  results of
operations  assuming that the  HealthRider  Acquisition  had occurred on June 1,
1996. The historical results for ICON Fitness,  IHF Holdings and ICON Health for
fiscal 1996 have been  combined with the  HealthRider  results for the 12 months
ended June 30,  1996.  The results of  HealthRider  for the month ended June 30,
1996 have also been  utilized in preparing  the combined  results of the Company
and


<PAGE>



HealthRider  for fiscal  1997.  No  adjustments  are  required  to  conform  the
accounting  policies of  HealthRider  to those of the  Company.  These pro forma
results have been prepared for  comparative  purposes only and do not purport to
be indicative of what would have occurred had the  transaction  been effected on
the date  indicated  above or of  results  which  may occur in the  future.  The
Company  expects  that  HealthRider  revenues in the periods  subsequent  to the
HealthRider  Acquisition will decline substantially.  In addition, the pro forma
summary  excludes  certain  non-recurring  charges  related  to the  HealthRider
Acquisition including a $13.2 million  non-recurring,  non-cash charge resulting
from the fact that the Company's  purchase  accounting  included  writing-up the
book value of the  HealthRider  inventory  to fair market  value less  estimated
sales costs. <TABLE>
                                            Year Ended May 31,
                                              (in thousands)
                 -------------------------------------------------------------------------
                                 1997                                  1996
                 ----------------------------------- -------------------------------------
                                  IHF        ICON                      IHF           ICON
                    ICON       Holdings    Health         ICON      Holdings      Health
                 (unaudited) (unaudited) (unaudited)  (unaudited)  (unaudited)  (unaudited)
<S>              <C>         <C>         <C>          <C>          <C>          <C>
Net sales         $852,362    $852,362    $852,362      $985,142     $985,142    $985,142

Net income(loss)   (32,705)    (26,568)    (18,143)         (157)       4,943      11,811
</TABLE>

4. Accounts Receivable

Accounts receivable, net, consist of the following (table in thousands):
<TABLE>
                                               May 31,
                                         -------------------
                                            1998      1997
                                         -------------------
<S>                                      <C>        <C>
 Accounts receivable                     $131,188   $201,778
 Less allowance for doubtful accounts,
    advertising and credit memos           (6,887)    (8,953)
                                         ---------  --------
                                         $124,301   $192,825
                                         ========   ========
</TABLE>
At May 31, 1998 and 1997,  accounts receivable are net of $231,000 and $324,000,
respectively,   of  unearned  interest  charges  resulting  from  the  Company's
multi-month payment plans.















<PAGE>



5. Inventories

Inventories consist of the following (table in thousands):
<TABLE>
                                                      May 31,
                                               ----------  --------
                                                  1998       1997
                                               ----------  --------
<S>                                            <C>         <C>
Raw materials, principally parts and supplies    $42,609    $27,974
Finished goods                                    78,857     93,864
                                               ---------   --------
                                                $121,466   $121,838
                                                ========   ========
</TABLE>
Inventories  are net of allowances of $3,335,000  and $2,761,000 at May 31, 1998
and 1997,  respectively.  These allowances are established based on management's
estimates  of  inventory  held at year end that is  potentially  obsolete or for
which its  market  value is below  cost.  In  addition,  inventories  are net of
intercompany  profits  of  $1,812,000  and  $258,000  at May 31,  1998 and 1997,
respectively.


6. Property and Equipment

Property and equipment, net, consists of the following (table in thousands):
<TABLE>
                                                 May 31,
                                            ------------------
                                              1998      1997
                                            --------  --------
                               Estimated
                              Useful Life
                               (Years)
<S>                           <C>           <C>        <C>
Land                              -         $ 1,430    $ 2,371
Buildings and improvements    up to 31       16,476     17,130
Equipment                        3-7         71,293     59,318
Construction in progress          -             199        261
                                             -------   -------
                                             89,398     79,080
Less accumulated depreciation               (40,579)   (27,342)
                                            --------   -------
                                            $48,819    $51,738
                                            ========   =======
</TABLE>
For the  years  ended  May 31,  1998,  1997,  and  1996,  the  Company  recorded
depreciation expense of $13,698,000, $11,630,000, and $6,188,000, respectively.


7. Other Assets

Other assets consist of the following (table in thousands):










<PAGE>

<TABLE>

                                                   May 31,
                            ----------------------------------------------------
                                      1998                       1997
                            -------------------------  -------------------------
                              ICON    IHF     ICON      ICON     IHF     ICON
                            Fitness  Holdings Health   Fitness Holdings Health
<S>                         <C>      <C>      <C>      <C>     <C>      <C>
Non-compete agreements         $509    $509     $509    $1,526  $1,526  $1,526
Deferred financing costs     21,211  17,739   14,112    25,150  21,059  16,022
Deferred advertising costs      273     273      273       801     801     801
Barter credits                2,000   2,000    2,000        -       -       -
Long-term receivables, net    3,198   3,198    3,198        -       -       -
Intangibles, net              1,132   1,132    1,132        -       -       -
Other                           734     734      734       680     680     680
                            ------- -------- -------- ------- -------- -------
                            $29,057 $25,585  $21,958  $28,157 $24,066  $19,029
                            ======= =======  ======== ======= ======== =======
</TABLE>

At May 31, 1998 and 1997, capitalized non-compete payments made to the Company's
key  executives  are  net  of  accumulated   amortization  of  $3,561,000,   and
$2,544,000, respectively.

At May 31,  1998  and  1997  capitalized  deferred  financing  costs  are net of
accumulated amortization of $16,655,000, and $9,821,000,  respectively, for ICON
Fitness;  $15,687,000  and  $9,472,000,  respectively,  for  IHF  Holdings;  and
$11,606,000 and $6,800,000, respectively, for ICON Health.



<PAGE>



8. Long-Term Debt

Long-term debt consists of the following (table in thousands):
<TABLE>
                                                           May 31,
                                --------------------------------------------------------------
                                               1998                         1998
                                ------------------------------   -----------------------------
                                 ICON       IHF       ICON       ICON         IHF         ICON
                                Fitness   Holdings    Health    Fitness     Holdings     Health
<S>                             <C>       <C>        <C>        <C>        <C>        <C>
Revolving Credit Facility       $148,488   $148,488   $148,488  $178,781   $178,781   $178,781
Term Loan A Facility               9,225      9,225      9,225    13,956     13,956     13,956
Term Loan B Facility              15,802     15,802     15,802    17,080     17,080     17,080
Note Payable, interest rate of
    9.25% at May 31, 1997,
    monthly installments of
    $166, remaining principal
    due April 2003, secured by
    the HealthRider building          -          -          -     15,935     15,935     15,935
  13% Senior Subordinated
    Notes, face amount $101,250
    net of unamortized discount
    of $1,507 at May 31, 1998
    and $1,747 at May 31, 1997    99,743     99,743     99,743    99,503     99,503     99,503
  15% Senior Secured Discount
    Notes, face amount $123,700
    net of unamortized discount
    of  $31,782 at May 31, 1998
    and $44,129 at May 31, 1997   91,918     91,918          -    79,571     79,571          -
  14% Senior Discount Notes,
    face amount $162,000 net
    of unamortized discount of
    $61,706 at May 31, 1998 and
    $73,796 at May 31, 1997      100,294          -          -    88,204          -          -
  Other                            1,288      1,288      1,288     1,771      1,771      1,771
                                 -------    ------- ----------   -------    -------     -------

                                 466,758    366,464    274,546   494,801    406,597    327,026
Less current portion              (6,051)    (6,051)    (6,051)   (5,401)    (5,401)    (5,401)
                                 -------    -------- ---------    ------    -------   ---------
Total long-term debt            $460,707   $360,413   $268,495  $489,400   $401,196   $321,625
                                ========   ========   ======== =========   ========   ========
</TABLE>

The Company did not have any  outstanding  letters of credit under its Revolving
Credit Facility at May 31, 1998; however, the Company had $4,430,000 outstanding
at May 31, 1997.

Credit Agreement
In  connection  with the  Recapitalization  (Note 1), the Company,  through ICON
Health,  entered into a Credit  Agreement with a syndicate of banks.  Borrowings
under the Amended and Restated Credit Agreement  consist of the Revolving Credit
Facility,  the Term  Loan A  Facility,  and the Term  Loan B  Facility,  and are
secured by a perfected  first priority  security  interest in the assets of ICON
Health  and its  subsidiaries.  Under the terms of the  Credit  Agreement,  ICON
Health  must  comply  with  certain  restrictive  covenants,  which  include the
requirement  that  ICON  Health  maintain  minimum  amounts  of   profitability,
solvency, and liquidity. In addition, the Credit Agreement restricts ICON Health
from making certain payments,  including dividend payments, to its shareholders.
At May 31,  1998,  after  giving  effect to the latest  amendment  to the Credit
Agreement,  ICON Health was in compliance  with all of its financial  covenants.
Management  believes that ICON Health will be in  compliance  with its financial
covenants through 1999 and, therefore, borrowings under the


<PAGE>



Credit  Agreement  have been  classified as long-term,  exclusive of amounts due
within one year under the Term Loan A Facility and Term Loan B Facility.

Revolving Credit Facility
As of May 31, 1996, the Credit Agreement provided for borrowings of up to $160.0
million based upon a percentage of eligible accounts receivable and inventories.
As of August  23,  1996,  the  Credit  Agreement  was  amended  to permit  total
borrowings of up to $310.0  million,  with certain  changes to the percentage of
eligible receivables and inventory, in order to fund the HealthRider Acquisition
(Note 3), the settlement of the WHF Litigation  (Note 14), the Weider Sports and
CanCo  Acquisitions  (Note 14) and other working  capital  needs.  The Revolving
Credit  Facility  expires on November 14,  1999.  Advances  under the  Revolving
Credit Facility bear interest,  at the Company's  option, at either (1) a margin
of 1.50% to 2.50% over the rate at which certain Eurodollar deposits are offered
in the interbank  Eurodollar  market (the "LIBOR Rate") or (2) a margin of 0% to
1.00%  over the  higher of (a) the  highest of the most  recently  published  or
announced prime corporate base, reference or similar benchmark rate announced by
Bankers  Trust Company or (b) the published  rate for  ninety-day  dealer placed
commercial  paper (the  "Index  Rate")  (8.44% rate as of May 31, 1998 under the
LIBOR Rate option). The applicable margin is based on the Company's debt service
ratio.  The Company is required to pay a fee of between 0.375% to 0.5% per annum
on the average unused  commitment under the Revolving  Credit Facility.  For the
years ended May 31, 1998,  1997 and 1996, the Company paid an unused  commitment
fee of $564,000, $421,000 and $196,000,  respectively.  As of May 31, 1998, $7.3
million was available to be borrowed under the Revolving Credit Facility.

Term Loan A Facility
Under the Term Loan A Facility,  $17,500,000  was advanced on November 14, 1994.
Quarterly  payments of $625,000,  $937,500 and  $1,250,000  became due beginning
each March 31, 1996, 1997 and 1998, respectively. Quarterly payments increase to
$1,562,500  beginning  March 31,  1999,  with the balance of  $1,562,500  due at
maturity on November  14,  1999.  Advances  under the Term Loan A Facility  bear
interest,  at the  Company's  option,  at a rate equal to either (1) a margin of
1.75% to 2.75%  over the LIBOR  Rate or (2) a margin of 0.25% to 1.25%  over the
Index Rate (8.73% as of May 31, 1998 under the LIBOR Rate option).

Term Loan B Facility
Under the Term Loan B Facility,  $17,500,000  was advanced on November 14, 1994.
Quarterly  payments of $62,500  were due  beginning  March 31,  1996.  Quarterly
payments  increase to $1,562,500  beginning March 31, 2000 through September 30,
2001,  and the balance of  $5,562,500  is due at maturity on November  14, 2001.
Advances under the Term Loan B Facility bear interest,  at the Company's option,
at a rate  equal to either (1) a margin of 2.25% to 3.25% over the LIBOR Rate or
(2) a margin of 0.75% to 1.75%  over the Index  Rate  (9.23% as of May 31,  1998
under the LIBOR Rate option).



<PAGE>



In addition,  the Company is required to use the proceeds of permitted  sales of
assets to pay down the Term Loan A and Term Loan B Facilities.

Senior Subordinated Notes
In  conjunction  with  the   Recapitalization   (Note  1),  the  Company  issued
$101,250,000   face  amount  (net  proceeds  of  $100.0million)  of  13%  Senior
Subordinated Notes of ICON Health (the "Senior Subordinated Notes") and warrants
to purchase  200,000 shares of Class A and 20,000 shares of Class L Common Stock
of IHF Capital. The Senior Subordinated Notes are unsecured and bear interest at
13%,  payable January 15 and July 15 through the maturity date of July 15, 2002.
The  warrants  have an exercise  price of $0.01 per share and expire on November
14, 1999.  In  conjunction  with the sale,  $968,000 of the  issuance  price was
ascribed to the  warrants  and is  included in the total  discount on the notes.
This discount is being amortized using the effective interest method.

Upon certain  asset  sales,  the Company may be obligated to purchase the Senior
Subordinated Notes with the net cash proceeds of the asset sales at a redemption
price  of 100% of  principal  plus  accrued  and  unpaid  interest.  On or after
November  15,  1998,  the  Senior  Subordinated  Notes  may be  redeemed  at the
Company's option, in whole or in part, at redemption prices ranging from 110.00%
of principal amount in the year ended November 14, 1999, plus accrued and unpaid
interest,  to 100% of principal  amount  subsequent  to November 14, 2001,  plus
accrued and unpaid interest.

Senior Secured Discount Notes
In  conjunction  with  the   Recapitalization   (Note  1),  the  Company  issued
$123,700,000  face amount (net proceeds of $60.0  million) of 15% Senior Secured
Discount  Notes of IHF  Holdings  (the "Senior  Secured  Notes") and warrants to
purchase  800,000 shares of Class A and 80,000 shares of Class L Common Stock of
IHF Capital.  The Senior  Secured Notes are senior  secured  obligations  of IHF
Holdings, which begin bearing cash interest of 15% at November 15, 1999, payable
each May 15 and November 15  thereafter,  through the maturity  date of November
15,  2004.  As the  operations  and cash flows of the  Company are those of ICON
Health,  the  ability to make cash  payments of interest  and  principal  on the
Senior  Secured  Notes is  contingent  on the ability of ICON Health to dividend
funds  to IHF  Holdings,  as  subject  to  certain  restrictions  in the  Credit
Agreement.  In conjunction  with the sale,  $3,838,000 of the issuance price was
ascribed to the  warrants  and is  included in the total  discount on the notes.
This discount is being amortized using the effective interest method.

Upon certain  asset  sales,  the Company may be obligated to purchase the Senior
Secured Notes with the net cash proceeds of those sales at a redemption price of
100% of the accreted value plus accrued and unpaid interest.  The accreted value
increases from the initial  discount price through  November 15, 1999 to 100% of
the face amount of the discount  notes at that date.  The Company is required to
use at least 50% of the net proceeds of a public offering of the common stock of
IHF Holdings or any of its parents or  subsidiaries  for the  repurchase  of the
Senior Secured Notes at a redemption price of


<PAGE>



114.00% of accreted  value.  On or after  November 15, 1999,  the Senior Secured
Notes  may be  redeemed  at the  Company's  option,  in  whole  or in  part,  at
redemption  prices  ranging from  107.50% of principal  amount in the year ended
November 14, 2000, to 100% of principal amount  subsequent to November 14, 2001,
plus accrued and unpaid interest.

Senior Discount Notes
On November  20, 1996,  ICON issued  $162,000,000  face amount (net  proceeds of
$82.5  million)  of 14% Series A Senior  Discount  Notes (the  "Senior  Discount
Notes").  The Senior  Discount  Notes are  secured by the  capital  stock of IHF
Holdings  held  by  ICON  Fitness  but  are  effectively   subordinated  to  all
indebtedness  and other  liabilities of ICON Fitness'  subsidiaries.  The Senior
Discount Notes begin bearing cash interest of 14% at May 15, 2002,  payable each
May 15 and November 15,  thereafter,  through the maturity  date of November 15,
2006. As the  operations and cash flows of the Company are those of ICON Health,
the  ability to make cash  payments  of  interest  and  principal  on the Senior
Discount  Notes is contingent on the ability of ICON Health to dividend funds to
ICON Fitness, as subject to certain restrictions in the Credit Agreement.

Upon the  completion of a public  offering by ICON Fitness or any of its parents
or subsidiaries,  the Company will be required to repurchase the Senior Discount
Notes at redemption  prices  ranging from 106.50% of accreted  value in the year
ended  November 14, 1998 to 110.00% of accreted value in the year ended November
14, 2001. The accreted value increases from the initial discount price at a rate
of 14%  compounded  semi-annually  through  November 14, 2001.  Thereafter,  the
required  redemption  price  ranges from  110.00% of the  principal  amount plus
accrued  and  unpaid  interest  in the year ended  November  2002 to 100% of the
principal  amount plus  accrued and unpaid  interest in the year ended  November
2005 and  thereafter.  At any time prior to November 15,  2000,  the Company may
elect to  repurchase  up to all of the  Senior  Discount  Notes  at  these  same
redemption  prices.  Subsequent  to November 14, 2000,  the Company may elect to
repurchase  up to $62.0  million  face  amount  of the  amounts  at  these  same
redemption prices.

The net  proceeds  from the issuance of the Senior  Discount  Notes were used to
fund the purchase of the IHF Capital  common  stock and IHF  Holdings  preferred
stock in connection with the WHF Settlement (Note 14).

Degree of Leverage and Change in Control
The degree to which the Company is leveraged could have important  consequences,
including  the  following:  (i)  the  Company's  ability  to  obtain  additional
financing  for working  capital or other  purposes in the future may be limited;
(ii) a substantial  portion of the Company's cash flow from  operations  will be
dedicated to the payment of the principal  and of interest on its  indebtedness,
thereby  reducing funds available for  operations;  and (iii) the Company may be
more vulnerable to economic downturns and be limited in its ability to withstand
competitive pressures.

During fiscal 1998,  ICON Fitness,  IHF Holdings and ICON Health  incurred a net
loss of $27.6 million, $19.2 million and $9.5 million respectively. In addition,
the  Company  experienced  a large  decrease  in working  capital.  Management's
estimate  of the  Company's  fiscal  1999  projections  contemplate  significant
positive  cash flow from  operations.  In the event that fiscal  1999  operating
results do not meet management  expectations,  the Company may not have adequate
cash flow  from  operations  to meet  working  capital  needs,  planned  capital
expenditures and debt service obligations and may be required to seek additional
equity of debt  financing.  The Company's  ability to raise  additional  debt or
equity is uncertain.

Upon a change in control, as defined in the Notes agreements, each


<PAGE>



holder  of  the  Senior  Discount   Notes,   Senior  Secured  Notes  and  Senior
Subordinated  Notes may require the  Company to  repurchase  all or a portion of
such  holder's  notes at a cash  purchase  price equal to 101% of the  principal
amount, plus accrued and unpaid interest, if any, to the date of repurchase. The
Credit  Agreement  provides that the occurrence of such a change of control,  as
defined  therein,  constitutes  an event of default under the Credit  Agreement,
which could require  immediate  payment of the Revolving Credit  Facility,  Term
Loan A Facility and Term Loan B Facility.


Future Payments
As of May 31, 1998, the scheduled  future  principal  payments of long-term debt
(excluding the Revolving Credit Facility) are as follows (in thousands):
<TABLE>
                                ICON        IHF         ICON
         Year ended May 31,   Fitness      Holdings     Health
         <S>                  <C>          <C>         <C>
              1999             $6,051       $6,051      $6,051
              2000              6,133        6,133       6,133
              2001              6,578        6,578       6,578
              2002              7,552        7,552       7,552
              2003            101,250      101,250     101,250
              Thereafter      285,700      123,700          -
</TABLE>

9. Cumulative Redeemable Preferred Stock - IHF Holdings

Authorization and Issuance of Series A Cumulative  Redeemable Preferred Stock As
part of the  Recapitalization  (Note 1), IHF Holdings authorized 8,000 shares of
Series A-1 Cumulative  Redeemable  Preferred  Stock ("Series A-1 Preferred") and
2,042 shares of Series A-2 Cumulative  Redeemable  Preferred  Stock ("Series A-2
Preferred").  The Series A-1  Preferred  and Series A-2  Preferred  (referred to
collectively  as the "Series A  Preferred")  were  equivalent  in all  respects,
except with respect to voting  rights.  In exchange for common stock and options
in the Recapitalized  Companies,  8,000 shares of Series A-1 Preferred and 1,000
shares of Series A-2  Preferred  were issued to Weider ICON Health  ("WHF") at a
stated issue price of $4,000 per share, and options to purchase 1,042 Series A-2
Preferred  were issued to certain  officers of the  Company.  The options had an
exercise price of $158.93 per share,  subsequent to adjustment as defined in the
option  agreement,  and  expire  on May 31,  2004.  Compensation  expense  and a
corresponding  credit to the Series A Preferred carrying value of $4,000,000 was
recorded at the date such options were granted.

The Series A Preferred  bore  dividends at the rate of 12.75% per year with such
dividends  also accruing on the shares of Series A Preferred  which were subject
to the options held by certain officers of the Company.  The redemption price of
the Series A Preferred  was $4,000 per share plus accrued and unpaid  dividends.
Management anticipated that the option to redeem the Series A Preferred would be
exercised  and, for the years ended May 31, 1997 and 1996  accrued  dividends of
$2.1  million  and $5.1  million,  respectively,  on the issued and  outstanding
preferred shares and outstanding options. Dividends


<PAGE>



accrued  to the  minority  shareholders  of IHF  Holdings  were  charged to ICON
Fitness'  operations.  In connection  with the  settlement of the WHF Litigation
(Note 14),  the IHF  Holdings  preferred  stock and the options to purchase  IHF
Holdings preferred stock were redeemed.


10. Stockholders' Equity

Common  Stock  and  Additional   Paid-in   Capital  In   conjunction   with  the
Recapitalization  (Note 1), IHF Holdings  issued  1,000 shares of common  stock,
received a capital  contribution  of $75.0  million  from its parent IHF Capital
(net  of  IHF  Capital's  $657,000  receivable  from  officers  related  to  the
Recapitalization),  and  contributed  capital  of  $163.4  million  (net  of the
$657,000  receivable)  to ICON  Health.  ICON  Health  exchanged  all common and
preferred stock in the Recapitalized Companies (Note 1), issuing 1,000 shares of
new common stock, to IHF Holdings.  All of the common stock of the Recapitalized
Companies  that was issued and  outstanding  prior to the  Recapitalization  was
retired as part of that  transaction.  In connection with the  incorporation  of
ICON Fitness (Note 1), 100 shares of common stock, were issued to IHF Capital in
exchange for its investment in IHF Holdings. ICON Fitness, IHF Holdings and ICON
Health each have 3,000 authorized shares of $.01 par value common stock.

1994 Stock Option Plan
In November  1994,  the 1994 Stock  Option Plan (the "1994 Plan") was adopted by
the Company and  approved by the Board of  Directors.  The 1994 Plan  originally
provided for the granting of options to purchase up to 1,200,000 shares of Class
A  common  stock  of IHF  Capital.  The  Board  of  Directors  determines  which
individuals shall receive options,  the time period during which the options may
be  exercised,  the exercise  price  (which  cannot be less than the fair market
value of the Class A Common Stock on the date of grant),  and whether or not the
options are  incentive  stock  options as defined in Section 422 of the Internal
Revenue Code of 1986.  Expired and canceled  options are not made  available for
future grant. In 1996, the plan was amended to provide for the granting of up to
2,110,207 shares of Class A Common Stock.


















<PAGE>



Activity under the 1994 Plan is summarized as follows:
<TABLE>
                                     Weighted
                                     Number of     Range of      Average
                                      Optioned   Exercise Price Exercise Price
                                       Shares       Per Share    Per Share
<S>                                  <C>         <C>            <C>
Outstanding at May 31, 1995            506,464    $0.10-8.92       $3.82
Granted                                963,876         $5.80       $5.80
Exercised                              (44,539)   $0.10-5.80       $1.00
Forfeited                               (1,868)        $0.10       $0.10

Outstanding at May 31, 1996          1,423,933    $0.10-8.92       $5.27
Exercised                              (74,735)        $0.10       $0.10
Forfeited                               (2,768)   $0.10-5.80       $2.39


Outstanding at May 31, 1997          1,346,430    $0.10-8.92       $5.57
Exercised                              (23,351)   $0.10-5.80       $0.12
Forfeited                              (13,780)   $0.10-5.80       $3.16
                                     ----------

Outstanding at May 31, 1998          1,309,299    $0.10-8.92       $5.67
                                     =========

Options exercisable at May 31, 1998  1,306,567    $0.10-8.92       $5.68
                                     =========
</TABLE>

The weighted average fair value of options granted during 1996 was $4.35.  There
were no option grants during fiscal 1997 and 1998. At May 31, 1998, the weighted
average  remaining  contractual  life of outstanding  options was 7.5 years. All
options under the 1994 Plan become  exercisable upon an initial public offering,
subject to the approval of the Board of Directors.  At May 31, 1998,  there were
no options available for future grant under the 1994 Plan.

If the Company had valued  awards to qualified  employees  on the minimum  value
methodology  prescribed  by SFAS No. 123,  the  Company's  net income would have
equaled the pro forma amounts indicated below (in thousands):

                                 ICON         IHF       ICON
                                Fitness     Holdings   Health
                               --------     --------  ---------
1996 net income - as reported   $1,621       $6,721    $13,589
1996 net income - pro forma      1,000        6,100     12,968


The minimum  value of each option grant was estimated on the date of grant using
the minimum value option-pricing  model with the following  assumptions used for
grants in 1996: dividend yield of zero percent; risk-free interest rate of 5.9%;
and, expected lives of 5 years.

In September 1995 and March 1996, the exercise price of all performance  options
granted in 1995 under the 1994 Plan,  with an original  exercise price per share
of $30.87,  were reset to exercise prices per share ranging from $5.80 to $8.92,
which  represented the fair value on the date of the reset with no change in the
number of option share grants or vesting periods. The original exercise price


<PAGE>



of $30.87 per share for these  performance  options was established by the Board
of Directors at the time of the  Recapitalization  to provide  incentives to key
members of management.


During the year ended May 31, 1996, the Company recorded compensation expense of
$2,769,000  equivalent  to the  difference  between the fair market value of the
underlying  securities and the exercise price of related options  granted.  Such
option grants were fully vested upon grant.

1996 Stock Option Plan
In August 1996, the Company  adopted the 1996 Stock Option Plan (the "1996 Stock
Option  Plan") which  provides for the grant to directors  and certain  eligible
employees of the Company either incentive stock options,  non-qualified  options
or both.  The 1996 Stock Option Plan  satisfies the  requirements  of Rule 16b-3
under the 1934 Act. Subject to adjustment for stock splits and similar events, a
total of  2,070,000  shares  of Class A Common  Stock  has been  authorized  for
issuance under the 1996 Stock Option Plan, which is administered by the Board of
Directors.  Through May 31, 1998,  no options  have been granted  under the 1996
plan.


11.   Income Taxes

The  provision  for (benefit  from) income  taxes  consists of the  following(in
thousands):
<TABLE>
                                                                 May 31,
                       --------------------------------------------------------------------------------------
                                     1998                         1997                    1996
                       ------------------------------ ------------------------- -----------------------------
                         ICON       IHF      ICON      ICON       IHF        ICON    ICON     IHF       ICON
                        Fitness   Holdings  Health    Fitness   Holdings    Health  Fitness  Holdings  Health
<S>                     <C>       <C>       <C>       <C>       <C>        <C>      <C>      <C>      <C>
Current
   Federal income taxes $     -   $     -   $     -   $(5,982)  $(5,982)   $(6,252)  $6,946   $6,946   $7,216
   State income taxes        426       426      426      (513)     (513)      (536)     595      595      618
   Foreign income taxes    2,276     2,276    2,276     1,165     1,165      1,165      375      375      375
                        --------  --------  --------  --------  -------     ------   ------   ------   ------

  Total current            2,702     2,702    2,702    (5,330)   (5,330)    (5,623)   7,916    7,916    8,209
                        --------  --------  --------   --------  -------    ------   ------    ------   -----

Deferred
   Federal income taxes  (15,421)  (11,485)  (7,672)   (3,567)   (1,695)     1,512      (18)     (18)   2,416
   State income taxes     (1,857)   (1,519)  (1,195)     (307)     (146)       129       (2)      (2)     207
   Foreign income taxes      268       268      268        (6)       (6)        (6)       -       -        -
                         -------  --------- --------  ---------   ------    -------  -------  ------  -------

  Total deferred         (17,010)  (12,736)  (8,599)   (3,880)   (1,847)     1,635      (20)     (20)   2,623
                        --------- --------- --------  --------  --------   --------  ------- -------  -------
                        $(14,308) $(10,034) $(5,897)  $(9,210)  $(7,177)   $(3,988)  $7,896  $ 7,896  $10,832
                        ========= ========= ========  ========  ========   ========  ======  =======  =======
</TABLE>










<PAGE>



The  components  of the  Company's  pre-tax  income  (loss) are as  follows  (in
thousands):
<TABLE>

                                                             May 31,
                  ---------------------------------------------------------------------------------------
                                1998                           1997                        1996
                  ------------------------------  ----------------------------  -------------------------
                      ICON     IHF        ICON      ICON     IHF        ICON     ICON      IHF      ICON
                     Fitness Holdings    Health    Fitness  Holdings   Health   Fitness  Holdings  Health
<S>                <C>       <C>       <C>        <C>      <C>       <C>        <C>      <C>      <C>
Domestic           $(44,414) $(31,705) $(17,948)  $(33,784)$(25,614) $(14,000)  $12,018   $17,118 $26,922
Foreign               2,517     2,517     2,517     (1,936)  (1,936)   (1,936)   (2,501)   (2,501) (2,501)
                     -------  --------  --------  -------- ---------   -------  --------  ------- --------
                   $(41,897) $(29,188) $(15,431)  $(35,720)$(27,550) $(15,936)  $ 9,517   $14,617 $24,421
                   ========= ========= =========  ======== ========= =========  =======   ======= =======
</TABLE>

The provision for (benefit from) income tax differs from the amount  computed by
applying the  statutory  federal  income (loss) tax rate to income (loss) before
taxes as follows: <TABLE>


                                                                  May 31,
                          -------------------------------------------------------------------------------
                                             1998                  1997                   1996
                          ---------------------------- ------------------------- ------------------------
                           ICON       IHF       ICON    ICON      IHF      ICON   ICON     IHF       ICON
                          Fitness  Holdings    Health Fitness Holdings    Health Fitness Holdings   Health
<S>                       <C>      <C>         <C>    <C>     <C>         <C>    <C>     <C>        <C>
Statutory federal income
   tax rate                  (35)%    (35)%     (35)%    (35)%    (35)%    (35)%    35%      35%      35%
State tax provision
   (benefit)                  (2)      (2)       (2)      (3)      (2)      (3)      6        4        3
Other-non-deductible items     1       (1)        -        3        3        -       8        5        -
Dividends on preferred stock   -        -         -        2        -        -      19        -        -
Foreign losses for which
   no benefit has been
   recognized                  2        3         6        5        6       11      15       10        6
Other                          -        1        (7)       2        2        2       -        -        -
                             ----     ----      ----     ----     ----     ----    ----     ----     ----
Provision for (benefit
   (from) income taxes       (34)%    (34)%     (38)%    (26)%    (26)%    (25)%    83%      54%      44%
                             =====    =====     =====    =====    =====    =====   ====      ===      ===
</TABLE>

As of May 31, 1998 and 1997, the Company  recorded gross deferred tax assets and
gross deferred tax liabilities as follows (in thousands):
<TABLE>
                                                    May 31,
                           --------------------------------------------------------
                                       1998                        1997
                           ---------------------------  ---------------------------
                             ICON      IHF      ICON     ICON     IHF       ICON
                            Fitness  Holdings   Health   Fitness  Holdings  Health
<S>                        <C>       <C>       <C>       <C>      <C>      <C>
Gross deferred tax assets  $44,195   $37,888   $26,686   $25,558  $23,525  $16,164
Gross deferred tax
     liabilities            (5,956)   (5,956)   (6,092)   (5,465)  (5,465)  (5,305)
                           -------- ---------  --------    ------- -------- -------
                            38,239    31,932    20,594    20,093   18,060   10,859
Valuation allowance         (4,490)   (4,490)   (4,490)   (3,354)  (3,354)  (3,354)
                           -------- ---------  --------   -------  -------- -------
Net deferred tax asset     $33,749  $ 27,442   $16,104   $16,739  $14,706   $7,505
                           =======  ========   =======   =======  =======   ======
</TABLE>









<PAGE>



The Company has  provided a full  valuation  allowance  for  deferred tax assets
related to foreign net operating loss  carryforwards  since realization of these
future  benefits is not  sufficiently  assured.  The  increase in the  valuation
allowance from May 31, 1997 to May 31, 1998 is  attributable  to losses incurred
by the  Company's  European  operations  in the  year  ended  May 31,  1997.  No
valuation  allowance has been recorded against the domestic deferred tax assets.
Management  of the  Company  believes  that it is more  likely than not that the
Company will generate  sufficient  future taxable  income through  operations to
realize the net deferred tax assets prior to  expiration  of any net  operationg
losses (NOL's).  NOL's can be carried forward up to 20 taxable years.  There can
be no assurance  however,  that the Company  will generat any specific  level of
earnings  or that it will be able to realize any of the  deferred  tax assets in
future periods.  If the Company is unable to generate  sufficient taxable income
in the future through  operating  results,  a valuatoin  allowance  against this
deferred tax asset would result in a charge to earnings.

Net deferred tax assets consist of the following table (in thousands):
<TABLE>
                                                     May 31,
                             -----------------------------------------------------------
                                         1998                           1997
                             ---------------------------   ------------------------------
                               ICON     IHF      ICON        ICON     IHF         ICON
                             Fitness  Holdings  Health      Fitness  Holdings    Health
<S>                          <C>      <C>       <C>         <C>      <C>        <C>
Foreign net operating loss
  carryforward               $4,490    $4,490   $4,490      $3,354    $3,354    $3,354
Domestic net operating loss
  carryforward                9,997     9,740    9,154         444       344        49
Stock compensation expense    4,145     4,145    4,145       4,146     4,146     4,146
Future deductible interest   16,199    10,260     (137)      8,661     6,760       (35)
Depreciation                 (4,463)   (4,463)  (4,463)     (4,176)   (4,176)   (4,176)
Reserves and allowances       5,622     5,622    5,622       6,312     6,312     6,312
Contribution of land           (456)     (456)    (456)       (500)     (500)     (500)
Uniform capitalization
  of inventory                  830       830      830       1,157     1,157     1,157
Other, net                    1,875     1,764    1,409         695       663       552
                            -------   -------  -------     -------   -------   -------
                             38,239    31,932   20,594      20,093    18,060    10,859
Valuation allowance          (4,490)   (4,490)  (4,490)     (3,354)   (3,354)   (3,354)
                            -------  --------   -------     -------   -------  -------
Net deferred tax asset      $33,749   $27,442  $16,104     $16,739   $14,706   $ 7,505
                            =======   =======  =======     =======   =======   =======
</TABLE>
In the year ended May 31,  1998,  the  Company  did not  realize  any income tax
benefits  from  federal  and state net  operating  loss  carryforwards  from the
current and prior years.  In the year ended May 31, 1997,  the Company  realized
income tax benefits of $50,000  related to the use of foreign net operating loss
carryforwards  and income tax benefits of $6,481,000 and $556,000 related to the
use of federal and state net operating loss carrybacks, respectively.

At May 31,  1998,  the Company had  approximately  $10.0  million of foreign net
operating loss which may be carried  forward  indefinitely  and $26.3 million of
domestic net operating loss  carryforwards  of which $4.6 million expire in 2013
and $21.7 million expire in 2018.  These  carryforwards  are available to reduce
future foreign taxable income and domestic taxable income

12.  Supplemental Disclosures of Cash Flow Information
<TABLE>
                                                     Year Ended May 31,
                                               -------------------------------
                                                   1998      1997       1996
                                               ---------- --------- ----------
<S>                                              <C>        <C>        <C>
Cash paid during the period for (in thousands):
Interest paid                                    $32,891    $33,017    $25,191
Income taxes paid (refunds received), net          1,505       (685)     8,928
</TABLE>

Non-cash  investing and financing  activities In connection with the issuance of
the Senior Subordinated Notes and the Senior Secured Notes (Note 8), the


<PAGE>


Company issued warrants to purchase common stock of IHF Capital.  These warrants
were ascribed values of $968,000 and $3,838,000, respectively, and were recorded
as additional  discounts on the notes and were  credited to  additional  paid-in
capital.

In connection with the repurchase of the IHF Holdings Preferred Stock (Note 14),
ICON Fitness recorded a non-cash increase to additional paid-in capital of $14.3
million to reflect the gain  recognized on the early  extinguishment  of and the
forgiven  dividends  related to the IHF Holdings  preferred stock and options to
purchase such stock. In addition,  IHF Holdings  recorded a non-cash increase to
additional  paid-in capital of $50.0 million  representing the carrying value of
its preferred stock and options to purchase preferred stock upon repurchase

13. Commitments and Contingencies

Leases - The Company has non cancelable operating leases, primarily for computer
and  production  equipment,  that expire over the next five years.  These leases
generally  contain  renewal options for periods ranging from three to five years
and require  the  Company to pay all  executory  costs such as  maintenance  and
insurance. Future minimum payments under non cancelable operating leases consist
of the following at May 31, 1998 (table in thousands):
<TABLE>
                 Year ended May 31:
                 <S>           <C>
                 1999          9,518
                 2000          5,751
                 2001          2,518
                 2002            448
                 2003             63
</TABLE>
Rental  expense  under   noncancelable   operating   leases  was   approximately
$10,222,000,  $9,373,000 and $2,513,000 for the years ended May 31, 1998,  1997,
and 1996, respectively.

Lease of Asset  Held for Sale - The  Company  leased a portion of its asset held
for sale (Note 2) to several tenants for use as office space under noncancelable
operating  leases.  The Company recorded lease income of $1,223,000 and $700,000
for the years ended May 31, 1998 and 1997, respectively. Due to the sale of this
asset in fiscal  1998,  the Company  will not receive  any future  lease  income
related to this asset.

Product  Liability - The  Company is one of several  named  defendants  in legal
matters involving  product liability claims,  several insured and one uninsured.
The  plaintiff  in each case  seeks  general  and  specific  damages  in various
specified  and  unspecified  amounts.  Since  many of these  matters  are in the
initial discovery stage, it is not possible to predict, with any certainty,  the
outcome or range of  potential  loss.  Currently  pending  claims and any future
claims are subject to the uncertainties related to litigation,  and the ultimate
outcome of

<PAGE>



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,  there is also no assurance  that the product  liability
insurance  of the  Company  is or will be  adequate  to cover  such  claims.  In
addition,  there can be no assurance that the Company's insurers will be solvent
when required to make payments on claims. However,  management, based in part on
discussions  with legal  counsel,  believes  that the  Company  has  meritorious
defenses and that  resolution  of these  matters  should not result in uninsured
liability, if any, that would be materially greater than the estimated liability
of $3,000,000, $2,000,000 and $1,500,000 included in accrued expenses at May 31,
1998, 1997 and 1996, respectively.  The amount accrued is based on the number of
outstanding  claims,  consideration  of  the  Company's  stop-loss  limits,  and
estimates  prepared by the  Company's  insurance  carrier.  Outstanding  product
liability  claims are generally  settled  within one to two years of such claims
being made.

Other  Litigation  - The Company is involved  in various  litigation,  potential
unasserted  claims,  and legal actions,  including  several patent  infringement
claims,  arising  in  the  ordinary  course  of  business.  In  the  opinion  of
management,  the  ultimate  outcome  of these  matters  will not have a material
adverse  effect on the  Company's  financial  position and results of operations
and, that  resolution of these matters  should not result in liability,  if any,
that would be material to the financial statements.

While the  Company  believes it has  meritorious  defenses  against  outstanding
claims, the ultimate resolution of these matters could result in material losses
charged directly to expense as incurred.

Warranty - The Company  warrants its products  against  defects in materials and
workmanship  for a period of 90 days after sale to the  end-user.  As of May 31,
1998 and 1997, the Company had an accrual for warranty costs on products sold of
approximately  $4,784,000  and  $6,570,000,  respectively,  included  in accrued
expenses in the accompanying consolidated balance sheets. Retirement Plans - All
employees  who have met  minimum age and service  requirements  are  eligible to
participate  in a 401(k)  savings  plans.  Participants  may  make tax  deferred
contributions  up to 15% of total salary in 1995.  Company  contributions to the
two plans  for the  years  ended  May 31,  1998,  1997 and 1996  were  $384,000,
$374,000 and $233,000, respectively.


14. Related Party Transactions

Settlement of WHF Litigation
On  September  6, 1996,  the  Company  and WHF and its  affiliates  settled  the
litigation between WHF and certain of its affiliates and the Company and certain
of its  officers  and  directors  (the  "WHF  Litigation")  through  a number of
agreements  (the "WHF  Settlement").  The WHF  Settlement  includes  releases of
certain  claims  previously  asserted by WHF and its  affiliates,  amendments to
certain  of the  agreements  existing  between  the  Company  and  WHF  and  its
affiliates


<PAGE>



and certain new agreement  among the Company and WHF and its  affiliates.  Other
than the releases,  the  significant  terms of the WHF  Settlement  are outlined
below.

Option to Repurchase  Common Stock.  The Company  obtained the right to purchase
all of the Common Stock of IHF Capital and certain  warrants to purchase  Common
Stock of IHF Capital held by the WHF  stockholders.  This right was exercised on
November 20, 1996 at an aggregate  price of  approximately  $42.3 million.  This
transaction  has been  treated  as a return  of IHF  Capital's  capital  in ICON
Fitness in which ICON Fitness  recorded the amounts paid to the WHF stockholders
as a reduction in the additional paid-in capital of ICON Fitness.

Option to Repurchase Preferred Stock. The Company obtained the right to purchase
the IHF Holdings Preferred Stock held by WHF and certain other stockholders.  On
November  20, 1996 the Company  exercised  this right for $32.1  million,  which
reflected a discount of $3.9 million and the  forgiveness of accrued  dividends.
In connection  with the  repurchase  of the IHF Holdings  Preferred  Stock,  the
Company  purchased the options to purchase IHF Holdings  Preferred Stock held by
Messrs.  Watterson and Stevenson for $3.7 million,  which reflects a discount of
$0.3 million and the forgiveness of accrued dividends.  Upon the purchase of the
IHF Holdings  Preferred Stock,  WHF's  representation  on the Company's board of
directors ceased. In connection with the above transaction, the Company recorded
an increase to the additional  paid-in capital of IHF Holdings of $50.0 million,
which  consists  of (i) $35.8  million  which ICON  Fitness  contributed  to IHF
Holdings from its proceeds from the issuance of Senior  Discount  Notes (Note 8)
for the repurchase of IHF Holdings  Preferred  Stock and options to purchase IHF
Holdings  Preferred Stock; and (ii) $14.3 million related to the discounts given
on the  repurchase of IHF Holdings  Preferred  Stock and options to purchase IHF
Holdings Preferred Stock and the forgiveness of accrued dividends. Additionally,
the  Company  recorded an increase  to the  additional  paid-in  capital of ICON
Fitness  of  $14.3  million  to  reflect  the  gain   recognized  on  the  early
extinguishment  of and  the  forgiven  dividends  related  to the  IHF  Holdings
Preferred Stock and options to purchase IHF Holdings Preferred Stock.

Settlement  Expenses and  Intercompany  Payables.  The  Company:  (i) paid $12.1
million  to  terminate  the  lawsuits;  (ii)  paid $3.9  million  to WHF and its
affiliates as payment in full under its brand license  agreements with them; and
(iii)  received  $1.2 million in full payment and  settlement  of the  Company's
intercompany  payable to WHF and its  affiliates  ($1.8 million) and amounts due
the Company under the amended Management  Agreement ($3.0 million).  The Company
also received $0.5 million in full payment and settlement of CanCo's  Management
fee  obligations  to  the  Company  under  the  CanCo  Management  and  Advisory
Agreement.  As a result of the above,  the Company  recorded  Weider  Settlement
expenses of $16.6 million, which includes the expenses noted in (i) and (ii) and
other  individually  insignificant  settlement  expenses  totaling $1.1 million,
offset by the $0.5 million of CanCo  management  fees. The Company also recorded
the intercompany  balance reductions noted in (iii) in its consolidated  balance
sheets.


<PAGE>



Payments  to  Messrs.  Watterson  and  Stevenson.  In  connection  with  the WHF
Settlement,  WHF and its affiliates: (i) paid Messrs. Watterson and Stevenson an
aggregate amount of approximately  $4.2 million in exchange for the surrender of
their options to purchase stock of WHF and its affiliates; and (ii) paid Messrs.
Watterson and Stevenson an aggregate amount of $0.5 million.  Messrs.  Watterson
and Stevenson  also each received $0.3 million in full payment and settlement of
CanCo's  management  fee  obligations  under the CanCo  Management  and Advisory
Agreements.  The WHF Settlement also contained various miscellaneous  provisions
that the Company does not believe are material.

Management Fees
The Company  received  $2.7  million in the year ended May 31, 1995 as a fee for
administrative  services  provided  to  WHF  in  the  management  of  one of its
subsidiaries  (the "Management  Agreement") which was recorded as a reduction of
general  and   administrative   expense  for  the  period.   Subsequent  to  the
Recapitalization,  the Management  Agreement  required ICON Health to the extent
applicable,  to source WHF products, or products substantially the same as those
sold by WHF,  from WHF prior to seeking  sources of those  products from outside
vendors.  During the years  ended May 31, 1997 and 1996,  the Company  purchased
approximately  $7.0  million and $50.7  million of  products  from WHF and had a
trade payable of $0.7 million at May 31, 1996, respectively.  In connection with
the WHF Settlement, this agreement was terminated.

In conjunction with the Recapitalization, the Company executed an agreement with
a majority  shareholder  who provides  management and advisory  services.  Total
annual fees due under this agreement are $800,000,  and, for the years ended May
31, 1998, 1997 and 1996, the Company recorded management fee expense of $800,000
each year. In addition, if the Company enters into any acquisition  transactions
involving at least $10 million,  the Company must pay a fee of  approximately 1%
of the gross purchase price,  including liabilities assumed, of the transaction.
In connection with the HealthRider  Acquisition  (Note 3), the Company paid this
shareholder $700,000.

License Fees
Concurrent  with the  closing  of the  Recapitalization,  the  Company  obtained
certain  rights to use the WHF name pursuant to two separate  exclusive  license
agreements.  Under the Weider  Sports  License,  the  Company  paid a $5 million
license fee on November 14, 1994 for a perpetual  license with respect to Weider
Canadian  Trademark  Rights.  Under the Weider Health and Fitness  license,  the
Company was  required  to pay a royalty  with  respect to Weider U.S.  and other
trademark rights equal to 2% of sales of licensed products sold thereunder until
such time as the Company had paid an aggregate royalty equal to $12 million plus
an interest  factor accruing on the unpaid portion of the royalty at a per annum
rate of 10%. The Company  recorded  license fees of $129,000 and $549,000 during
1997 and 1996,  respectively,  under this  agreement.  The  Company  had accrued
license fees payable to WHF of $81,000 at May 31, 1996. In  connection  with the
WHF  Settlement,  the Company paid $3.9 million in exchange for a fully  paid-up
license with respect to the U.S. and other trademarks.


<PAGE>



Distribution Agreement
The  Company  had  appointed  a  Canadian  WHF  affiliate  to be  the  exclusive
distributor  of ICON Health  products  worldwide,  excluding the United  States,
Mexico and certain countries in Europe.  Under the terms of this agreement,  the
Company  sold  its  products  directly  to  WHF  affiliates  for  resale  in the
agreed-upon territory. In conjunction with this agreement,  the Company recorded
revenue of $3.2  million  and $6.9  million for the years ended May 31, 1997 and
1996, respectively. At May 31, 1996, the Company had a trade receivable from WHF
affiliates of $1.5 million.  In connection with the WHF Settlement,  the Company
paid $8.0 million to terminate this agreement.

Weider Sports and CanCo Acquisitions
In connection  with the settlement of the WHF Litigation,  the Company  acquired
certain  assets,  excluding cash and fixed assets,  for $8.9 million and assumed
certain liabilities of the sports equipment business lines of Weider Sports (the
"Weider Sports Acquisition"). The terms of the Weider Sports Acquisition and WHF
Settlement also require the Company to provide Ben Weider with a salary,  office
space and three assistants for a period of five years after the acquisition. The
estimated  costs of this  commitment of $2.5 million were accrued as part of the
purchase accounting for the Weider Sports Acquisition. As a result of the Weider
Sports  Acquisition,  the  Company  reacquired  distribution  rights  originally
granted to Weider Sports in connection with the Recapitalization on November 14,
1994, subject to certain rights granted by Weider Sports to third parties.

In  addition,  the  Company  acquired  certain  assets,   excluding  cash,  cash
equivalents  and  accounts  receivable,  for $1.7  million and  assumed  certain
liabilities of three  Canadian  corporations  (collectively,  CanCo) (the "CanCo
Acquisition").  The Company also  acquired two CanCo plants which were leased by
other WHF affiliates in exchange for the assumption of the existing $1.5 million
Canadian mortgage on the properties and the payment of $0.5 million.

The  Weider  Sports and CanCo  Acquisitions  have been  accounted  for under the
purchase method of accounting. Accordingly, the purchase price plus direct costs
of the  acquisitions  have been allocated to the assets acquired and liabilities
assumed based on their  relative fair values as of the closing date.  The Weider
Sports and CanCo  Acquisitions  did not represent  acquisitions  of  significant
businesses by the Company.

Aircraft Lease
In June 1996,  the Company  entered  into an agreement  with FG  Aviation,  Inc.
("FG"), a company which is jointly owned by officers of the Company, whereby the
Company has  committed to lease an airplane from FG.  Minimum  rentals under the
lease,  which expires in May 2005, are $56,610 per month. In connection with its
lease commitments, the Company recorded $679,000 of rental expense for the years
ended May 31, 1998 and 1997. Also, the Company incurred  $206,000 and $34,000 of
maintenance expense in the years ended May 31, 1998 and 1997,  respectively.  In
addition,  the  Company  advanced  $280,000  to FG as a security  deposit on the
aircraft lease.


<PAGE>


Receivable from Parent
Through May 31,  1998,  IHF Capital  incurred  $2,362,000  in expenses  and fees
related to its withdrawn  public equity  offering.  In order to fund the payment
for these  expenses,  the Company,  through  ICON  Health,  advanced IHF Capital
$2,362,000 in the form of a  non-interest  bearing  loan. At May 31, 1998,  this
amount is reflected as a non-current  receivable from parent on the consolidated
balance sheet of ICON Fitness, IHF Holdings and ICON Health. This amount will be
repaid at such time that IHF Capital raises proceeds in connection with a public
or private sale of its equity.

Receivables from Officers
In connection  with the exercise of options prior to the  Recapitalization,  the
Company accepted as partial payment notes, bearing interest at the rate of prime
plus 0.5%,  in the amount of $234,000  from  officers.  In  connection  with the
purchase  of stock in the  Recapitalization,  the  Company  accepted  as partial
payments,  notes  bearing  interest at a per annum rate of 7.5% in the amount of
$656,000 from officers.  In the year ended May 31, 1997,  the Company  forgave a
total of $234,000 of principal and $62,000 of accrued interest on these loans.

<TABLE>
                                                  Valuation Accounts
                                                         May 31,
                                         --------------------------------------
                                              1998        1997         1996
                                         -----------  ------------  -----------
<S>                                      <C>           <C>          <C>
Allowances for Doubtful Accounts,
  Advertising and Credit Memos:

Balance at beginning of year             $8,953,000    $7,595,000    $5,308,000

Additions
Charged to Costs and Expenses (Allowance
  for Doubtful Accounts and Credit Memos) 4,566,000     6,027,000     3,662,000
Charged to Costs and Expenses
  (Discounts and Advertising)            33,234,000    33,512,000    34,585,000
Recoveries on Accounts Charged Off           22,000            -         74,000

Deductions
Accounts Charged Off (Allowance for
  Doubtful Accounts and Credit Memos)    (6,478,000)   (3,241,000)   (3,569,000)
Accounts Charged Off (Advertising)      (33,410,000)  (34,940,000)  (32,465,000)
                                        -------------- ------------- ------------

Balance at end of year                   $6,887,000    $8,953,000    $7,595,000
                                         ==========    ==========    ==========
</TABLE>