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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

Commission file number: 000-25867

DIRECT FOCUS, INC.
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(Exact name of registrant as specified in its charter)

Washington 94-3002667
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1400 NE 136th Avenue
Vancouver, Washington 98684
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(Address of principal executive offices, including zip code)

(360) 694-7722
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(Issuer's telephone number, including area code)

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

Number of shares of issuer's common stock outstanding as of May 3, 2002:
35,194,144

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Page 1 of 19

DIRECT FOCUS, INC.

INDEX

PART I - FINANCIAL INFORMATION Page

Item 1. Financial Statements (Unaudited) ...................... 3

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 11

Item 3. Quantitative and Qualitative Disclosures
About Market Risk ...................................... 17

PART II - OTHER INFORMATION

Item 5. Other Information ...................................... 18

Item 6. Exhibits and Reports on Form 8-K ....................... 18

Signatures ................................................................ 19

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
DIRECT FOCUS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)

MARCH 31, DECEMBER 31,
2002 2001
------------ ------------

ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 41,858 $ 35,639
Short-term investments, at amortized cost 9,153 16,070
Trade receivables (less allowance for doubtful
accounts of: 2002, $2,977 and 2001, $2,064) 26,474 24,858
Inventories, net 60,854 45,516
Prepaid expenses and other current assets 4,045 2,007
Notes receivable 2,802 2,672
Current deferred tax asset 1,468 1,425
------------ ------------
Total current assets 146,654 128,187
------------ ------------

PROPERTY, PLANT AND EQUIPMENT, net 38,284 25,228

OTHER ASSETS, net 47,504 40,490
------------ ------------
TOTAL ASSETS $ 232,442 $ 193,905
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Trade payables $ 25,403 $ 25,256
Accrued liabilities 13,146 10,888
Income taxes payable 14,258 4,792
Royalty payable to stockholders 2,148 1,885
Customer deposits 1,190 1,000
------------ ------------
Total current liabilities 56,145 43,821
------------ ------------

LONG-TERM DEFERRED TAX LIABILITY 3,164 2,670

STOCKHOLDERS' EQUITY:
Common stock - authorized, 75,000,000 shares of
no par value; issued and outstanding, 2002:
35,075,119 shares, 2001: 34,954,790 shares 6,734 4,900
Retained earnings 166,595 142,637
Accumulated other comprehensive loss (196) (123)
------------ ------------
Total stockholders' equity 173,133 147,414
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 232,442 $ 193,905
============ ============

See notes to consolidated financial statements.

DIRECT FOCUS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

THREE MONTHS ENDED MARCH 31,
-----------------------------------
2002 2001
------------ ------------

NET SALES $ 135,914 $ 74,855

COST OF SALES 58,753 25,304
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Gross profit 77,161 49,551
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OPERATING EXPENSES:
Selling and marketing 31,600 23,151
General and administrative 6,264 3,203
Royalties 2,329 1,663
------------ ------------

Total operating expenses 40,193 28,017
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OPERATING INCOME 36,968 21,534
------------ ------------

OTHER INCOME:
Interest income 450 1,395
Other, net 19 101
------------ ------------

Total other income, net 469 1,496
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INCOME BEFORE INCOME TAXES 37,437 23,030

INCOME TAX EXPENSE 13,479 8,291
------------ ------------

NET INCOME $ 23,958 $ 14,739
============ ============

BASIC EARNINGS PER SHARE $ 0.68 $ 0.42

DILUTED EARNINGS PER SHARE $ 0.67 $ 0.41

Basic shares outstanding 35,008,298 35,492,422

Diluted shares outstanding 35,973,400 36,232,146

See notes to consolidated financial statements.

DIRECT FOCUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

THREE MONTHS ENDED MARCH 31,
-------------------------------
2002 2001
------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,958 $ 14,739
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,427 811
Tax benefit of exercise of non-qualified options 972 169
Deferred income taxes 451 (77)
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables 6,786 302
Inventories (8,607) (4,906)
Prepaid expenses and other current assets (1,382) 234
Trade payables (317) 5,519
Income taxes payable 9,466 6,180
Accrued liabilities and royalty payable to stockholders (237) 632
Customer deposits 190 159
------------ ------------
Net cash provided by operating activities 32,707 23,762
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,143) (1,089)
Decrease (increase) in other assets 71 (14)
Acquisition cost of StairMaster, net of cash acquired (24,992) --
Purchases of short-term investments (9,195) --
Proceeds from maturities of short-term investments 16,112 --
Issuance of note receivable (130) --
------------ ------------
Net cash used in investing activities (27,277) (1,103)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 862 473
Funds used for stock repurchase -- (8,478)
------------ ------------
Net cash provided by (used in) financing activities 862 (8,005)
------------ ------------

Effect of exchange rate changes (73) --

NET INCREASE IN CASH AND CASH EQUIVALENTS 6,219 14,654

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,639 77,181
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 41,858 $ 91,835
============ ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,700 $ 2,000

See notes to consolidated financial statements.

DIRECT FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Direct
Focus, Inc. (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America ("generally
accepted accounting principles") and pursuant to Securities and Exchange
Commission rules and regulations. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's annual report for the fiscal year ended December 31, 2001.

The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results of operations for the three months ended March
31, 2002 are not necessarily indicative of the results to be expected for the
full year.

CONSOLIDATION - The consolidated financial statements include Direct Focus,
Inc. and its subsidiaries (collectively the "Company"). All inter-company
transactions and balances have been eliminated.

SHORT-TERM INVESTMENTS - Debt securities with maturities greater than three
months and remaining maturities less than one year are classified as short-term
investments. Short-term investments in debt securities are classified as
held-to-maturity and valued at amortized cost with gains and losses recognized
upon the sale of the security.

RECENT ACCOUNTING PRONOUNCEMENTS - Effective July 1, 2001, the company
adopted certain provisions of Statement of Financial Accounting Standards
("SFAS") No. 141, "BUSINESS COMBINATIONS," and effective January 1, 2002, the
Company adopted the full provisions of SFAS No. 141 and SFAS No. 142, "GOODWILL
AND OTHER INTANGIBLE ASSETS." SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and broadens the criteria for recording intangible assets apart from
goodwill. SFAS No. 142 requires that purchased goodwill and certain
indefinite-lived intangibles no longer be amortized but instead be tested for
impairment at least annually. In connection with the adoption of SFAS No. 142 on
January 1, 2002, the Company evaluated its identified intangible assets and
determined that the Nautilus trademark has an indefinite useful life.

SFAS No 142 prescribes a two-phase process for testing the impairment of
goodwill. The first phase, required to be completed by June 30, 2002, screens
for impairment. If impairment exists, the second phase, required to be completed
by December 31, 2002, measures the impairment. The Company plans to complete the
first phase by June 30, 2002, and, if necessary, the second phase by September
30, 2002.

Statement of Financial Accounting Standards ("SFAS") No. 144, "ACCOUNTING
FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS," addresses accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and expands on
the guidance provided by SFAS No. 121 with respect to cash flow estimations.
SFAS No. 144 was effective for the Company's fiscal year beginning January 1,
2002. The adoption of SFAS No. 144 has not had a material effect on the
Company's financial position, results of operations, or cash flows.

2. ACQUISITIONS

Effective February 8, 2002, the Company acquired the trade receivables,
inventories, fixed assets, certain intangible assets, and the foreign
subsidiaries of StairMaster Sports/Medical, Inc. ("StairMaster") for a cash
purchase price of approximately $25,785, including acquisition costs.
StairMaster was acquired through a bankruptcy auction in the United States
Bankruptcy Court for the Western District of Washington, which auction was
completed on January 17, 2002.

The acquired assets include property, plant, and equipment used to
manufacture, assemble, distribute, and sell fitness equipment, including
steppers, stepmills, treadmills, and exercise bicycles. The Company intends to
continue to use the acquired assets for these purposes.

The purchase price for StairMaster was determined in the court auction. The
Company's bid was formulated on the basis of historical and projected financial
performance, which resulted in goodwill that has been recorded in the
commercial/retail segment along with the acquired assets and liabilities. The
Company financed the acquisition with cash-on-hand.

The Company has determined that the intangible asset associated with the
StairMaster acquisition (a trademark valued at $6.2 million) has an indefinite
useful life and thus will not be amortized. The Company will evaluate the
remaining useful life of the trademark each reporting period to determine
whether events or circumstances warrant a revision to the remaining period of
amortization or if the asset should be tested for impairment.

The total cost of the acquisition has been allocated to the assets acquired
and liabilities assumed as follows:

Cash and cash equivalents...................................... $ 793
Trade receivables.............................................. 8,402
Inventories.................................................... 6,731
Property, plant, and equipment................................. 5,249
Prepaid and other current assets............................... 656
Trademark...................................................... 6,200
Goodwill....................................................... 976
Liabilities assumed............................................ (3,222)
---------
Total acquisition cost......................................... $ 25,785
=========

Effective September 20, 2001, the Company acquired the trade receivables,
inventories, fixed assets, certain intangible assets, and the foreign
subsidiaries of the Fitness Division of Schwinn/GT Corp. ("Schwinn Fitness") for
a cash purchase price of approximately $69,843.

The unaudited pro forma financial information below for the three months
ended March 31, 2002 and 2001 was prepared as if the transactions involving the
acquisitions of StairMaster and Schwinn Fitness had occurred on the beginning of
each period presented:

THREE MONTHS ENDED MARCH 31,
---------------------------
2002 2001
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Revenue...................................... $ 142,193 $ 124,764
Net income................................... 24,182 12,365
Basic earnings per share..................... 0.69 0.35
Diluted earnings per share................... 0.67 0.34

The unaudited pro forma financial information is not necessarily indicative
of what actual results would have been had the transactions occurred at the
beginning of the respective year, nor does it purport to indicate the results of
future operations of the Company.

3. INVENTORIES

Inventories consisted of the following:
MARCH 31, DEC. 31,
2002 2001
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Finished goods............................... $ 46,268 $ 34,862
Work in process.............................. 1,431 1,148
Parts and components......................... 13,155 9,506
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Total inventories............................ $ 60,854 $ 45,516
========== ==========

4. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

ESTIMATED
USEFUL LIFE MARCH 31, DEC. 31,
(IN YEARS) 2002 2001
---------- -------- --------
Land ................................... N/A $ 1,986 $ 1,780
Buildings .............................. 31.5 19,405 11,785
Computer equipment ..................... 2-5 11,613 10,088
Production equipment ................... 5 11,290 6,567
Furniture and fixtures ................. 5 1,718 1,464
Automobiles and trucks ................. 7 413 349
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Total property, plant, and equipment ... 46,425 32,033
Accumulated depreciation ............... (8,141) (6,805)
-------- --------
Total property, plant, and equipment, net $ 38,284 $ 25,228
======== ========

5. OTHER ASSETS

Other assets consisted of the following:
MARCH 31, DEC. 31,
2002 2001
---------- ----------
Trademarks and patents....................... $ 17,595 $ 11,395
Goodwill..................................... 30,505 29,625
Other assets................................. 328 303
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Total other assets........................... 48,428 41,323
Accumulated amortization..................... (924) (833)
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Total other assets, net...................... $ 47,504 $ 40,490
========== ==========

The Company evaluates goodwill and intangible assets with indefinite lives
for impairment annually or more frequently if events or changes in circumstance
indicated that such assets might be impaired. Intangible assets with finite
useful lives are tested for impairment whenever events or changes in
circumstance indicated that such assets might be impaired. The remaining useful
lives of intangible assets with finite useful lives are evaluated annually to
determine whether events and circumstances warrant changes in the estimated
useful lives of such assets.

As discussed in Note 1, the Company adopted SFAS No. 142 on January 1,
2002. In accordance with SFAS No. 142, the effect of this accounting change is
reflected prospectively. Supplemental comparative disclosure as if the change
had been retroactively applied to the prior year period is as follows:

EARNINGS PER SHARE
----------------------
NET INCOME BASIC DILUTED
---------- ---------- ----------
Net income........................... $ 14,739 $ 0.42 $ 0.41
Amortization expense, net of tax..... 35 0.00 0.00
---------- ---------- ----------
Adjusted net income.................. $ 14,774 $ 0.42 $ 0.41
========== ========== ==========

Amortization of intangible assets for the quarter ended March 31, 2002 was
$91. The estimated amortization expense for the next five years is $362 per
year. Such amortization will change if businesses or portions thereof are either
acquired, disposed, or if changes in events or circumstances warrant the
revision of estimated useful lives.

6. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

MARCH 31, DEC. 31,
2002 2001
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Accrued warranty expense..................... $ 4,162 $ 2,413
Accrued payroll.............................. 3,816 4,852
Sales return reserve......................... 2,150 2,100
Accrued other................................ 3,018 1,523
---------- ----------
Total accrued liabilities.................... $ 13,146 $ 10,888
========== ==========

7. RESEARCH AND DEVELOPMENT

Internal research and development costs are expensed as incurred and
included in cost of sales. Third party research and development costs are
expensed when the contracted work has been performed.

Research and development expense was $773 and $407 for the quarters ended
March 31, 2002 and 2001, respectively.

8. STOCK OPTIONS

There were 120,329 options exercised at prices ranging from $1.37 to $16.06
per share during the three months ended March 31, 2002. There were 3,000 new
options granted at an exercise price of $32.80 during that period. There were
7,875 options cancelled at prices ranging from $6.07 to $23.02 per share during
the three months ended March 31, 2002.

9. OPERATING SEGMENTS

The following table presents information about the Company's two operating
segments:
DIRECT COMMERCIAL/
PRODUCTS RETAIL PRODUCTS TOTAL
------------ ------------ ------------
PERIOD ENDED MARCH 31, 2002
Net sales $ 91,082 $ 44,832 $ 135,914
============ ============ ============
Segment net income 22,071 1,887 23,958
============ ============ ============

PERIOD ENDED MARCH 31, 2001
Net sales $ 67,561 $ 7,294 $ 74,855
============ ============ ============
Segment net income 14,506 233 14,739
============ ============ ============

10. EARNINGS PER SHARE

Basic and diluted earnings per share are reconciled as follows:

MARCH 31, 2002 MARCH 31, 2001
-------------------------------------- --------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------

Basic EPS:
Net income $ 23,958 35,008,298 $ 0.68 $ 14,739 35,492,422 $ 0.42

Effect of dilutive securities:
Stock options -- 965,102 (0.01) -- 739,724 (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Diluted EPS:
Net income $ 23,958 35,973,400 $ 0.67 $ 14,739 36,232,146 $ 0.41
========== ========== ========== ========== ========== ==========

11. CONTINGENCIES

The Company is subject to litigation, claims, and assessments in the
ordinary course of business, many of which are covered in whole or in part by
insurance. Management believes that any liability resulting from such matters
will not have any material adverse effect on the Company's financial position,
results of operations, or cash flows.

12. SUBSEQUENT EVENTS

On May 2, 2002, the Company announced plans to change its corporate name to
The Nautilus Group, Inc. Concurrent with the name change, trading of the
Company's shares will move from the Nasdaq National Market to the New York Stock
Exchange ("NYSE") under the new ticker symbol "NLS." Both the name change and
the move to the NYSE will take effect on May 21, 2002.

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

Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "could," "may," "will," "should,"
"plan," "believes," "anticipates," "estimates," "predicts," "expects,"
"projections," "potential," or "continue," and words of similar import,
constitute "forward-looking statements." Investors are cautioned that all
forward-looking statements involve risks and uncertainties, and various factors
could cause actual results to differ materially from those in the
forward-looking statements. From time to time and in this Form 10-Q, we may make
forward-looking statements relating to our financial performance, including the
following:

o Anticipated revenues, expenses, and gross margins;
o Seasonal patterns;
o Expense as a percentage of revenue;
o Anticipated earnings;
o New product introductions; and
o Future capital expenditures.

Numerous factors could affect our actual results, including the following:

o Our reliance on a limited product line;
o Expiration of important patents;
o Our ability to effectively develop, market, and sell future products;
o Growth management challenges, including the growth resulting from the
acquisition of the assets of the Fitness Division of Schwinn/GT Corp. in
September 2001, and the acquisition of the assets of StairMaster in
February 2002;
o Our ability to integrate the StairMaster business, and any other acquired
businesses into our operations;
o A decline in consumer spending due to unfavorable economic conditions;
o The availability of media time and fluctuating advertising rates;
o Our reliance on the consumer finance market;
o Our ability to adequately protect our intellectual property;
o Our reliance on third-party manufacturers;

o Government regulatory action;
o Changes in global political, regulatory, or economic conditions; and
o Economic impacts from currency fluctuations in the Company's international
operations.

We describe certain of these and other key risk factors elsewhere in more
detail in this Form 10-Q. Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. We undertake no obligation to
update publicly any forward-looking statements to reflect new information,
events, or circumstances after the date of this Form 10-Q or to reflect the
occurrence of unanticipated events.

RESULTS OF OPERATIONS

We believe that period-to-period comparisons of our operating results are
not necessarily indicative of future performance. You should consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by companies experiencing rapid growth and, in particular, rapidly
growing companies that operate in evolving markets. We may not be able to
successfully address these risks and difficulties. Although we have experienced
net sales growth in recent years, our net sales growth may not continue, and we
cannot assure you of any future growth or profitability.

STATEMENT OF OPERATIONS DATA - THREE MONTHS ENDED MARCH 31

The following table presents certain financial data regarding our first
quarter operations in 2002 and 2001, as a percentage of total revenues:

QUARTER ENDED MARCH 31,
---------------------------
2002 2001
---------- ----------
STATEMENT OF OPERATIONS DATA
Net sales ..................................... 100.0% 100.0%
Cost of sales ................................. 43.2 33.8
---------- ----------
Gross profit ........................... 56.8 66.2

Operating expenses
Selling and marketing ....................... 23.3 30.9
General and administrative .................. 4.6 4.3
Royalties ................................... 1.7 2.2
---------- ----------
Total operating expenses ............... 29.6 37.4

Operating income .............................. 27.2 28.8

Other income ........................... 0.3 2.0
---------- ----------

Income before income taxes .................... 27.5 30.8
Income tax expense ............................ 9.9 11.1
---------- ----------
Net income .................................... 17.6% 19.7%
========== ==========

COMPARISON OF THE QUARTERS ENDED MARCH 31, 2002 AND MARCH 31, 2001

NET SALES

Net sales grew by 81.6% to $135.9 million in the first quarter of 2002 from
$74.9 million in the first quarter of 2001. Sales were driven by the growth in
our direct-marketing business and the continued expansion into the commercial
and retail market segment. Excluding our acquisitions of Schwinn Fitness and
StairMaster, sales grew 35.0% on a consolidated basis compared to the same
period a year ago. During the first quarter of 2002, we capitalized on favorable
advertising costs and availability to increase the consumer awareness of our
Bowflex and Nautilus Sleep System product lines. Meanwhile, we have continued to
expand our market share in the commercial and retail products segment, where we
have grown the Nautilus brand, successfully integrated the acquisition of the
Schwinn Fitness business, and acquired StairMaster.

Sales in our direct segment, which were stronger than anticipated in the
quarter ended March 31, 2002, are comprised primarily of sales of our Bowflex
product line; however, as the Nautilus Sleep Systems product line continues to
grow, it has become an increasingly important component of our direct business.
Sales within our direct products segment were $91.1 million in the first quarter
of 2002, an increase of 34.8% over the first quarter of 2001. Our direct segment
accounted for 67.0% of our aggregate net sales in the quarter, down from 90.3%
in the first quarter of 2001, as we continued our strategy of diversification
into the commercial and retail products segment.

Demand for our new high-end "Ultimate" model exceeded our expectations in
the quarter ended March 31, 2002. We believe there is still a "nesting effect"
from the slower economy and events of September 11, where more people are
staying at home and buying products for their home. Due to this heightened
demand, we expect second quarter sales in 2002 to be higher than our record
first quarter sales. In addition, we raised our expectation for annual sales
growth in 2002 from 40% to approximately 60%. Approximately 61.8% of the
increase in sales expectation is due to the StairMaster acquisition, while the
remainder is due to greater than anticipated internal growth. Historically, the
second quarter has been our slowest quarter of the year for our direct segment
sales. Our direct segment business is largely dependent upon national cable
television advertising. We have found that second quarter influences on
television viewership, such as the broadcast of national network season finales
and seasonal weather factors, cause our spot television commercials to be
marginally less effective. Consumers tend to watch less television and spend
more time outdoors when the weather improves, and consequently, tend to purchase
less indoor fitness equipment and related products during the second quarter. We
believe this year's anticipated strong second quarter, which is contrary to our
historical trend of second quarter weakness, will not be experienced in the
second quarter in future years.

Sales within our commercial and retail products segment were $44.8 million
in the first quarter of 2002, an increase of 513.7% over first quarter of 2001.
Excluding our acquisitions of Schwinn Fitness and StairMaster, sales grew 36.7%
in the commercial and retail segment. Our commercial and retail segment now
accounts for 33.0% of our net sales, up from 9.7% in the first quarter of 2001
as we continued to execute our strategy of expanding our presence, product
lines, and brands across all our channels, especially within the commercial and
retail products segment. In 2002, with a full year of results from Schwinn
Fitness and with the acquisition of StairMaster, we expect our commercial and
retail segment to continue to grow as a percentage of our net sales.

We believe that sales within our commercial and retail products segment
will be considerably lower in the second quarter of the year compared to the
other quarters. Our strongest commercial/retail products quarter should be the
fourth quarter, followed by the first and third quarters. We believe the
principle reason for this trend is the commercial and retail fitness industry's
preparation for the impact of New Year's fitness resolutions and seasonal
weather patterns related to colder winter months.

GROSS PROFIT

Gross profits continued to be strong, growing 55.7% to $77.2 million in the
first quarter of 2002 from $49.6 million in the same period a year ago. However,
due to our product diversification strategy, which has increased sales of
inherently lower margin products in the commercial and retail segment, our
overall gross profit margin decreased 9.4% to 56.8% in the first quarter of
2002, from 66.2% in the first quarter of 2001. We expect this trend to continue
as we further expand in the commercial and retail segments of the market. For
the remainder of 2002, as commercial and retail sales increase, we expect our
combined gross margin to be in the range of 54% to 56%.

The gross profit margin within our direct products segment was 72.2% in
first quarter of 2002 and 69.5% in first quarter of 2001. Gross margins on our
Bowflex product line continue to be very strong as we gain cost concessions from
vendors and shipping cost savings. The decrease in gross margins within our
commercial and retail products segment to 25.5% in the first quarter of 2002,
compared with 35.5% in first quarter of 2001, was largely due to the Schwinn
Fitness and StairMaster acquisitions and higher research and development
expenditures. Research and development costs increased 89.9% to $0.8 million in
the first quarter of 2002, from $0.4 million in the first quarter of 2001.

OPERATING EXPENSES

SELLING AND MARKETING

Selling and marketing expenses grew to $31.6 million in the first quarter
of 2002 from $23.2 million in the same period a year ago, an increase of 36.5%.
This increase in selling and marketing expenses resulted primarily from the
expansion of our direct marketing campaign for Bowflex products and Nautilus
Sleep Systems and variable costs associated with our sales growth.

As a percentage of net sales, overall selling and marketing expenses
decreased to 23.3% in the first quarter of 2002 from 30.9% in the first quarter
of 2001. The decrease was a result of our planned product diversification
efforts leading to a higher proportion of commercial and retail product sales.
Selling and marketing expenses within our direct products segment were 28.7% of
net sales in the first quarter of 2002, compared to 31.8% in the first quarter
of 2001. We continue to benefit from a favorable advertising environment in our
direct products segment that may not continue in future periods, resulting in
upward pressure on selling and marketing expenses. Overall, we expect that our
selling and marketing expenses will increase in real dollar terms, but not as a
percentage of net sales, as we continue to expand our Bowflex and Nautilus Sleep
systems direct-marketing campaign and expand our product diversification efforts
in the commercial and retail segment.

GENERAL AND ADMINISTRATIVE

General and administrative expenses grew to $6.3 million in the first
quarter of 2002 from $3.2 million in the same period a year ago, an increase of
$3.1 million, or 95.6%. Our direct product segment accounted for $0.7 million of
the increase, due primarily to increased staffing and infrastructure expenses
necessary to support our continuing growth. Our commercial and retail operations
accounted for the remaining increase of $2.4 million due primarily to our
Schwinn Fitness and StairMaster acquisitions. As a percentage of net sales,
general and administrative expenses increased to 4.6% in the first quarter of
2002 from 4.3% in the same period a year ago. We believe that our general and
administrative expenses will increase in future periods in real dollar terms,
and increase marginally as a percentage of sales.

ROYALTIES

Royalty expense grew to $2.3 million in the first quarter of 2002 from $1.7
million in the same period a year ago, an increase of 40.1%. Both our direct and
commercial/retail segments have several royalty agreements. The increase in our
royalty expenses is primarily attributable to the increased sales of our Bowflex
products in the quarter, along with sales of other products under royalty
agreement that have been added as part of our product diversification strategy.
Our royalty expenses will increase if sales of our Bowflex products continue to
increase and as we sell acquired products which have royalty agreements
associated with them.

OTHER INCOME

In the first quarter of 2002, other income was $0.5 million compared to
$1.5 million for the same period a year ago. The decrease resulted primarily
from lower interest earned on invested cash and cash equivalents due to
considerable interest rate cuts in 2002 coupled with the effect of lower
invested cash amounts.

INCOME TAX EXPENSE

Income tax expense increased by $5.2 million for the first quarter of 2002
because of the growth in our income before taxes. We expect our income tax
expense to increase in line with increases in our income before taxes.

NET INCOME

For the reasons discussed above, net income grew to $24.0 million in the
first quarter of 2002 from $14.7 million in the same period a year ago, an
increase of 62.5%. We have raised our expectation for earnings growth in 2002
from 30% to approximately 40%. This revision in earnings guidance is
predominately attributed to greater than anticipated internal sales growth. Very
little of this increased expectation is due to the StairMaster acquisition,
which is only expected to provide a slight increase to net income during 2002.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our growth and acquisitions primarily from
cash generated by our operating activities. During the first quarter of 2002,
our operating activities generated approximately $32.7 million in net cash,
which contributed to an aggregate $41.9 million balance in cash and cash
equivalents and $9.2 million of short-term investments, compared with $23.8
million net cash generated by our operating activities in the first quarter of
2001.

Net cash used in our investing activities increased substantially in the
first quarter of 2002 to $27.3 million from $1.1 million in the first quarter of
2001. This was primarily due to the acquisition of StairMaster in February of
2002.

Net cash provided by financing activities was $0.9 million in the first
quarter of 2002, attributed to stock option exercises. We used $8.0 million of
net cash during the first quarter of 2001 primarily to repurchase our stock.

Our working capital needs have increased marginally as we continue to
implement our growth strategy. Working capital in the first quarters of 2002 and
2001 was $90.5 million and $84.4 million, respectively. We anticipate that our
working capital requirements will increase going forward as a result of us
growing our commercial and retail segment through our acquisition strategy and
internal growth. We also expect to materially increase our cash expenditures on
spot commercials and infomercials as we expand the direct marketing campaigns
for our Bowflex products and Nautilus Sleep Systems.

We maintain a $10 million line of credit with a bank. The line of credit is
secured by certain assets and contains two financial covenants. As of the date
of this filing, we are in compliance with the covenants applicable to the line
of credit, and there is no outstanding balance under the line.

As of March 31, 2002, the Company had no contractual capital obligations or
commercial commitments other than operating leases.

We believe our existing cash balances, combined with our line of credit,
will be sufficient to meet our capital requirements for at least the next 12
months.

INFLATION AND PRICE INCREASES

Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material adverse effect on our financial position,
results of operations, or cash flows. However, increases in inflation over
historical levels or uncertainty in the general economy could decrease
discretionary consumer spending for products like ours. Very little of our
revenue growth is attributable to price increases.

RECENT ACCOUNTING PRONOUNCEMENT

Effective July 1, 2001, the company adopted certain provisions of Statement
of Financial Accounting Standards ("SFAS") No. 141, "BUSINESS COMBINATIONS," and
effective January 1, 2002, the Company adopted the full provisions of SFAS No.
141 and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS." SFAS No. 141
requires business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting, and broadens the criteria for recording
intangible assets apart from goodwill. SFAS No. 142 requires that purchased
goodwill and certain indefinite-lived intangibles no longer be amortized but
instead be tested for impairment at least annually. In connection with the
adoption of SFAS No. 142 on January 1, 2002, the Company evaluated its
identified intangible assets and determined that the Nautilus trademark has an
indefinite useful life.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------

We have primarily invested cash with banks and in liquid debt instruments
purchased with maturity dates of less than one year. Our bank deposits may
exceed federally insured limits, and there is risk of loss of the entire
principal with any debt instrument. To reduce risk of loss, we limit our
exposure to any one debt issuer and require certain minimum ratings for debt
instruments that we purchase.

FOREIGN EXCHANGE RISK

The Company is exposed to foreign exchange risk to the extent of
fluctuations in the Euro, the Swiss Franc and the British Pound. Based on the
relative size of the Company's foreign operations, management believes that its
exposure to foreign exchange risk is not material, and that any possible
near-term changes in the related exchange rates would not have a material impact
on the Company's financial position, results of operations, or cash flows.

PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------

(a) Exhibits

None

(b) Reports on Form 8-K

The Company filed reports on Form 8-K and Form 8-K/A dated
February 21, 2002, and April 24, 2002, respectively, reporting the
acquisition of the assets of StairMaster Sports/Medical, Inc.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

DIRECT FOCUS, INC.
(Registrant)

May 13, 2002 By: /s/ Brian R. Cook
- ------------ --------------------------------------
Date Brian R. Cook, Chief Executive Officer
(Principal Executive Officer)

May 13, 2002 By: /s/ Rod W. Rice
- ------------ --------------------------------------
Date Rod W. Rice, Chief Financial Officer,
Treasurer and Secretary (Principal
Financial and Accounting Officer)