SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark one)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
        SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
        September 29, 2001

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
        SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________
        to ________

                         Commission File Number 0-24884


                             CANNONDALE CORPORATION
             (Exact name of registrant as specified in its charter)



                DELAWARE                                        06-0871823
     (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                         Identification No.)

16 TROWBRIDGE DRIVE, BETHEL, CONNECTICUT                           06801
(Address of principal executive offices)                         (Zip code)



                                 (203) 749-7000
              (Registrant's telephone number, including area code)

    ------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)

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__.

The number of shares outstanding of the issuer's Common Stock, $.01 par value
per share, as of November 7, 2001 was 7,543,364.



<PAGE>

                                      INDEX

                                                                            Page

Part I  Financial Information

        Item 1.  Financial Statements:

           Condensed Consolidated Balance Sheets as of September 29, 2001,
           June 30, 2001 and September 30, 2000...............................1

           Condensed Consolidated Statements of Operations for the three
           months ended September 29, 2001 and September 30, 2000.............2

           Condensed Consolidated Statements of Cash Flows for the three
           months ended September 29, 2001 and September 30, 2000.............3

           Notes to Condensed Consolidated Financial Statements...............4

        Item 2.  Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.........................12

        Item 3.  Quantitative and Qualitative Disclosures About
                 Market Risk.................................................15

Part II  Other Information

        Item 6.  Exhibits and Reports on Form 8-K............................16
Signature....................................................................17



                                       i

<PAGE>


                          PART I FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     CANNONDALE CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                 SEPTEMBER 29,   JUNE 30, 2001  SEPTEMBER 30,
                                                      2001                           2000
                                                  (UNAUDITED)                     (UNAUDITED)
                                                 ------------    -------------  -------------
<S>                                              <C>             <C>            <C>
ASSETS
Current assets:
   Cash......................................    $      929      $    2,155     $    2,748
   Trade accounts receivable, less allowances
      of $11,710, $11,270 and $10,537........        38,604          43,762         42,249
   Inventories...............................        41,836          37,759         41,092
   Prepaid expenses and other current assets.         2,928           2,773          2,956
   Deferred income taxes.....................             -               -          5,715
   Interest receivable from a related party..             -               -            196
                                                 ----------      ----------     ----------
   Total current assets......................        84,297          86,449         94,956
   Property, plant and equipment, net........        35,042          35,628         38,824
   Notes receivable and advances to related
      parties................................         1,391           1,441         13,231
   Other assets..............................         4,044           4,273          7,534
                                                 ----------      ----------     ----------
   Total assets..............................    $  124,774      $  127,791     $  154,545
                                                 ==========      ==========     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable..........................    $   16,889      $   15,351     $   14,429
   Revolving credit advances.................         2,614             866          1,384
   Income taxes payable......................           321             294            783
   Deferred income taxes.....................            60              81              -
   Warranty and other accrued expenses.......         7,689           8,279          6,713
   Current installments of long-term debt....         4,993           5,004          4,393
                                                 ----------      ----------     ----------
Total current liabilities....................        32,566          29,875         27,702
Long-term debt, less current installments....        43,978          46,434         58,467
Subordinated debenture to a related party....         2,000           2,000              -
Other noncurrent liabilities.................           417             427            415
                                                 ----------      ----------     ----------
Total liabilities............................        78,961          78,736         86,584
                                                 ----------      ----------     ----------
Commitments and contingencies................             -               -              -

Stockholders' equity:
   Common stock, $.01 par value:
      Authorized shares - 40,000,000
      Issued shares - 8,836,264, 8,836,264
        and 8,808,125........................            88              88             88
   Additional paid-in capital................        58,423          58,423         57,935
   Retained earnings.........................        14,360          18,483         37,175
   Less 1,292,900 shares in treasury at cost.       (20,162)        (20,162)       (20,162)
   Accumulated other comprehensive loss......        (6,896)         (7,777)        (7,075)
                                                 ----------      ----------     ----------
Total stockholders' equity...................        45,813          49,055         67,961
                                                 ----------      ----------     ----------
Total liabilities and stockholders' equity...    $  124,774      $  127,791     $  154,545
                                                 ==========      ==========     ==========

</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       1

<PAGE>


                     CANNONDALE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                                THREE MONTHS ENDED     THREE MONTHS ENDED
                                                   SEPTEMBER 29,          SEPTEMBER 30,
                                                       2001                   2000
                                                       ----                   ----
                                                    (UNAUDITED)            (UNAUDITED)

<S>                                                 <C>                  <C>
Net sales.................................          $   34,154           $   36,687
Cost of sales.............................              27,001               26,725
                                                    ----------           ----------
Gross profit..............................               7,153                9,962
                                                    ----------           ----------

Expenses:
    Selling, general and administrative...               9,033                9,469
    Research and development..............               1,269                1,962
                                                    ----------           ----------
                                                        10,302               11,431
                                                    ----------           ----------
Operating loss............................              (3,149)              (1,469)
                                                    ----------           ----------

Other income (expense):
    Interest expense......................              (1,148)              (1,788)
    Other income..........................                  94                  274
                                                    ----------           ----------
                                                        (1,054)              (1,514)
                                                    ----------           ----------

Pretax loss...............................              (4,203)              (2,983)
Income tax benefit........................                  80                1,356
                                                    ----------           ----------
Net loss..................................          $   (4,123)          $   (1,627)
                                                    ==========           ==========

Basic and diluted loss per share..........          $    (0.55)          $    (0.22)
                                                    ==========           ==========

</TABLE>

                            SEE ACCOMPANYING NOTES.


                                       2

<PAGE>



                     CANNONDALE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                              THREE MONTHS      THREE MONTHS
                                                                  ENDED             ENDED
                                                             SEPTEMBER 29,     SEPTEMBER 30,
                                                                  2001              2000
                                                                  ----              ----
                                                               (UNAUDITED)       (UNAUDITED)

<S>                                                             <C>                <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES...............        $  1,298           $  3,241
                                                                --------           --------

INVESTING ACTIVITIES:
Loans provided to related parties.......................              (3)               (47)
Repayments of loans provided to related parties.........              55                 13
Capital expenditures....................................          (1,104)              (807)
Proceeds from sale of equipment.........................               8                  -
                                                                --------           --------
Net cash used in investing activities...................          (1,044)              (841)
                                                                --------           --------

FINANCING ACTIVITIES:
Net proceeds from (repayments of) borrowings under
   short-term revolving credit agreements...............           1,676               (719)
Net repayments of borrowings under long-term debt and
   capital lease agreements.............................          (3,040)            (4,140)
                                                                --------           --------
Net cash used in financing activities...................          (1,364)            (4,859)
                                                                --------           --------

Effect of exchange rate changes on cash.................            (116)               143
                                                                --------           --------

Net decrease in cash....................................          (1,226)            (2,316)
Cash at beginning of period.............................           2,155              5,064
                                                                --------           --------
Cash at end of period...................................        $    929           $  2,748
                                                                ========           ========

</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       3

<PAGE>



                     CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



1.  BASIS OF PRESENTATION

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
Cannondale Corporation (together with its subsidiaries  collectively referred to
as we, us and our) have been prepared in accordance with  accounting  principles
generally  accepted in the United States for interim  financial  information and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all the information and footnotes  required by
accounting  principles  generally  accepted  in the United  States for  complete
financial  statements.  In our opinion,  all  adjustments  (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating results for the three-month period ended September 29, 2001
are not necessarily  indicative of the results that may be expected for the year
ending  June 29,  2002.  For  further  information,  refer  to the  consolidated
financial  statements  and  footnotes  thereto  for the year ended June 30, 2001
included in our annual report on Form 10-K.

The Condensed  Consolidated Balance Sheet at June 30, 2001 has been derived from
the audited  financial  statements  at that date but does not include all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements.

RECLASSIFICATIONS

Certain  fiscal 2001  amounts have been  reclassified  to conform to the current
year's presentation.

ACCOUNTING DEVELOPMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142,  "Goodwill and Other Intangible  Assets." These Statements  change
the accounting for business combinations,  goodwill, and intangible assets. SFAS
No. 141  eliminates the  pooling-of-interests  method of accounting for business
combinations and changes the criteria to recognize  intangible assets apart from
goodwill in a business  combination.  SFAS No. 142  requires  that  goodwill and
other indefinite lived intangible  assets may no longer be amortized but must be
reviewed  annually,  or more  frequently if  impairment  indicators  arise,  for
impairment.  Goodwill and other indefinite lived intangible  assets are required
to be  tested  for  impairment  between  annual  tests  if an  event  occurs  or
circumstances  change  indicating  that the asset might be  impaired.  Separable
intangible  assets that have finite  lives will  continue to be  amortized  over
their useful lives,  for which SFAS No. 142 does not impose a limit.  We adopted
SFAS No. 142 as of the  beginning of fiscal 2002;  such  adoption did not have a
material effect on our operating results or financial  position as no impairment
charges  were  recorded  at that  time.  The net book  value of  goodwill  as of
September 29, 2001 was $215,000.

The FASB  recently  issued SFAS  No.  144, "Accounting  for  the  Impairment  or
Disposals of Long-Lived Assets," which broadens the presentation of discontinued
operations within financial  statements  to  include more disposal transactions.
The Statement permits a  component  of  an  entity  (rather than a segment) with
distinguishable operations and  cash  flows  to  be  eligible  for




                                       4
<PAGE>

                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

discontinued
operation disclosure in the financial statements,  and  it  requires that future
operating losses from discontinued operations  be recognized  in  the periods in
which losses are incurred rather than as of  the  measurement date. In addition,
the Statement prescribes that goodwill  is no  longer  allocated  to  long-lived
assets for purposes of impairment testing, and  describes a probability-weighted
cash flow estimation approach to determine  recovery  of the carrying amounts of
long-lived assets. SFAS No. 144 is effective  for  fiscal  years beginning after
December 15, 2001. At this time, we cannot estimate the  impact on our operating
results or financial position as a result of adopting this Statement.


2.  INVENTORIES

The components of inventories are as follows (in thousands):

<TABLE>
<CAPTION>

                                                 SEPTEMBER 29,                    SEPTEMBER 30,
                                                     2001        JUNE 30, 2001        2000
                                                  (UNAUDITED)                      (UNAUDITED)
                                                 -----------     -------------    -------------
<S>                                               <C>              <C>              <C>
Raw materials...............................      $  23,171        $  21,682        $  24,561
Work-in-process.............................          3,620            2,514            2,084
Finished goods..............................         18,189           16,117           16,536
                                                 ----------       ----------       ----------
                                                     44,980           40,313           43,181
Less reserve for obsolete inventories.......         (3,144)          (2,554)          (2,089)
                                                ------------     ------------     ------------
                                                  $  41,836        $  37,759        $  41,092
                                                  =========        =========        =========
</TABLE>

3.  LOSS PER SHARE AMOUNTS

The following  tables  present the numerator  and  denominator  of the basic and
diluted loss per share  computations and other related  disclosures  required by
SFAS No. 128, "Earnings Per Share" (in thousands, except loss per share data):

                                                  THREE MONTHS      THREE MONTHS
                                                      ENDED            ENDED
                                                  SEPTEMBER 29,    SEPTEMBER 30,
                                                      2001              2000
                                                      ----              ----
                                                   (UNAUDITED)      (UNAUDITED)
NUMERATOR:
Numerator for basic and diluted loss per
  share-net loss............................        $  (4,123)      $    (1,627)

DENOMINATOR:
Denominator for basic and diluted loss per
  share-weighted-average shares.............            7,543             7,515
                                                   ----------        ----------

Basic and diluted loss per share............       $    (0.55)        $   (0.22)
                                                   ===========        ==========



                                       5
<PAGE>

                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


In the following  table,  we summarize the average number of options to purchase
shares of our common stock at the respective  ranges of exercise prices which we
did not include in the  computation  of diluted loss per share.  For the periods
indicated,  inclusion of such options would result in an antidilutive effect due
to the net loss incurred.

                                             OPTIONS    RANGE OF EXERCISE PRICES
                                             -------    ------------------------
THREE MONTHS ENDED SEPTEMBER 29, 2001...    3,184,254        $ 0.34 - $10.38
THREE MONTHS ENDED SEPTEMBER 30, 2000...    2,507,112        $ 0.34 - $15.00

We did not include the 977,777  potentially  convertible  shares  related to the
8.0%  subordinated  debentures in the  computation of diluted loss per share for
the three months ended  September  29, 2001 as the effect would be  antidilutive
due to the net loss incurred.

4.  COMPREHENSIVE INCOME (LOSS)

Pursuant to the provisions of SFAS No. 130,  "Reporting  Comprehensive  Income,"
our comprehensive loss is as follows, (in thousands):

                                                 THREE MONTHS      THREE MONTHS
                                                    ENDED              ENDED
                                                SEPTEMBER 29,      SEPTEMBER 30,
                                                     2001               2000
                                                     ----               ----
                                                 (UNAUDITED)        (UNAUDITED)

Net loss....................................     $   (4,123)         $  (1,627)
Net accumulated derivative gains (losses)...           (134)               115
Foreign currency translation gains (losses).          1,015             (1,213)
                                                 ----------          ---------
Total comprehensive loss....................     $   (3,242)         $  (2,725)
                                                 ==========          =========

The accumulated  derivative gain and loss activity  relating to cash flow hedges
for the three  months  ended  September  29, 2001 and  September  30, 2000 is as
follows (in thousands):

                                                 THREE MONTHS       THREE MONTHS
                                                     ENDED             ENDED
                                                 SEPTEMBER 29,     SEPTEMBER 30,
                                                     2001               2000
                                                     ----               ----
                                                  (UNAUDITED)       (UNAUDITED)

Beginning accumulated derivative gains......        $    16          $      -
Revaluations of cash flow hedge derivatives.           (126)              244
Net reclassifications to earnings...........             (8)             (129)
                                                    -------          --------
Ending net accumulated derivative gains
  (losses)..................................        $  (118)         $    115
                                                    =======          ========



                                       6
<PAGE>

                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



The components of the accumulated  other  comprehensive  loss are as follows (in
thousands):

<TABLE>
<CAPTION>

                                               SEPTEMBER 29,     JUNE 30,     SEPTEMBER 30,
                                                    2001            2001           2000
                                                    ----            ----           ----
                                                (UNAUDITED)                   (UNAUDITED)

<S>                                                 <C>            <C>            <C>
Net accumulated derivative gains (losses)...    $   ( 118)     $      16      $     115
Foreign currency translation adjustments....       (6,778)        (7,793)        (7,190)
                                                ---------      ---------      ---------
Accumulated other comprehensive loss........    $  (6,896)     $  (7,777)     $  (7,075)
                                                =========      =========      =========
</TABLE>

5.  OPERATIONS BY INDUSTRY SEGMENTS

In accordance  with SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related  Information," our reportable segments are Bicycles and Motorsports.
We  operate  predominantly  in  the  bicycle  industry  as  a  manufacturer  and
distributor of  high-performance  bicycles and bicycle-related  products,  which
include  clothing,  shoes  and  bags,  and a  line  of  components.  Due  to the
similarities in the nature of the products, production processes,  customers and
methods of distribution, bicycles and bicycle-related products are aggregated in
the Bicycle segment. We are also an emerging player in the motorsports  industry
with our line of ATVs and our motocross  motorcycles,  related  accessories  and
clothing. There are no sales between the segments.

Summarized segment data is as follows (in thousands):

                                                THREE MONTHS      THREE MONTHS
                                                   ENDED             ENDED
                                               SEPTEMBER 29,     SEPTEMBER 30,
                                                    2001              2000
                                                    ----              ----
                                                (UNAUDITED)       (UNAUDITED)

Net sales to external customers:
    Bicycles...............................     $   33,039         $  35,148
    Motorsports............................          1,115             1,539
                                                ----------         ---------
                                                $   34,154         $  36,687
                                                ==========         =========
Operating income (loss):
    Bicycles...............................     $    2,768         $   1,810
    Motorsports............................         (5,917)           (3,279)
                                                ----------         ---------
                                                $   (3,149)        $  (1,469)
                                                ==========         =========




                                       7
<PAGE>

                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


We evaluate performance of our segments based on profit or loss from operations.
The amounts below are not allocated between the segments (in thousands):


                                         THREE MONTHS ENDED   THREE MONTHS ENDED
                                           SEPTEMBER 29,         SEPTEMBER 30,
                                                2001                 2000
                                                ----                 ----
                                            (UNAUDITED)           (UNAUDITED)

Total operating loss for reportable
  segments...........................        $  (3,149)           $  (1,469)

Other income (expense):
    Interest expense.................           (1,148)              (1,788)
    Other income.....................               94                  274
                                             ---------            ---------
                                                (1,054)              (1,514)
                                             ---------            ---------
Pretax loss..........................           (4,203)              (2,983)

Income tax  benefit..................               80                1,356
                                             ---------            ---------

Net loss.............................        $  (4,123)           $  (1,627)
                                             =========            =========

Summarized segment assets are as follows (in thousands):

<TABLE>
<CAPTION>

                                           SEPTEMBER 29, 2001    JUNE 30, 2001    SEPTEMBER 30, 2000
                                           ------------------    -------------    ------------------
                                              (UNAUDITED)                            (UNAUDITED)
<S>                                            <C>                 <C>               <C>
Indentifiable assets:
   Bicycles...........................          $   99,210         $  103,024        $   135,024
   Motorsports........................              25,564             24,767             19,521
                                                ----------         ----------        -----------
                                                $  124,774         $  127,791        $   154,545
                                                ==========         ==========        ===========
</TABLE>

6.  NET DEFERRED TAX ASSETS

The  significant  components  of our  deferred  tax  assets and  liabilities  at
September  29,  2001,  June 30, 2001 and  September  30, 2000 are as follows (in
thousands):

<TABLE>
<CAPTION>

                                                 SEPTEMBER 29,      JUNE 30,       SEPTEMBER 30,
                                                     2001             2001             2000
                                                     ----             ----             ----
                                                  (UNAUDITED)                       (UNAUDITED)
<S>                                              <C>             <C>               <C>
Deferred tax assets:
    Accounts receivable and inventory
       reserves...........................       $    3,002      $     2,524       $     2,299
    Accrued liabilities...................            1,077            1,187             1,140
    Tax credits and NOL carryforwards.....           18,744           12,017             6,392
    Other.................................              870              805             1,003
                                                 ----------      -----------       -----------
    Total deferred assets.................           23,693           16,533            10,834
                                                 ----------      -----------       -----------



                                       8
<PAGE>

                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                                 SEPTEMBER 29,      JUNE 30,       SEPTEMBER 30,
                                                     2001             2001             2000
                                                     ----             ----             ----
                                                  (UNAUDITED)                       (UNAUDITED)

Deferred tax liabilities:
    Tax over book depreciation............           (1,273)          (1,415)           (1,541)

    Accounts receivable fair value                     (215)            (286)             (501)
       adjustment.........................
    Other.................................           (2,390)          (1,830)             (983)
                                                 ----------      -----------       -----------
    Total deferred liabilities............           (3,878)          (3,531)           (3,025)
                                                 ----------      -----------       -----------

Net deferred tax asset before valuation
   allowance..............................           19,815           13,002             7,809
Valuation allowance.......................          (19,875)         (13,083)                -
                                                 ----------      -----------       -----------

Net deferred tax asset (liability)........       $      (60)     $       (81)      $     7,809
                                                 ==========      ===========       ===========

</TABLE>

We  established a valuation  allowance as of December 30, 2000 for the excess of
Cannondale  U.S. and  Cannondale  Japan's  deferred tax assets over deferred tax
liabilities,  and have  adjusted the  valuation  allowance on a quarterly  basis
since that time.  Although we ultimately expect to realize these tax benefits in
future  years,  SFAS No.  109,  "Accounting  for  Income  Taxes,"  requires  the
establishment  of a  valuation  allowance  when there is  uncertainty  as to the
realizability of deferred tax assets. The deferred tax assets will be recognized
in future  periods to the extent  that we  reasonably  expect  such assets to be
realized.  If we  determine a portion or all of the  valuation  allowance  to be
unnecessary, the related tax benefits will be recorded at such time.

During the first quarter of fiscal 2002, Cannondale U.S. received dividends from
Cannondale  Europe  totalling  approximately  $1.6 million.  Cannondale U.S. has
provided for  additional  U.S.  federal  income taxes  representing  the net tax
impact of the  dividends  after the  effect of foreign  tax credit  adjustments,
which offset the majority of the U.S.  federal  income taxes  generated by these
dividends.

7.  DERIVATIVES AND HEDGING ACTIVITIES

We enter into  forward  foreign  currency  contracts  to purchase and sell U.S.,
European,  Australian,  Canadian and Japanese  currencies to reduce exposures to
foreign currency risks. The forward exchange contracts generally have maturities
that do not exceed 12 months and  require us to  exchange  at  maturity  various
currencies for U.S. dollars and Euros at rates agreed to at the inception of the
contracts.

At September 29, 2001, we had  approximately  $29.0 million of forward  exchange
contracts  outstanding.  Of these  contracts  outstanding,  approximately  $23.3
million were  designated as effective cash flow hedges.  We use forward  foreign
currency  contracts  as cash flow  hedges to

                                       9
<PAGE>

                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

mitigate  foreign  currency  risks  related  to  the settlements of   forecasted
sales and purchase  transactions.  For these foreign  currency forward contracts
designated  as  cash  flow  hedges,   we  report  the changes in fair value as a
component  of other  comprehensive  income  and  reclassify  such  amounts  into
earnings in  the  same  period  or  periods   which   the   underlying    hedged
transactions    affect   earnings.   The  total   net   accumulated   derivative
losses  of $118,000  included in the accumulated  other  comprehensive  loss  at
September 29, 2001 are  expected  to be reclassified  into  earnings  within the
next  12    months   upon   settlement  of the  related  hedged  item  (accounts
receivable  or  sale  of  inventory  to a  third  party).  There was  no   hedge
ineffectiveness  between the forward  contract  derivatives   and the underlying
hedged  items  relating  to these cash flow hedges during  the first  quarter of
fiscal  2002 as both were  equally  affected  by exchange rate fluctuations. The
net  expense  relating to  amortization of premiums and  discounts  of cash flow
hedges was not  material  to either our  operating results or financial position
for  the  quarter   ended   September 29, 2001 and is included in  other  income
(expense) on the   Condensed   Consolidated   Statement  of  Operations.  As  of
September  29,  2001, the maximum period of time we were hedging our exposure to
the  variability  in  future  cash  flows  for  forecasted transactions was nine
months.

The remaining foreign exchange contracts  outstanding at September 29, 2001 were
not designated as hedging instruments.  For these derivatives,  gains and losses
were recognized immediately in earnings during the period of change.

At September 29, 2001, the fair value of forward foreign contracts in gain (i.e.
asset)  positions  was  approximately  $227,000,  and the fair  value of forward
foreign  contracts  in  loss  (i.e.   liability)   positions  was  approximately
($332,000).  These fair values were determined  based upon current forward rates
applicable to the remaining  terms of the forward  contracts as of September 29,
2001.

8.  SHIPPING AND HANDLING FEES AND COSTS


In accordance with EITF Issue 00-10, "Accounting for Shipping and  Handling Fees
and Costs", we have included all shipping  and  handling   billings  within  net
sales, and freight costs incurred for product shipments within selling,  general
and  administrative expenses. For the quarterly periods ended September 29, 2001
and September 30, 2000, shipping and handling billings of approximately $534,000
and $449,000, respectively, have been included in net sales, and  freight  costs
of approximately $593,000 and $764,000,  respectively,  have  been  included  in
selling, general and administrative expenses.

9. LONG-TERM DEBT

As of September 29, 2001,  we were not in  compliance  with one of the financial
covenants of our borrowing  facilities with The CIT  Group/Business  Credit Inc.
and Ableco Finance LLC. The lenders have waived the covenant  non-compliance and
the financing agreements with these lenders  will  be  amended  effective  as of
Septmeber 29, 2001.



                                       10
<PAGE>
                    CANNONDALE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

10.  LITIGATION

We currently  and from time to time are involved in product  liability  lawsuits
and other  litigation  incidental to the conduct of our  business.  We are not a
party to any lawsuit or proceeding that, in the opinion of management, is likely
to have a material  adverse effect on our results of  operations,  cash flows or
financial  condition;  however, due to the inherent uncertainty of litigation we
can give no assurance that the resolution of any particular  claim or proceeding
would not have a material  adverse  effect on our  results of  operations,  cash
flows or financial condition.



                                       11
<PAGE>


Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

NET SALES.  Our net sales  decreased  to $34.2  million in the first  quarter of
fiscal 2002 from $36.7  million in the first  quarter of fiscal 2001, a decrease
of  approximately  $2.5 million or 7%.  Included in the above sales  amounts are
motorsports sales of approximately  $1.1 million for the first quarter of fiscal
2002 and  approximately  $1.5 million for the first quarter of fiscal 2001.  The
sales shortfall for the first quarter of fiscal 2002 compared to the same period
last year is  primarily  attributable  to the delay in receipt of parts from our
suppliers coupled with a slowdown in consumer demand.  In addition,  motorsports
shipments were interrupted due to the unavailability of parts.

GROSS PROFIT. Gross profit was $7.2 million in the first quarter of fiscal 2002,
a decrease of approximately $2.8 million from the gross profit in the first
quarter of fiscal 2001 of $10.0 million. Gross profit as a percentage of net
sales in the first quarter of fiscal 2002 decreased to 20.9% compared to 27.2%
for the first quarter of fiscal 2001. The decrease in gross profit dollars and
gross profit as a percentage of net sales was primarily attributable to the
continuing production start-up costs of the motorsports products which were not
proportionately offset by revenues. Bicycle margins for the first quarter of
fiscal 2002 were 33.5% compared to 32.9% in the prior year primarily as a result
of a more favorable product mix coupled with cost reductions.

OPERATING EXPENSES.  Operating expenses were $10.3 million for the first quarter
of fiscal  2002,  a decrease of $1.1  million,  or 10%,  from the $11.4  million
recorded for the first quarter of fiscal 2001.

Selling,  general and administrative  expenses decreased to $9.0 million for the
first quarter of fiscal 2002,  from $9.5 million  recorded during the prior-year
period.  Decreased selling, general and administrative expenses during the first
quarter of fiscal 2002 resulted from our continued  cost-reduction efforts and a
reduction in those Bicycle segment expenses tied directly to sales volume,  such
as  warranty  and  freight.  Motorsports  selling,  general  and  administrative
expenses for the first quarter of fiscal 2002 were  slightly  higher than in the
comparable  prior-year  period,  primarily as a result of increased warranty and
insurance   costs.  As  a  percentage  of  net  sales,   selling,   general  and
administrative  expenses  represented 26.4% for the first quarter of fiscal 2002
compared to 25.8% for the prior-year period.

Research and development expenses decreased to $1.3 million in the first quarter
of fiscal 2002,  from $2.0 million  recorded during the prior-year  period.  The
decrease in research and development expenses during the first quarter of fiscal
2002  primarily  reflects  the  transition  of  our  new  ATV  models  from  the
development  stage to production,  as well as the timing of bicycle research and
development  projects.  We  invested  approximately  $680,000  in  research  and
development for our motorsports products during the first quarter of fiscal 2002
compared  to  approximately  $992,000  during the same  period  last year.  As a
percentage  of net sales,  research and development expenses were  3.7% for  the
first quarter of fiscal 2002 compared to 5.3% for the first  quarter of   fiscal
2001.



                                       12
<PAGE>



OTHER INCOME (EXPENSE).  Interest expense decreased to $1.1 million in the first
quarter of fiscal 2002 from $1.8 million recorded during the prior-year  period.
Such decrease is a result of our lower average debt  balances,  due to the $12.0
million  paydown of debt at the end of the second  quarter of fiscal  2001,  and
lower  interest  rates,  due to the  decreases in the prime rate,  for the first
quarter of fiscal 2002  compared to the first  quarter of fiscal  2001.  For the
first  quarters of fiscal 2002 and 2001,  other  income  primarily  consisted of
finance  charge  income from  accounts  receivable,  offset by foreign  exchange
losses; additionally, for the first quarter of fiscal 2001, interest income from
the loan to Joseph Montgomery,  totaling approximately $303,000, was included in
other income.

INCOME  TAXES.  For the three months ended  September  29, 2001,  the income tax
benefit was $80,000  compared to the income tax benefit of $1.4 million recorded
for the three months ended  September 30, 2000.  The  significant  change in the
income tax benefit relates to a deferred tax asset valuation  allowance which we
originally  established  in the  second  quarter  of fiscal  2001.  Although  we
ultimately  expect to  realize  our net  deferred  tax  assets in future  years,
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes,"  requires  the  establishment  of a  valuation  allowance  when there is
uncertainty as to the  realizability  of deferred tax assets.  See Note 6 in the
Notes to the Condensed Consolidated Financial Statements for further discussion.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $1.3 million for the first quarter
of fiscal  2002,  a decrease  of  approximately  $1.9  million  compared to $3.2
million of net cash  provided by operating  activities  for the first quarter of
fiscal 2001.  The decrease in net cash provided by operating  activities  during
the first  quarter of fiscal 2002 compared to the same period last year reflects
the larger increase in bicycle inventories and no interest  collections relating
to the note from Joseph Montgomery, partially offset by a decrease in receivable
levels and an increase in payable levels.

Capital  expenditures  were $1.1  million for the first  quarter of fiscal 2002,
compared  to  $800,000  for the  first  quarter  of  fiscal  2001.  Our  capital
expenditures  during  the first  quarters  of fiscal  2002 and 2001  principally
related to tooling used in the production of motorsports products.

Net cash used by financing  activities  for the first quarter of fiscal 2002 was
$1.4  million,  compared  to the  $4.9  million  of net cash  used in  financing
activities  for the first quarter of fiscal 2001. The net cash used in financing
activities during the first quarters of fiscal 2002 and 2001 primarily  reflects
the decreases in our working  capital levels during the respective  quarters and
the  corresponding  reductions in our revolving debt. At September 29, 2001, the
remaining  availability  under  our  revolving  line  of  credit  with  the  CIT
Group/Business  Credit Inc. was  approximately  $5.6 million,  and  availability
under the borrowing facility with IFN Finance, B.V. was approximately $4.6
million.

As of September 29, 2001,  we were not in  compliance  with one of the financial
covenants of our borrowing  facilities with The CIT  Group/Business  Credit Inc.
and Ableco Finance LLC. The lenders have waived the covenant  non-compliance and
the financing agreements with these lenders will be amended as of September  29,
2001.



                                       13
<PAGE>


We expect that cash flow generated by our  operations  and borrowings  under our
financing  facilities  will be  sufficient  to meet our  planned  operating  and
capital requirements for at least the next 12 months in light of currently known
and estimable trends.

CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE PERFORMANCE

This Quarterly Report on Form 10-Q contains certain  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the  Securities  Exchange Act of 1934, as amended.  These include
statements about anticipated financial performance, future revenues or earnings,
business  prospects,  new  products,  anticipated  market  performance,  planned
production   and  shipping  of  motorsports   products,   expected  cash  needs,
availability  of  additional  financing,  future  compliance  with the terms and
conditions of financing  facilities and similar matters. In addition,  the words
"anticipate,"   "project,"  "plan,"  "intend,"   "estimate,"   "expect,"  "may,"
"believe"  and similar  words are intended to identify the  statements  that are
forward-looking  statements.  All  forward-looking  statements involve risks and
uncertainties.  Actual results may differ materially from those discussed in, or
implied  by, the  forward-looking  statements  as a result of  certain  factors,
including,  but not limited to: seasonality,  the timing of the introduction and
the market acceptance of new products, competition,  changes in foreign exchange
rates, general economic  conditions,  credit risks related to our customer base,
adverse  weather,  our  reliance on key vendor and supplier  relationships,  the
effectiveness  of our dealer networks and our internal sales teams,  our limited
motorsports products experience, our ability to obtain additional equity or debt
financing  when  needed,   changes  in  discretionary   consumer  spending,  our
dependence on key personnel and  potential  dilution of  shareholder  ownership.
Please refer to the "Management's Discussion and Analysis of Financial Condition
and Results of  Operations"  contained in our annual report on Form 10-K for the
fiscal year ended June 30, 2001 for a  description  of these risk factors  which
may affect our future results.



                                       14
<PAGE>


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market  risks  relating  to our  operations  result  primarily  from  changes in
interest   rates  and   foreign   exchange   rates,   as  well  as  credit  risk
concentrations.   To  address  these  risks,   we  enter  into  various  hedging
transactions as described below. We do not use financial instruments for trading
purposes.  For further discussion of the quantitative and qualitative aspects of
market  risk,  see Part II Item 7A of our  annual  report  on Form  10-K for the
fiscal year ended June 30, 2001.

CREDIT RISKS.

Our customer base is comprised of specialty  bicycle and  motorsports  retailers
which are located  principally  throughout the United States and Europe. Our net
sales are concentrated in the United States and Germany. No other single country
accounted  for more than 10% of our net sales during the first quarter of fiscal
2002. No single customer  accounted for more than 5% of our net sales during the
first  quarter of fiscal 2002. As a result of the  seasonality  of our business,
the payment terms offered to our bicycle dealers  generally range from 30 to 210
days  depending on the time of year and other  factors.  For the majority of our
motorsports sales, our dealers use a third-party financial services organization
to finance  their  inventory  purchases  whereby we  receive  payment  from such
organization  for all motorsports  shipments  within a specified  period of time
(not exceeding 60 days),  less an interest  factor.  All other products are sold
with payment terms from 30 to 60 days.

FOREIGN CURRENCY RISKS.

We enter into  forward  foreign  currency  contracts  to purchase and sell U.S.,
European,  Australian,  Canadian and Japanese  currencies to reduce exposures to
foreign currency risks. The forward exchange contracts generally have maturities
that do not exceed 12 months and  require us to  exchange  at  maturity  various
currencies for U.S. dollars and Euros at rates agreed to at the inception of the
contracts.

At September 29, 2001, we had  approximately  $29.0 million of forward  exchange
contracts  outstanding.  Of these  contracts  outstanding,  approximately  $23.3
million were  designated as effective cash flow hedges.  We use forward  foreign
currency  contracts  as cash flow  hedges to  mitigate  foreign  currency  risks
related to the settlements of forecasted  sales and purchase  transactions.  For
these foreign  currency  forward  contracts  designated as cash flow hedges,  we
report the changes in fair value as a component  of other  comprehensive  income
and  reclassify  such amounts into earnings in the same period or periods which
the underlying hedged  transactions  affect earnings.  As of September 29, 2001,
the maximum period of  time  we  were hedging our exposure to the variability in
future cash flows for forecasted transactions was nine months.

The remaining foreign exchange contracts outstanding at September 29, 2001 were
not designated as hedging instruments. For these derivatives, gains and losses
were recognized immediately in earnings during the period of change.


                                       15
<PAGE>



                            PART II OTHER INFORMATION


Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

           (a) Exhibits

           None.

           (b) Reports on Form 8-K

           We did not file any reports on Form 8-K during the quarter ended
           September 29, 2001.



                                       16
<PAGE>




                                    SIGNATURE


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

                                        CANNONDALE CORPORATION


Date: November 13, 2001                 /S/  WILLIAM A. LUCA
                                        -----------------------------
                                        William A. Luca
                                        Vice President of Finance, Treasurer,
                                        Chief Financial Officer and Chief
                                        Operating Officer
                                        (Principal Financial Officer
                                         and authorized signatory)



                                       17