As filed with the Securities and Exchange Commission on April 2, 2007
--------------------------------------------------------------------------------

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

                                    FORM 20-F

(Mark One)


 [_]     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                                       OR


[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2006


                                       OR


[_]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                                       OR



[_]  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

            Date of event requiring this shell company report__________


          For the transition period from _________ to ________________

                         Commission File Number 1-15134

                                    HEAD N.V.
             (Exact Name of Registrant as Specified in its Charter)

                                 The Netherlands
                 (Jurisdiction of Incorporation or Organization)
                                    Rokin 55
                                1012 KK Amsterdam
                                 The Netherlands
                                 +31-20-625-1291

                    (Address of Principal Executive Offices)

                                 ---------------

              Securities registered or to be registered pursuant to
                           Section 12(b) of the Act:

    Title of Each Class                Name of Each Exchange on Which Registered
 Ordinary Shares of EUR 0.20 each                 New York Stock Exchange


Securities registered or to be registered pursuant to Section 12(g) of the
Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None


         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.

            36,219,902 Ordinary Shares Nominal Value EUR 0.20 each

        Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

                                  [_] Yes [X] No

         If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.

                                  [_] Yes [X] No

         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.

                                  [X] Yes [_]  No

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):


  [_] Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer

         Indicate by check mark which financial statement item the registrant
has elected to follow.

                              [X] Item 17 [_] Item 18

         If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                  [_] Yes [X] No


-------------------------------------------------------------------------------


<PAGE>

                                TABLE OF CONTENTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS...................................1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................1
  ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...............2
  ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE.............................2
  ITEM 3: KEY INFORMATION.....................................................2
    3.A. Selected Financial Data..............................................2
    3.B. Capitalization and Indebtedness......................................4
    3.C. Reasons for the Offer and Use of Proceeds............................4
    3.D. Risk Factors.........................................................4
  ITEM 4: INFORMATION ON THE COMPANY..........................................7
    4.A. History and Development of the Company...............................7
    4.B. Business Overview....................................................7
    4.C. Organizational Structure............................................25
    4.D. Property, Plant and Equipment.......................................25
  ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................26
    5.A. Operating Results...................................................26
    5.B. Liquidity and Capital Resources.....................................36
    5.C. Research and Development, Patents and Licenses......................39
    5.D. Trend Information...................................................39
    5.E. Off-Balance Sheet Arrangements......................................40
    5.F. Disclosures of Contractual Obligations..............................40
  ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................41
    6.A. Directors and Senior Management.....................................41
    6.B. Compensation........................................................44
    6.C. Board Practices.....................................................45
    6.D. Employees...........................................................46
    6.E. Share Ownership.....................................................46
  ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................48
    7.A. Major Shareholders..................................................48
    7.B. Related Party Transactions..........................................48
    7.C. Interest of Experts and Counsel.....................................48
  ITEM 8: FINANCIAL INFORMATION..............................................48
    8.A. Consolidated Statements and Other Financial Information.............48
    8.B. Significant Changes.................................................49
  ITEM 9: THE OFFER AND LISTING..............................................49
    9.A. Offer and Listing Details...........................................49
    9.B. Plan of Distribution................................................50
    9.C. Markets.............................................................50
    9.D. Selling Shareholders................................................51
    9.E. Dilution............................................................51
    9.F. Expenses of the Issue...............................................51
  ITEM 10:  ADDITIONAL INFORMATION...........................................51
    10.A.Share Capital.......................................................51
    10.B.Articles of Association.............................................51
    10.C.Material Contracts..................................................55
    10.D.Exchange Controls...................................................55
    10.E.Taxation............................................................55
    10.F.Dividends and Paying Agents.........................................61
    10.G.Statement by Experts................................................61
    10.H.Documents on Display................................................61
    10.I.Subsidiary Information..............................................61
  ITEM 11:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......61
  ITEM 12:  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........63
  ITEM 13:  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..................63
  ITEM 14:  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
            AND USE OF  PROCEEDS63.......................................... 63
  ITEM 15:  CONTROLS AND PROCEDURES..........................................63
  ITEM 16:  [RESERVED].......................................................63
    16.A.Audit Committee Financial Expert....................................63
    16.B.Code of Ethics......................................................63
    16.C.Principal Accountant Fees and Services..............................63
    16.D.Exemption from the Listing Standards for Audit Committee............64
    16.E.Purchase of Equity Securities by the Issuer and Affiliated
         Purchasers..........................................................64
  ITEM 17:  FINANCIAL STATEMENTS.............................................64
  ITEM 18:  FINANCIAL STATEMENTS.............................................64
  ITEM 19:  EXHIBITS.........................................................64


<PAGE>


                   INTERNATIONAL FINANCIAL REPORTING STANDARDS

     Unless otherwise indicated, the financial information contained in this
annual report has been prepared in accordance with the requirements of the
International Financial Reporting Standards, issued by the International
Accounting Standards Board ("IASB"), and as adopted by the European Union ("IFRS
as adopted") as of the date of the financial statements included in this annual
report. In July 2002, the E.U. Parliament and Council adopted a regulation on
the application of IFRS, according to which, with certain exceptions, publicly
traded E.U. companies are required to prepare their consolidated financial
statements in accordance with IFRS for fiscal years commencing on or after
January 1, 2005. IFRS differs in certain significant respects from U.S.
generally accepted accounting principles ("US GAAP"). For a discussion of the
principal differences between IFRS as adopted and US GAAP, as they relate to us
and our consolidated subsidiaries, and a reconciliation of net profit (loss) and
total shareholders' equity to US GAAP, see Note 31 to our consolidated financial
statements included in this annual report.

     Prior to our application of IFRS as adopted, our statutory consolidated
financial statements had been prepared in accordance with generally accepted
accounting principles of the Netherlands ("Dutch GAAP"). For a discussion of the
principal differences between IFRS as adopted and Dutch GAAP, as they related to
us and our consolidated subsidiaries, see Note 30 to our consolidated financial
statements included in this annual report.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements that are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. The words "anticipates", "believes",
"estimates", "expects", "plans", "intends" and similar expressions are intended
to identify these forward-looking statements, but are not the exclusive means of
identifying them. These forward-looking statements are subject to various risks,
uncertainties and contingencies which could cause our actual results,
performance or achievements to differ materially from those expressed in or
implied by these statements. These risks, uncertainties and contingencies
include, but are not limited to, the factors set out in "Item 3.D Risk Factors"
("cautionary statements").

     Actual results and events could differ materially from those contemplated
by these forward-looking statements as a result of factors such as those
described by the cautionary statements. In light of these risks and
uncertainties, there can be no assurance that the results and events
contemplated by the forward-looking statements contained in this report will in
fact occur. You are cautioned not to place undue reliance on these
forward-looking statements. We do not undertake any obligation to update or
revise any forward-looking statements. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements.


                                    * * * * *


     In this annual report, references to the "Company", "we", "us" or "our" are
to Head N.V. and its subsidiaries, references to "Head Holding" are to our
intermediate holding company subsidiary, Head Holding Unternehmensbeteiligung
GmbH and its predecessor company, and references to "HTM" are to our primary
operating subsidiary, HTM Sport-und Freizeitgerate AG.

     "Head", "Head Titanium Tennis", "Head Intelligence", "Head Intellifiber",
"Head Chipsystem", "Thang", "Supershape", "Flexpoint", "Metallix", "Tyrolia",
"Free Flex", "Rail Flex", "Powerframe", "Protector", "Penn", "Mares", "Dacor",
"San Marco", "Cyber", "Munari", "Contour Tech", "Nemo" and "Sporasub" are our
trademarks. All other trademarks, service marks or brand names appearing in this
annual report are the property of their respective holders.

     We have rounded percentages and some amounts contained herein for ease of
presentation, and some amounts may not total due to this rounding.


                                       1
<PAGE>



ITEM 1:  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not applicable.

ITEM 2:  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

ITEM 3:  KEY INFORMATION

3.A.     Selected Financial Data

     The following table presents selected financial and operating information.
This information should be read together with "Item 5. Operating and Financial
Review and Prospects" and our consolidated financial statements and the notes
thereto included in this annual report. Unless otherwise indicated, all amounts
are provided in accordance with IFRS as adopted by the European Union.

     The selected consolidated financial information as of and for each of the
three years ended December 31, 2006, 2005 and 2004, has been extracted or
derived from our consolidated financial statements and the notes thereto
included in this annual report, which have been audited by PwC
Wirtschaftsprufung AG. For the years prior to 2004, we prepared our consolidated
financial statements in accordance with Dutch GAAP, which is not comparable to
IFRS as adopted. For a discussion of the principal differences between IFRS as
adopted and Dutch GAAP, as they related to us and our consolidated subsidiaries,
see Note 30 to our consolidated financial statements included in this annual
report. Selected consolidated financial information under Dutch GAAP has not
been included below. Selected consolidated financial information as of and for
each of the years ended December 31, 2006, 2005, 2004, 2003 and 2002, prepared
according to US GAAP, has been provided below. IFRS differs in certain
significant respects from US GAAP. For a discussion of the principal differences
between IFRS as adopted and US GAAP, as they relate to us and our consolidated
subsidiaries, and a reconciliation of net profit (loss) and total shareholders'
equity to US GAAP, see Note 31 to our consolidated financial statements included
in this annual report.

     Our consolidated financial statements under IFRS as adopted as of and for
the years ended December 31, 2005 and 2004 have been restated to properly
account for certain share-based compensation awards. See Note 2 to our
consolidated financial statements included in this annual report and "Item 5.A.
-- Operating Results - Restatement of Previously-Issued Financial Statements".

     The consolidated financial information under US GAAP as of and for the
years ended December 31, 2005, 2004, 2003, and 2002 has been restated to
properly account for certain share-based compensation awards. See Note 31 to the
consolidated financial statements included in this annual report.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                               ------------------------------------------------------------------------
                                                  2006            2005           2004            2003           2002
                                               ------------------------------------------------------------------------
                                                                  (in thousands, except per share data)
                                               ------------------------------------------------------------------------
                                                                Restated       Restated        Restated        Restated
                                                             -----------     ----------        --------        --------
<S>                                              <C>             <C>            <C>              <C>            <C>
Income Statement Data (IFRS as adopted):

Total net revenues                           EUR 366,762     EUR 359,566   EUR  374,996            n.a.           n.a.
Operating profit                             EUR  19,978     EUR  15,652   EUR   11,181            n.a.           n.a.
Gain on sale of property (1)                 EUR      --     EUR   5,876   EUR    4,665            n.a.           n.a.
Restructurng costs (2)                       EUR      --     EUR (5,073)   EUR  (1,895)            n.a.           n.a.
Income tax expense (3)                       EUR (4,499)           (348)       (22,858)            n.a.           n.a.
Profit (loss) for the year                   EUR   4,415     EUR   6,728   EUR (31,066)            n.a.           n.a.
Earnings per share - basic (4)
      Profit (loss) for the year             EUR    0.12     EUR    0.19   EUR   (0.86)            n.a.           n.a.
Earnings per share -diluted (4)
      Profit (loss) for the year             EUR    0.12     EUR    0.18   EUR   (0.86)            n.a.           n.a.
Weighted average shares outstanding (4)
      basic                                       36,220          36,220         36,189            n.a.           n.a.
      diluted                                     36,968          36,953         36,189            n.a.           n.a.
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                               ------------------------------------------------------------------------
                                                  2006            2005           2004            2003           2002
                                               ------------------------------------------------------------------------
                                                                  (in thousands, except per share data)
                                               ------------------------------------------------------------------------
                                                                Restated       Restated        Restated        Restated
                                                             -----------     ----------        --------        --------
<S>                                              <C>             <C>            <C>              <C>            <C>
Balance Sheet Data (IFRS as adopted):
Cash (5)................................     EUR  43,628     EUR  49,460   EUR   47,728            n.a.           n.a.
Total assets............................     EUR 422,560     EUR 432,340   EUR  430,355            n.a.           n.a.
Total debt..............................     EUR 155,846     EUR 161,421   EUR  178,187            n.a.           n.a.
Share capital...........................     EUR   7,964     EUR   7,964   EUR    7,964            n.a.           n.a.
Number of shares issued.................          39,821          39,821         39,821            n.a.           n.a.
Dividend paid per share.................              --              --             --              --    EUR    0.14
Capital repayment per share (6).........     EUR    0.25              --             --              --             --
Total equity............................     EUR 155,888     EUR 166,459   EUR  153,346            n.a.           n.a.

Other Financial Data (IFRS as adopted):
Cash provided by operating activities...     EUR  23,122     EUR  30,159   EUR    1,903            n.a.           n.a.
Cash used in investing activities.......     EUR(16,172)     EUR (9,985)   EUR (20,323)            n.a.           n.a.
Cash provided by (used in) financing
activities..............................     EUR(11,158)     EUR(16,516)   EUR   28,534            n.a.           n.a.

US GAAP Data:
Net Income (loss).......................     EUR     576     EUR   7,293   EUR (29,310)    EUR (11,154)    EUR     622
Earnings per share - basic (7)
      Net Income (loss).................     EUR    0.02     EUR    0.20   EUR   (0.81)          (0.31)           0.02
Earnings per share - diluted (7)
      Net Income (loss).................     EUR    0.02     EUR    0.20   EUR   (0.81)          (0.31)           0.02
Weighted average shares outstanding (7)
      basic.............................          36,220          36,220         36,189          36,285         37,356
      diluted...........................          36,963          36,959         36,189          36,285         38,114
Shareholders' equity....................     EUR 155,640     EUR 171,781   EUR  157,856    EUR  190,042    EUR 217,784
Total assets............................     EUR 424,825     EUR 433,954   EUR  431,335    EUR  423,947    EUR 451,848

</TABLE>

--------------------------------------------------------------------------------

n.a.  - not applicable
(1)   In 2005, the gain on the sale of property resulted from the sale of our
      property in Estonia. In 2004, we recorded a gain from the sale of our
      premises in Ireland.
(2)   In 2005, restructuring costs consisted of EUR 3.2 million as a result of
      the outsourcing of the tennis racquet production from Kennelbach and
      Budweis to China, of which EUR 0.8 million related to severance payments
      for employee terminations, EUR 1.4 million related to impairment of
      fixed assets and EUR 0.9 million related to production inefficiency. In
      addition, EUR 0.6 million of restructuring costs related to employee
      severance costs resulting from the restructuring of the production of ski
      bindings and EUR 1.3 million related to personnel costs in connection
      with the restructuring program in Italy. In 2004, restructuring costs
      included costs for facility closures in Ireland of EUR 1.3 million and
      Estonia of EUR 0.4 million.
(3)   Income tax expense in 2006 increased mainly due to an adjustment of tax
      loss carry forwards in Austria of EUR 4.3 million. In 2005, we recorded
      a non-taxable gain of EUR 5.9 million on a sale of property. The
      increase in income tax expense in 2004 was mainly due to a reduction in
      the Austrian income tax rate which led to a decrease in deferred tax
      assets resulting from tax losses carried forward of EUR 20.2 million.
(4)   Earnings per share and weighted average shares outstanding on a diluted
      basis give effect to all outstanding options calculated under the treasury
      stock method. For the year ended December 31, 2004, the number of options
      that were outstanding but not included in the computation of diluted net
      loss per share because their effect would have been anti-dilutive was
      747,850.
(5)   Cash includes cash and cash equivalents, and in 2006, 2005 and 2004
      included restricted cash of EUR 3.2 million, EUR 4.0 million and
      EUR 4.7 million, respectively.
(6)   See "Item 5.B. - Liquidity and Capital Resources".
(7)   Earnings per share and weighted average shares outstanding on a diluted
      basis give effect to all outstanding options calculated under the treasury
      stock method. For the year ended December 31, 2004 and 2003, the number of
      options that were outstanding but not included in the computation of
      diluted net loss per share because their effect would have been
      anti-dilutive was 732,870 and 699,434, respectively.

Exchange Rates

     In this report, references to "euro" or "EUR" mean the common currency
for 13 member states of the European Monetary Union, and references to "U.S.
dollars", "dollars" or "$" mean United States dollars. In some cases, this
report contains translations of U.S. dollar amounts into euro solely for the
convenience of the reader. You should not construe these translations as
representations that the U.S. dollar amounts actually represent these euro
amounts or could be converted into euro at the rate indicated.

     Unless otherwise indicated, euro amounts have been translated from U.S.
dollars and other foreign currencies to euro based on the European Central Bank
rates on December 29, 2006. For a discussion of the impact of the exchange rate
fluctuations on our financial condition and results of operations, see "Item 3.D
Risk Factors", "Item 5 -- Operating and Financial Review and Prospects" and
"Item 11 -- Quantitative and Qualitative Disclosures about Market Risk".

     The table below shows information concerning the European Central Bank
rates for euro for the years ended December 31, 2006, 2005, 2004, 2003 and 2002
expressed in U.S. dollars per 1.00 euro.


<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                 -----------------------------------------------------------------------------
                                    2006            2005            2004            2003            2002
                                 -----------     ----------      ----------      ----------       ------------
<S>                                  <C>             <C>             <C>             <C>              <C>
High......................           1.3331          1.3507          1.3633          1.2630           1.0487
Low.......................           1.1826          1.1667          1.1802          1.0377           0.8578
Average (1)...............           1.2556          1.2441          1.2439          1.1312           0.9456
End of period.............           1.3170          1.1797          1.3621          1.2630           1.0487
</TABLE>

(1)   The average of the European Central Bank rates for euro on each day during
      the applicable period.

                                       3
<PAGE>


      The table below sets forth the period end, high and low exchange rates,
expressed in U.S. dollars per 1.00 euro, for the months indicated.

                                 Period end         High            Low
                                 -----------     ----------      ----------

 October 2006..............          1.2696          1.2737          1.2515
 November 2006.............          1.3200          1.3200          1.2702
 December 2006.............          1.3170          1.3331          1.3095
 January 2007..............          1.2954          1.3270          1.2893
 February 2007.............          1.3211          1.3230          1.2925
 March 2007................          1.3318          1.3352          1.3083

3.B.   Capitalization and Indebtedness

       Not applicable.

3.C.   Reasons for the Offer and Use of Proceeds

       Not applicable.

3.D.   Risk Factors

The sporting goods industry is highly competitive and our success depends upon
our ability to respond quickly to changes in consumer preferences.

     The sporting goods industry is highly competitive and includes many
regional, national and international companies, some of which have achieved
substantial market share. We compete primarily on the basis of product features,
brand recognition, quality and price, and the failure to remain competitive
could adversely affect our results of operations and financial condition. Some
of our competitors offer types of sports products that we do not sell, and some
of our competitors are larger and have substantially greater financial and other
resources than us.

     Our success also depends partly on our ability to anticipate and respond
quickly to changing merchandise trends, consumer taste and consumer preferences.
Any failure to so respond could adversely affect consumer acceptance of our
brand names and product lines and could harm our business.

Changes in the tastes of the sporting public affect the demand for our products,
and in recent years, we have observed a declining interest in skiing and tennis.

     In recent years we have observed declining demand overall in the global ski
and tennis markets. An estimated 6.5 million pairs of skis were sold per year
worldwide in the late 1980's, whereas approximately 4.1 million pairs were sold
in 2006. New trends like the Park & Pipe skis could stabilize demand, and
snowboard sales have developed from approximately 0.8 million boards sold in
1995 to a peak of approximately 1.6 million in 2000, and approximately 1.2
million sold in 2006. The general decline in demand in the tennis market has
been observed since the period of peak demand in the early 1990's. We believe
this decline is due to competing leisure activities, including computer games
and the Internet. We and the sporting goods industry in general are dependent on
the tastes of the sporting public and its priorities in spending on leisure
activities. A further decrease in interest in skiing and tennis would cause a
decline in the size of the markets from which we derive most of our sales and
could thus cause a decline in our revenues and consolidated operating results.

Our failure to introduce innovative products to the market could adversely
affect our sales and margins.

     Our success is dependent in part on our introduction of innovative products
that represent an improvement over existing products that we or other
manufacturers offer. We believe that our future growth and success will depend
significantly on our continued ability to identify, develop, introduce and
market innovative sports products such as our Head Intelligence skis and
snowboard equipment, our Head Titanium, Head Intelligence, Head Liquidmetal and
Head Metallix series of tennis racquets, and our Mares and Dacor lines of diving
equipment. However, we cannot assure you that our product innovations will lead
to improved business or financial performance. Our operating results may
fluctuate as a result of the amount, timing and market acceptance of new
products that we or our competitors introduce. In addition, our failure to
introduce new, innovative products will adversely affect our margins because
margins on the sales of sports products tend to decline over time with the entry
of competitive products into existing markets.

Economic conditions, weather and other factors beyond our control have caused
and could continue to cause a decline in demand for our products.

     We and the sporting goods industry in general are dependent on the
economies in which we sell our products, and in particular on levels of consumer
spending. Economic conditions affect not only the ultimate consumer, but also
retailers, our primary direct


                                       4
<PAGE>

customers. As a result, our results may be adversely affected by downward trends
in the economies in which we sell our products. Adverse weather also can cause a
significant decline in our sales, as in 2007 when the poor snow conditions
globally during the 2006/2007 season are expected to substantially reduce
revenues for our Winter Sports products and negatively impact our consolidated
operating results. In addition, the occurrence of events that adversely affect
economies or international tourism, such as terrorism or regional instability,
continue to adversely affect leisure travel and related discretionary consumer
spending, which can have a particularly negative impact on our diving business.

Shifts in currency exchange rates may adversely affect our results of
operations.

    We operate in a multi-currency environment in which a portion of our
revenues and expenses are denominated in currencies other than the euro.
Approximately 40% of our revenues are denominated in U.S. dollars. As a result,
we are subject to currency translation risk and, to a lesser extent, currency
transaction risk. Currency translation risk arises because we measure and record
the financial condition and results of operations of each of our subsidiaries in
their functional currency and then translate these amounts into our reporting
currency, the euro. We incur transaction risk when one of our subsidiaries
enters into a transaction using a currency other than its functional currency,
although we reduce this risk by seeking, when possible, to match our revenues
and costs in each currency. Accordingly, shifts in currency exchange rates may
adversely affect our results of operations see "Item 5.A. - Operating Results -
Factors Affecting Revenues".

We are dependent in part on the performance of third-party suppliers, which may
cause delays in filling orders, affect the quality of some products or affect
the image of our trademarks. Some of our key products are produced in single
locations.

     As a result of our business rationalization and cost reduction efforts, we
outsource a substantial portion of our manufacturing to third parties in Europe,
such as in Austria (snowboards), Czech Republic (binding assembly), Estonia,
Italy and Bulgaria (diving products), and in Asia, such as in China (tennis
racquets, badminton products, accessories, snowboards, snowboard bindings,
snowboard boots, helmets, body protection) and Thailand (diving products).
Approximately 32% of our cost of sales in 2006 consisted of fees paid to
third-party manufacturers. Furthermore, a substantial number of our third party
licensees, who produce apparel and other products under the Head brand,
outsource their manufacturing to third parties.

     As a result of this outsourcing, we, as well as our third party licensees,
are dependent in part on the performance of third-party suppliers in order to
deliver quality products in a timely manner. We and our licensees are also
increasingly subject to risks relating to the local economic and political
conditions in the countries to which we outsource our manufacturing operations.
Although these factors have not had an adverse impact on our operations to date,
we cannot assure you that they will not affect quality control, orders and
shipments, or the image of our trademark in the case of licensees. In addition,
we and our third-party manufacturers produce certain of our key products, such
as ski boots and tennis racquets, at single production sites, exposing us to the
risk that major incidents at such sites, such as fire or earthquake damage,
could substantially reduce or halt production. In the event we are required to
shift the manufacturing of some of our products from one geographical location,
or from one contract manufacturer, to another, our ability to fulfill orders and
our cost of sales may be adversely affected, which would negatively impact our
results of operations.

We are dependent on patents and trademarks, and inadequate protection of our
patents and trademarks, or patent or trademark litigation, could adversely
affect our business.

     We rely on a combination of patents, trademarks, trade secrets and
confidentiality agreements to protect our proprietary technology, rights and
know-how. We hold several hundred patents and trademarks, several of which are
filed in multiple jurisdictions, including Europe, the United States and Asia.
Our major trademarks are registered in our key markets and numerous other
countries. We believe our patents and trademarks to be among our most valuable
marketing assets and generally seek protection for them in countries where
significant existing or potential markets for our products exist. We believe we
have taken adequate measures to protect our proprietary information, trade names
and trademarks in all our major markets, although not all our trade names and
trademarks are proprietary to us for all of our products in all our markets. For
example, we do not own the trademark "Liquidmetal" but rather license the name
pursuant to an agreement we have with Liquidmetal Technologies, Inc. This
agreement had an initial term of four years commencing January 1, 2003, and the
parties agreed to extend the agreement under similar terms to December 31, 2008.

     We cannot assure you that the measures we (or our licensors from whom we
license patents and trademarks) take to protect our intellectual property will
afford us adequate protection against patent and trademark infringements, that
pending patent and trademark applications will eventually be issued or that the
claims allowed for any of our existing or future patents and trademarks will
provide competitive advantages for our products or will not be successfully
challenged or circumvented by competitors. In addition, we cannot assure you
that we will be able to continue to license names for which we do not currently
hold trademarks, such as "Liquidmetal", under the same terms as our existing
license agreements or at all.

     In the United States, patent applications are maintained in secrecy for a
period after filing and the right to a patent is given to the first to invent,
not the first to file, a patent application. We cannot be sure that our products
or technologies do not infringe patents that may be granted in the future under
pending patent applications, or that our products do not infringe any patents or
proprietary rights of third parties. The validity and enforceability of third
party claims could prevent us from selling our products or could require us to
obtain licenses from the owners of these patents or to redesign our products to
avoid infringements. We cannot assure you that we could accomplish any of these
alternatives successfully, and our inability to do so if necessary could
adversely affect our business. In


                                       5
<PAGE>

addition, we cannot assure you that our employees and third parties with whom we
have entered into confidentiality agreements will respect these obligations, or
that our competitors will not use our trade secrets or proprietary information.
In addition, the laws of some countries do not protect our products and
intellectual property rights to the same extent as the laws of the United States
or Europe. Litigation may be necessary to defend against claims of infringement,
to enforce our patents or trademarks, or to protect trade secrets and could
result in substantial costs to us. We cannot assure you that we would prevail in
these types of litigation.

Environmental regulations by European Union, national and local regulatory
bodies could adversely affect our business.

     Our operations are subject to European Union, United States, Chinese and
other national and local laws governing, among other things, water pollution,
air pollution, noise pollution and hazardous substance discharges. We believe
that our business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental and health and
safety laws. However, the operation of manufacturing plants entails risks in
these areas. As a result, we cannot assure you that we will not incur material
costs or liabilities. In addition, we could incur significant costs in order to
comply with any future European Union, national or local environmental and
health and safety laws that may be adopted, or to respond to stricter
interpretations or stricter enforcement of existing laws in the future.

We have product liability exposure resulting from the use of our products.

     Some of our products are used in relatively high-risk recreational
settings, and from time to time we are named as a defendant in lawsuits
asserting product liability claims relating to our sporting goods products. To
date, none of these lawsuits has had a material adverse effect on us, and we do
not believe that any lawsuit now pending could reasonably be expected to have
such an effect. We maintain product liability and general liability insurance
coverage. No assurances can be given that such insurance will continue to be
available at an acceptable cost or that such coverage will be sufficient to
cover one or more large claims, or that the insurers will not successfully
disclaim coverage as to a pending or future claim.

Changes in Austrian income tax law have affected, and in the future may again
affect, our net income dramatically.

    As of December 31, 2006, we recognized EUR60.5 million of deferred tax
assets on Austrian tax losses carried forward. We believe it is more likely than
not that these deferred tax assets will be realized. Austria allows an unlimited
carryover of net operating losses. However, a change in Austrian tax law
lowering the applicable tax rate could occur, as it did in 2004, requiring us to
write down a portion of our deferred tax assets. Such a write-down has caused a
significant income tax expense and negatively affected our net income, and may
occur again in the future.

We may be affected by raw material and energy price increases.

     Our production is dependent on the timely availability of certain raw
materials whose prices are driven by the oil and steel price development on the
world market. Such raw materials are used in manufacturing, among other items,
plastic components for bindings, ski boots and diving fins, carbon-fibers for
racquets and metal parts for binding components and ski edges. Changing raw
material prices historically have had a material impact on our earnings and cash
flows, and are likely to continue to have a significant impact on earnings and
cash flows in future periods. See "Item 5.A. - Operating Results - Factors
Affecting Expenses".


We are indirectly controlled by one shareholder whose interests may conflict
with yours.

     Head Sports Holdings N.V, controlled 18,987,344 shares, or approximately
47.7% of our issued shares, as of March 31, 2007. Head Sports Holdings N.V., a
Netherlands Antilles corporation, is controlled by Johan Eliasch and his family
members. Head Sports Holdings N.V. has the power to approve the nominations of
our executive officers, approve the proposed actions of the Supervisory and
Management Boards, change our core business, cause us to engage in transactions
with affiliated companies, cause or restrict the sale of our assets, control our
dividend policy and make other fundamental corporate decisions.

     The business of Head N.V. is carried out primarily by a Management Board,
which appoints our executive officers, and is overseen by a Supervisory Board.
Under Head N.V.'s articles of association, a Dutch foundation called the
Stichting Head Option Plan has the power to nominate all members of the
Management Board, appoint one-third of the Supervisory Board and nominate the
remaining members of the Supervisory Board. The Board of the Stichting is
controlled by Head Sports Holdings N.V., the entity controlled by Johan Eliasch
and his family members, jointly with Johan Eliasch.

     The special power of the Stichting ceases when Johan Eliasch or his
affiliates or family members cease to control the Stichting or cease to
beneficially hold any of Head N.V.'s shares. In general, a two-thirds majority
of shareholders voting at a general meeting of shareholders may remove members
of the Management and Supervisory Boards, and the articles of association,
including the rights of the Stichting, also may be amended (at the proposal of
the Management Board and with approval of the Supervisory Board) by a two-thirds
majority of shareholders. Therefore, as a result of his control over the
Stichting, Johan Eliasch will retain the power to nominate and essentially
control the election of the Management and Supervisory Board members and other
executive officers so long as he holds any of Head N.V.'s shares until there is
an amendment to the articles of association to remove the rights of the
Stichting.

In the event we decide to de-list our shares from the New York Stock Exchange,
it will no longer be possible to trade our shares


                                       6
<PAGE>

on a national market in the United States, and our share price may decrease. If
possible, we may also deregister our shares from the U.S. Securities and
Exchange Commission.

    At our Annual General Meeting in May, 2005, our shareholders authorized the
Management Board to apply for a de-listing from the New York Stock Exchange and
to terminate the "Common Share Agreement" between The Bank of New York and us.
The de-listing, if carried out, would mean that it is no longer possible to
trade our shares on a national market in the United States. Our share price may
decrease as a result. In addition, a de-lisiting from the New York Stock
Exchange may be followed by the de-registration of our shares from the U.S.
Securities and Exchange Commission, if possible under applicable regulations.

ITEM 4:  INFORMATION ON THE COMPANY

4.A.     History and Development of the Company

     We are a leading global manufacturer and marketer of branded sporting goods
serving the skiing, racquet sports and diving markets. We have created or
acquired a portfolio of brands -- Head (principally alpine skis, ski boots,
bindings and snowboard products and tennis, racquetball and squash racquets,
tennis balls and badminton products), Penn (tennis balls and racquetball balls),
Tyrolia (ski bindings) and Mares and Dacor (diving equipment). Our key products
have attained leading market positions and have gained visibility through their
use by many of today's top athletes.

     With a broad product offering marketed mainly to middle to high price
points, we supply sporting equipment and accessories to all major distribution
channels in the skiing, racquet sports and diving markets, including pro shops,
specialty sporting goods stores and mass merchants. Our products are sold
through over 29,000 customers in over 85 countries and target sports enthusiasts
of varying levels of ability and interest ranging from the novice to the
professional athlete. Our strongest presence has traditionally been in Europe,
and we have been successful in building market share in the United States, the
next largest market for our products after Europe, as well as in Japan.

     Our Head ski division traces its origins to 1950 when it was founded by
Howard Head, the inventor of the metal ski. In 1970 and 1971, AMF Incorporated
acquired the predecessors of our Head ski, Tyrolia bindings and Mares diving
divisions, which collectively became known as AMF's Sport Product Group. In
1989, HTM Sports Holding B.V., a company formed by Freeman Spogli & Co. and a
group of Japanese investors, acquired the companies that comprised the Sports
Product Group in addition to the predecessor of our ski boot activities. In
1993, this company was sold to Austria Tabak, the then Austrian government-owned
tobacco monopoly, which held them through what today is known as HTM Sport-und
Freizeitgerate AG, or "HTM". Following its purchase by Austria Tabak, HTM began
experiencing financial difficulties. In January 1996, our intermediate holding
company subsidiary, Head Holding Unternehmensbeteiligung GmbH, or "Head
Holding", acquired HTM from Austria Tabak for ATS (Austrian Schillings) 10
million (EUR 0.7 million) pursuant to a Share Purchase Agreement dated
September 20, 1995.

     Over the last six decades, we have become one of the world's most widely
recognized developers and manufacturers of innovative, high-quality and
technologically advanced sporting equipment. Our focus continues to be on our
core products of skiing, tennis and diving equipment. In order to expand market
share and maximize profitability, we have increased our emphasis on marketing
and new product development, leveraging further our brands, global distribution
network and expertise in manufacturing. We have added complementary product
lines and premier brands through acquisitions, including the diving products
company Dacor in 1998 for $2.3 million (EUR  1.8 million) and the tennis ball
manufacturer Penn for $40.6 million (EUR 31.2 million) in 1999. In October
1999, we acquired the Blax and Generics snowboard businesses for $0.7 million
(EUR 0.5 million), and we now market their products under the Head brand.

     Principal capital investments and divestitures. For a discussion of our
capital investments and divestitures in connection with our efforts to reduce
costs and rationalize our manufacturing, see "Item 5A. Operating Results --
Business Rationalization" and "--Business Venture Agreement". For a discussion
of our capital expenditures to be incurred in connection with the replacement
and/or improvement of our manufacturing equipment, see "Item 5.B - Liquidity and
Capital Resources - Capital Expenditures; Research and Development".

     Corporate information. Head N.V. was incorporated as a holding company
under the laws of The Netherlands on August 24, 1998 as a public company with
limited liability (naamloze vennootschap) or a N.V. Our statutory seat is in
Rotterdam, The Netherlands. We are registered under number 24286737 at the
Commercial Register in Amsterdam, The Netherlands. Our executive offices are
located at Rokin 55, 1012 KK Amsterdam, The Netherlands. Our telephone number is
+31-20-625-1291. Our website address is www.head.com. Our agent in the United
States is CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY
10011.


4.B.     Business Overview

     Statements in this report regarding market size and trends, as well as our
own competitive position, consist of estimates based on (i) industry reports
concerning market share and market position, (ii) industry data for our various
lines of business compiled by industry analysts for our major markets, (iii) our
knowledge of our sales and markets, and (iv) claims by other sporting goods
products manufacturers. These sources of information are not always consistent
with each other, either in method or conclusions, and no source


                                       7
<PAGE>

is recognized as authoritative. As a result, the statements included in this
report regarding market size and trends and our competitive position are not
necessarily definitive or recognized by the entire market.


Industry Overview

Winter Sports Market

    We define the winter sports market as the market for alpine skis, ski boots
and bindings, and snowboard equipment. We estimate that there are approximately
50 million skiers and 8 million snowboarders active worldwide and that the
market for winter sports equipment in 2006 was approximately EUR 1.2 billion
at the wholesale level, consisting of EUR 400 million for skis, EUR 160
million for bindings, EUR 280 million for boots and EUR 310 million for
snowboard equipment. The ski market consists predominantly of Europe, North
America and Asia, with Europe constituting approximately 64% of the world market
in 2006, the United States and Canada approximately 23% and Japan approximately
10%. The snowboard market is led by North America, followed by Europe and then
Japan.

    Ski sales have traditionally been the primary component of the winter sports
market, with trends in ski sales directly affecting sales of bindings, ski boots
and other ski accessories. The market for skis, however, has undergone a
transformation in the past 15 years by declining from an estimated 6.5 million
pairs sold per year worldwide in the late 1980's to approximately 4.1 million
pairs sold in 2006. The reduction in ski sales resulted primarily from a shift
in preference among some consumers from skiing to snowboarding in the early
1990's, an absence of significant product innovation, except for the
introduction of the carving ski in 1996, and the severe decline in the Japanese
market, caused by the economic difficulties experienced in Japan in recent
years. In the last ten years, the snowboard market developed into a new form of
winter sport, and the market increased from 800,000 boards sold in 1995 to a
peak of 1.6 million in 2000. In 2006, 1.2 million boards were sold.

    The ski bindings market declined from approximately 5.9 million pairs sold
per year in the early 1990's to approximately 3.9 million pairs in 2005. In 2006
the market increased to approximately 4.1 million pairs as an increasing number
of integrated ski-binding systems are sold. The ski boot market increased from
3.6 million pairs sold in 2003 to 4.0 million pairs in 2006.

    The ski and snowboard industries have faced pricing pressures as a
consequence of the market decline and, to a lesser extent, as a result of the
increasing concentration of sales to sporting goods specialty chains, resulting
in consolidation within the industry as weaker brands are acquired or go out of
business. The ability of a manufacturer to offer packages of skis, bindings and
boots has become more important.

    Carving skis have proved popular with skiers. Carving is designed to capture
the feel of snowboarding with greater control and allows for turns to be
executed at high speed, making skiing easier for skiers of all abilities. Based
on our market knowledge and experience we expect that these features will make
skiing more fashionable for all groups, that carving will continue to dominate
the category at the expense of traditional skis and that some snowboarders will
shift to carving skis. Industry observers also believe that growth in carving
skis has helped to stabilize the overall ski market, thereby partially
offsetting the declining industry trend. New trends like the Park & Pipe skis,
skiercross skis and fat off-piste (freeride) skis show the vitality of the
sport. Products targeted specifically at women are becoming a strong factor in
sporting goods in general, and in winter sports products in particular.

Racquet Sports Market

     We define the racquet sports market as the market for tennis, squash,
badminton and racquetball racquets and tennis balls and racquetball balls. We
estimate that the market for tennis racquets in 2006 was approximately 10
million units, with a value of approximately EUR 300 million at the wholesale
level. We believe the markets decreased by approximately 3% in revenue (measured
in local currencies) in 2006 compared to 2005. The market is divided
predominantly among the United States, Europe and Japan. The United States and
Europe each represented approximately 30%, and Japan approximately 10%, of the
2006 world market.

     Measured in unit volume, the worldwide tennis racquet market has declined
from its peak in the early 1990's, as a result of various factors, including
reduced interest in the sport, particularly from younger people. The decline in
interest is believed to be due to competing leisure activities, such as
alternative sports, computer games and the Internet.

     We estimate that worldwide sales of tennis balls slightly exceeded
EUR 178 million at the wholesale level in 2006, with approximately 21.7
million dozen tennis balls sold. The United States and Europe each represented
more than 30% of the 2006 world market. In 2006, we estimate that the global
market for tennis balls increased in both value (by approximately 1.8%) and
volume (by approximately 4.1%) compared to 2005. The U.S. market increased by
approximately 5.2% in value and approximately 8.1% in volume in 2006. The
European market increased by approximately 7.5% in value and by approximately
4.8% in volume. The Japanese market continued to decline by approximately15% in
value in 2006, after a decline of approximately 6% in 2005.

Diving Market

     We define the diving market as the market for diving equipment, wetsuits,
dry suits and diving accessories. We estimate the market at the end of 2006 to
have been approximately EUR 450 million. We believe that the overall diving
market was generally declining, with the


                                       8
<PAGE>

important Western European and Japanese markets showing, according to some
estimates, a downturn in demand in 2006 of up to 10% and 14%, respectively,
compared to 2005. This overall decline was, we believe, principally due to the
decrease in international travel to diving destinations and, to a lesser extent,
general economic conditions. Only certain markets in areas such as South East
Asia and Eastern Europe showed some general improvement in 2006. We believe that
the diving market may recover in the event there is a decline in customers'
concern about the threat of terrorism. The popularity of diving in many emerging
economies is increasing, as reflected by increased sales of diving equipment in
Russia, Poland, Croatia, Serbia, Ukraine, Thailand and South Africa, with
significant increases in sales especially at diving centers. The diving
equipment market can be divided into a lower segment sold through chain stores
with lower average prices and an upper segment sold through specialty stores and
diving centers. The lower segment of the market consists primarily of equipment
for snorkelling while the upper segment of the market consists of equipment for
scuba diving.

     The diving industry is fragmented with well over 30 brands. While there are
various companies which produce a number of diving products, Mares is the only
company which designs and manufactures a complete line of products under one
trademark.

Our Competitive Advantages

    We have a leading market share in key product areas. We believe we hold
leading market positions in skiing, tennis and diving products.

    o   Skis. In 2006, we believe, based on our market knowledge and experience,
        that Head skis were the number two selling skis in Europe, the largest
        market for ski equipment in the world based on units sold. We believe we
        held the number three position globally with 15% of the world market
        based on units sold.

    o   Bindings. Tyrolia bindings also have long been a market leader, and we
        believe, based on our market knowledge and experience, that Tyrolia was
        the top selling brand of ski bindings worldwide in 2006 in terms of
        units sold. In the 2006 season, we also believe we were the largest
        manufacturer of ski bindings worldwide in terms of units produced
        (including ski bindings manufactured for others).

    o   Ski boots. In 2006, we believe based on our market knowledge that Head
        ski boots was the number three selling brand in quantity worldwide with
        a market share of approximately 17%. Our market position reflects a
        positive trend in volume and average price since the introduction of the
        Head brand for ski boots in the 1998/1999 season.

    o   Tennis Racquets. In tennis, we believe Head maintained the number one
        market position in Europe and the number two position globally in retail
        sales in 2006.

    o   Penn Tennis and Racquetball Balls. Penn is the world's leading
        manufacturer of tennis and racquetball balls by volume sold. In 2006, we
        estimate that Penn sold half the tennis balls purchased in the United
        States and held more than 30% of the tennis ball market worldwide in
        volume. In 2006, we estimate we held more than 65% of the racquetball
        ball market in the United States, which we believe accounted for 90% of
        the worldwide market.

    o   Head Tennis Balls. In 2006, we launched the Head tennis ball brand in
        all markets outside the Americas to take advantage of the strong market
        share of Head tennis racquets around the world. Penn tennis balls will
        continue to be marketed and sold in these markets.

    o   Diving. Mares is one of the largest producers and marketers of diving
        equipment in the world. We also own Dacor Corporation, a U.S.-based
        seller of a selected range of diving equipment. We believe that in 2006
        Mares, Dacor and Sporasub together held 13% of the worldwide market in
        diving equipment.

    We have a strong brand identity. Our principal brands -- Head, Penn, Tyrolia
and Mares -- are among the most widely recognized names in their markets. We
reinforce the strength of our brands through a program of endorsements with high
profile athletes and sponsorship of major tournaments and other events.

    o   Winter Sports. Worldclass skiracers such as Bode Miller from USA, Didier
        Cuche and Ambrosi Hoffmann from Switzerland, Sarka Zahrobska from the
        Czech Republic, Maria Riesch from Germany, Patrick Staudacher from
        Italy, Johann Grugger from Austria and Marco Buchel from Liechtenstein,
        endorse Head skis. In Free Style, Evelyne Leu from Switzerland won the
        gold medal at the 2006 Olympic Games in Turin and the World Cup 2006
        using Head skis. In snowboarding, we have received endorsements from the
        U.S. athlete Steve Fisher, who won the X-games 2004, and the Finnish
        athlete, Jukka Eratuli, who won the 2002, 2003 and 2005 overall world
        championship title in the Big Air discipline.

    o   Racquet Sports. Andre Agassi, despite retiring during 2005 continues to
        endorse our Head tennis racquets - he used our Head Flexpoint in all
        major events since mid-year 2005. Anastasia Myskina, Svetlana Kuznetsova
        and Marat Safin won the French Open 2004, the US Open 2004 and the
        Australian Open 2005, respectively, using Liquidmetal racquets.
        Recently, world number three on the WTA tour, Amelie Mauresmo and world
        number


                                       9
<PAGE>

        five on the ATP Tour, Ivan Ljubicic, joined the professionals worldwide
        using Head tennis racquets. Head and Penn tennis balls are the official
        ball of many major tennis tournaments worldwide, including the
        Association of Tennis Professionals (ATP) Tour and the Women's Tennis
        Association (WTA) Tour events and the Tennis Masters Series and Tennis
        Masters Cup.

    o   Diving. We believe most free diving world records, including the new
        world record in variable ballast deep free diving (descent with ballast
        and ascent by hand along the cable) set by Gianluca Genoni in October
        2006, have been set using Mares equipment.

    This strong brand identity allows our products to command higher prices and
fosters brand loyalty. We believe the strong identity and visibility of our
brands have been instrumental in increasing licensing opportunities for apparel
and other products, as well as enabling us to introduce new product lines and
enter new markets more effectively.

    We are at the forefront of product development and innovation. We have been
and continue to be at the forefront of the development of innovative and
technologically advanced sporting equipment.

    o   In our Head Intelligence skis and snowboards, we have utilized the
        technology originally developed for our Head Intelligence line of tennis
        racquets. Head Intelligence skis and snowboards transfer the energy
        created by contact with surface of the snow through Intellifibers to
        absorb vibration and adjust the stiffness of the skis and snowboards
        based upon speed and snow conditions. Major ski magazines and trade
        journals have rated the skis highly and we gained added visibility when
        the skis were used at the 2002 and 2006 Winter Olympics in Salt Lake
        City, Utah and in Turin, Italy, at the 2003 and 2005 World Championships
        in St. Moritz, Switzerland and Bormio, Italy, and in World Cup ski races
        since the 2002/2003 season. We have also been a leader in the
        development of carving skis, and we introduced the first bindings
        specifically designed for carving skis, which include carving plates and
        other features designed to improve performance. With our recent
        introduction of Liquidmetal skis, we have another technological
        highlight that should help to maintain or increase our market share in
        the high end segment of the ski market. We have earned an important
        position in the rental market by developing and marketing innovative
        rental systems.

    o   In ski boots we are introducing a new important project in the Racing
        line. For the first time in Head ski boot history, our sponsored racers
        are celebrating important victories in the World Cup competition using
        Head ski boots, offering an excellent opportunity to improve our brand
        image in the high-end segment. In addition we intend to introduce the
        new Edge line, which represents the most important line in terms of
        volume and revenue. We plan to maintain our cost efficiency in
        production and concentrate on improving our product mix.

    o   In 2003, we introduced Head Liquidmetal racquets, which "Fortune"
        magazine and "Business Week" declared to be one of the 25 best products
        of the year 2003. During 2005, we successfully launched Flexpoint as a
        new breakthrough in sophisticated tennis racquet technology. In
        addition, racquets such as the FXP Radical are among the best sold
        racquets among quality retailers around the globe. In 2006 we launched
        the latest tennis racquet technology, Metallix, which is geared to
        recreational players.

    o   Mares is a leader in technological innovation in the diving market and
        holds several key patents on regulators, diving computers and other
        related products. Both the U.S. Navy and the European Union have
        certified many of these products.

    We employ an integrated marketing program. We consider our marketing
approach to be key to promoting and reinforcing the strength of our brands
worldwide. Each of our products is supported by an integrated marketing program
which is designed to be responsive to the demands of our targeted trade
customers.

    o   Our marketing techniques include hosting training programs and clinics
        for in-store personnel, participating in trade fairs, preparing in-store
        promotional materials and conducting a strong advertising program,
        including print advertising and point-of-sale merchandising such as
        displays and samples. As a result, we believe that we have built a
        strong presence in specialized ski, racquet sports and diving retail
        outlets in a number of our key geographic markets.

    o   In addition, we operate a strong grassroots program, introducing our
        products to instructors, coaches and other professionals who are in a
        position to generate interest in a product and influence the decision of
        the ultimate consumer.

    o   We believe the breadth of products we offer in our chosen markets makes
        us more attractive to our direct customers because it allows them to
        reduce their number of suppliers, as well as to end users because it
        simplifies their purchase decision.

    o   In 2007, we launched our new corporate branding and logo, which have
        given our brand image and products a more unified, contemporary
        appearance.

    We have centralized our tennis racquet production with a third-party
manufacturer in China. During 2005, we made the strategic decision to outsource
the remaining tennis racquet manufacturing volumes to a contract manufacturer in
China. With the strongly


                                       10
<PAGE>

declining dollar we lacked cost competitiveness with our Euro cost structure.
While we continue to design and engineer our products in-house, our technically
sophisticated tennis racquets are now made at a Head exclusive factory in
Shenzhen, China. With this design and manufacturing structure, we protect the
quality and proprietary concepts of our products while enabling competitive
pricing of our products in the market place.

Our Strategy

     Our overriding strategy continues to be the development of innovative
products across all of the markets in which we operate. Our business strategy is
to capitalize on our competitive strengths in order to increase revenues while
improving cash flow and profitability through market share expansion, new
product introductions and cost reductions.

     Expand Market Share. We continue to focus on expanding our market share,
particularly in the United States and Japan, by developing innovative products
such as our Head Metallix racquets and strong-selling products such as Penn and
new branded Head tennis balls.

    o   We intend to continue to seek market share growth in European and other
        markets by our on-going investment in new athletes, technological
        product development, and branding, despite the difficult market
        conditions in 2007, due particularly to the impact of poor snow
        conditions on sales of our Winter Sports products,

    o   We intend to increase business in emerging markets such as Asia, Latin
        America and Eastern Europe by establishing local representative offices
        in these key regions. To this end Asian markets will be covered from our
        new offices in Hong Kong and Shanghai.

    o   We intend to introduce new product categories, such as Head badminton
        equipment, under our well known Head brand.

    o   In the skiing market we intend to increase our market share through the
        inclusion of top class skiers among our sponsored racers whose
        outstanding performance raises our product profile. In addition,
        products tailored to woman's requirements should positively impact our
        market share.

    o   We intend to expand sales of our snowboard equipment by leveraging our
        sales, marketing and distribution networks.

    o   We intend to increase our penetration of the U.S. market for tennis
        racquets and other Head products through continued innovations in
        racquets and an exclusive endorsement agreement with the US Professional
        Tennis Association (racquets and balls) and a non-exclusive endorsement
        agreement with the Professional Tennis Registry (racquets only), the two
        largest tennis teaching organizations globally. Our goal is to become
        the leading supplier of tennis products and add significantly to the
        presence of Head racquets in the United States. We believe that the
        launch of our Head Flexpoint racquets has supported this objective. In
        2006 we launched another superior technology with the Metallix Series of
        racquets for recreational players.

    o   We intend to increase our penetration of the U.S. market for diving
        equipment by introducing new products into the Mares line.

     Rapidly Develop and Launch New Products. We intend to continue our
tradition of product innovation and development by identifying new product
opportunities and moving quickly to launch these products successfully. After we
identify a new product opportunity, we rely on our in-house research and
development department and the manufacturing facilities available to us to
produce the desired product concept. Thereafter, through a combination of our
integrated marketing program, high brand awareness and global distribution
organization efficiency we are able to introduce the new products to the market
rapidly. Recent examples of this approach are our Head Intelligence and Head
Liquidmetal skis and snowboards and Head Flexpoint and Liquidmetal tennis
racquets. The Company spent EUR 10.1 million in each of 2006 and 2005, and
EUR 12.5 million in 2004, on research and development.

     Continued cost management. We have implemented a substantial cost reduction
program which resulted in cost savings and increased operating income. Most
recently, in July 2005, we signed an agreement for the establishment of a
company in the British Virgin Islands. The business venture was established to
found a company in China which, beginning in January 2007, manufactures tennis
balls for exclusive sale to us, which we believe will lead to cost savings
beginning in 2008. In 2007, we expect to finalize a restructuring program to
reduce production capacity for diving products in Italy and transfer production
to Eastern Europe and the Far East, as a consequence of reductions in sales. See
"Item 5A Operating Results -- Business Rationalization" and "-- Business Venture
Agreement".

    We are investigating additional cost savings. Where we are confident that
quality and proprietary technology will not be compromised, we intend to look
for and secure further arrangements to manufacture our products in low-cost
regions. We aim to decrease our overhead costs as we identify and implement new
measures, such as additional relocation of production plants and outsourcing
arrangements.


                                       11
<PAGE>

Our Products

    The table below shows net revenues by geographical area of customers (in
thousands):

                                          For the Years Ended December 31,
                                      ------------------------------------------
                                          2006            2005             2004
                                      -----------      ----------     ----------
Austria.....................          EUR  37,462     EUR  33,308    EUR  35,755
Italy.......................               27,929          26,549         32,059
Germany.....................               42,543          41,944         44,301
France......................               31,546          33,017         33,718
United Kingdom / Ireland....               12,621          13,893         16,813
Other (Europe)..............               74,673          72,465         73,900
Asia........................               32,885          35,643         34,381
North America...............              103,525          97,607        100,246
Other.......................               14,270          14,066         13,521
                                          -------          ------         ------
        Total Revenues......          EUR 377,454     EUR 368,492    EUR 384,696
Sales deductions............             (10,692)         (8,926)        (9,700)
                                          -------          ------         ------
        Total Net Revenues..          EUR 366,762     EUR 359,566    EUR 374,996
                                          =======         =======        =======


Winter Sports

    Winter Sports products accounted for 49.8% of our total net revenues in
2006.

Head Ski

    Our Head ski brand is one of the leading ski brands in the world. We
estimate that we had a 15% market share worldwide in 2006. We sell a broad range
of carving skis designed for all levels of skiers, from the novice to the
professional racer. Our ski products represented 35.6% of our total Winter
Sports revenues in 2006.

    The following table sets forth our principal Head ski models:

<TABLE>
<CAPTION>

                                                               Number of
                  Line                   Target Market           Models                      Features
           ------------------    ---------------------------   ----------  ----------------------------------------
<S>                              <C>                           <C>        <C>
           Racing Carver         Expert skiers and racers            5     Extreme stability and precision for
                                                                           racing and high performance skiing
           Freeride              Advanced to expert skiers           5     Maximum lift in powder snow and
                                                                           maneuverability for off piste and extreme
                                                                           skiing
           Skicross              Advanced to expert skiers           5     Maximum versatility on and off piste
           Allmountain/          Intermediate to advanced            6     Easy-turning and maneuverability for all
           Allround Carve        skiers                                    types of terrain
           Park & Powder         Advanced to expert skiers           4     Shock-absorbing reinforced construction
                                                                           for mogul, freestyle skiing and jumps
           Women                 Female skiers                       7     Reduced weight, softer flex
           Junior                Young skiers                       12     Radical side cuts designed for easy
                                                                           handling for younger skiers of all
                                                                           abilities
           Rental                All skiers                         10     Added durability
           Accessories           All skiers                         26     Includes ski poles, carrying bags and
                                                                           other items

</TABLE>

    Technology. We believe that we are an industry leader in the development of
innovative and technologically advanced carving skis. Our carving skis are not
only different in appearance from conventional skis, but are also differentiated
from various other carving skis by patented technical features and directional
stability. In February 2002, we introduced a patented "ski management" system --
Head Intelligence skis. This product line utilizes the technology we introduced
in 2000 with our Head Intelligence line of tennis racquets and incorporates the
piezoelectric Intellifiber and Head Chipsystem. Head Intelligence skis transfer
the energy created by contact with surface of the snow through the Intellifibers
to absorb vibration and adjust the stiffness of the skis based upon speed and
snow conditions. This gives the skier more control with less effort. Major ski
magazines and trade journals have rated the skis highly. This


                                       12
<PAGE>

technology gained added visibility through Head skis being used by our sponsored
World Cup ski racers at all World Cup events, as well as at the 2002 and 2006
Winter Olympics and the World Championships in 2003, 2005 and 2007. During the
Winter Olympics in Turin in 2006, we presented also our Liquidmetal skis.

    Market Share. We estimate that the global ski market was approximately
EUR 400 million at the wholesale level in 2006. We believe, based on our
market knowledge and experience, that in 2006 Head skis were the number two
selling skis in Europe and that we held the number three position worldwide
based on units sold. We estimate our market share for skis worldwide was 15% in
2006, an increase of approximately 88% from an estimated 8% in 1996.

    Our strategy is to increase our market share through geographic expansion
and focused product offerings. We plan to pursue market share growth in the
United States and are seeking further opportunities in developing ski markets
such as Eastern Europe and, to a lesser extent, South America and China. In
2006, we started a special initiative to increase the popularity of our skis in
Colorado, a key market where Head is underrepresented. The initiative included
on hill demonstrations, women's clinics and local advertisements in the major
resorts in Colorado.

    Positioning. We were the first ski manufacturer to introduce a fully
integrated line of carving skis, boots and bindings. We believe that this
integrated product offering is key to maintaining preferred relationships with
trade customers and increasing our global market share. In addition, through
this integrated offering, we achieve synergies in distribution and engage in
joint product development among our internal product groups in the development
of new carving products and other products.

    Manufacturing. We manufacture Head skis at our manufacturing plants in
Kennelbach, Austria and Budejovice, Czech Republic, where we use a computerized
manufacturing system. As part of our efforts to reduce costs, we have
transferred some of our ski manufacturing from our plant in Kennelbach, Austria,
to our plant in Budejovice, Czech Republic. Through factory automation, we have
been able to greatly improve our labor productivity. We use some excess capacity
to manufacture high performance and carving skis for other branded ski
companies.

Bindings

    We believe that Tyrolia was the top selling brand in the worldwide ski
bindings market in 2006, based on units sold. Our bindings business represented
29.5% of our total Winter Sports revenues in 2006.

    The following table sets forth the principal Tyrolia binding products:

<TABLE>
<CAPTION>

                                                      Number of
                  Line                 Target Market    Models                   Features
           ----------------- ----------------------------------- --------------------------------------------
<S>                          <C>                           <C>   <C>
           Racing            Expert and                    7     Innovative Free Flex PLUS
                             professional skiers
                                                                 Technology (patented)
           Freeride          Young skiers, new             4     Diagonal toe, wider brake, light weight
           Park & Pipe       target groups

           Railflex          Beginners and advanced        7     Integration system with Double Free Flex, boot
                             skiers                              center adjustment and tool free mounting

           Light Diagonal    Carving skiers                2     Different systems featuring Cyber Free Flex
                                                                 Technology (patented) or
                                                                 Carve Flex Technology and different
                                                                 integrated stand heights

           Super Light       All skiers                    4     SL Super light and LD Light diagonal
                                                                 technology with different integrated
                                                                 stand height

           Junior            Young skiers                  5     Provides safety features for juniors
                                                                 and children

           Rental            Rental market                 8     Adjustable toe and heel parts with unique
                                                                 Single Code System. Chip technology for Sym Pro

           Women             Female skiers                 2     Light weight Rail Flex models

           Carving Plates    Carving skiers                3     Two-piece plates, pre-drilled for Tyrolia models,
                                                                 different stand heights and damping systems

</TABLE>


                                       13
<PAGE>

    Technology. We believe that the Tyrolia brand has consistently offered
outstanding performance in safety and reliability while introducing
technological innovations. In 1996, we were the first to introduce a carving
binding line to complement the performance characteristics of the Cyber ski.
Free Flex technology allows the heel of the skier to glide freely as the ski
bends, optimizing edge grip and ski contour, which facilitates a higher degree
of angulations throughout a turn. In 2000, we introduced a new racing
technology, Free Flex PLUS, which provides improved traction performance at high
speed by eliminating the counterflex motion of the ski.

    In 2004, Tyrolia introduced the second generation of Rail Flex, an
integrated tool free binding system. Integrated binding systems are one of the
fastest growing market segments worldwide. The Rail Flex system already accounts
for more than 20% of worldwide binding sales.

    In 2005, we offered our Rail Flex system for the junior segment. We offer a
fully integrated version exclusively with Head skis and a second version with a
specific Rail Flex base for all other skis. We are also offering adapted
bindings for the new segments Freeride and Park & Pipe.

    In 2006 we introduced a redesigned junior line with improved performance,
and a specific women's line of light-weight Railflex models.

    In our rental line, we introduced the innovative chip system in 2001,
targeted at the rental business. It provides simplified and complete data
integration together with special software, and precise and quick adjustment of
the bindings, thus saving time and increasing the safety of our products. These
bindings are now offered together with pre-mounted Head rental skis and Head
rental boots, which also include the chip.

    Market Share. We estimate that the market for bindings worldwide was
approximately EUR 160 million at the wholesale level in 2006. We estimate our
market share worldwide in production for bindings in units was approximately 37%
in 2006 (including for other Original Equipment Manufacturers - OEMs) and
believe that Tyrolia was again the top selling brand in 2006 in terms of numbers
of units sold.

    We continue to observe a growing demand for integrated bindings systems,
specific features for shaped skis as well as new technologies. We intend to
respond to these changing demands by developing complete new and innovative
solutions of integrated binding-ski systems to enhance the coordination of
movement and forces of all products equipped with these systems. These
integrated systems also offer convenient mounting technology for our dealers.

    Manufacturing. All of our Tyrolia bindings are manufactured at our
technologically advanced plant in Schwechat and assembled under our supervision
in the Czech Republic. Tyrolia bindings consist of over 100 separate components,
many of which are made in-house. Most of the assembling is performed by robotics
and a smaller part by hand . We also produce bindings for other OEMs.

Ski Boots

    We market our ski boots principally under the Head brand name, and we also
use the brand name Munari. We also supply private label boots marketed to lower
price points. Our ski boot business represented 25.4% of our total Winter Sports
revenues in 2006.

<TABLE>
<CAPTION>
                                                                   Number of
                Line                      Target Market             Models                      Features
         ---------------       ------------------------------     ----------   -----------------------------------------------
<S>                           <C>                                 <C>         <C>
         Head
         Racing/Freeride       Racers, experts and freeriders           9      New Project introduced in 2004 with full
                               professional skiers                             bi- injection technology, Full Custom
                                                                               System and several adjustments that
                                                                               provide maximum precision and performance
                                                                               for high end skiers.

         All Mountain          Experts to intermediate skiers           8      Edge Line introduced in 2002, with a
         Performance                                                           wide range of models targeted to the
                                                                               expert and advanced skier. Intended
                                                                               to provide an outstanding level of
                                                                               performance and comfort

         High Performance      Women from good to expert level          3      E-fit introduced 2003 is targeted at the
         Women line                                                            skier looking for maximum comfort and
                                                                               ease of use featuring a completely new
                                                                               technology

</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>

<S>                           <C>                                 <C>         <C>
         Sport/Comfort         Intermediate and beginners               6      EZ-on 2 is introduced in 2005 featuring
                                                                               an easy entry shell construction, Double
                                                                               Power Buckle and Autoski Walk intended
                                                                               to create maximum ease of use and comfort

         Junior                Young skiers (all segments)              7      Junior boots for racers to beginners

         Rental                Rental                                   9      High comfort and reliability for
                                                                               intermediates and beginners
         Munari
         Sport Comfort         Intermediate and beginners               2      Easy walk adjustment, light and
                                                                               user-friendly boots

         Junior                Young skiers (all segments)              4      Junior boot line for good, intermediate
                                                                               and beginner skiers

</TABLE>


    Technology. In 2006, we introduced a new line of boots, called Dream Thang,
specifically designed for women. The project represents the first 4-buckle only
boot developed to respond to women's needs in terms of fit and performance. The
Dream Thang line has been very positively received and contributed to developing
the image of the Head ski boot brand.

    The Edge boots line has become our best-selling ski boots in terms of number
of units sold. The Edge boot allowed us to increase our market share in the
middle and higher price segment and was successfully sold at retail level. In
2006, the line has been improved with new graphics and cosmetic treatment to
offer more value at the middle price point. This restyling has increased the
competitiveness of the line.

    Market Share. We estimate that the market for boots worldwide was
approximately EUR 280 million in 2006. We believe, based on our market
knowledge and experience, that Head ski boots held a solid number three position
worldwide in 2006 based on units sold. We estimate that our volume market share
(Head and Munari together) in 2006 was approximately 17%, compared to an
estimated 9% market share in 1998.

     Manufacturing. In 2004, we transferred the production of our ski boots from
Estonia to our new factory in Litovel, Czech Republic, which allowed us to
improve our efficiency and service. The production transfer from Italy to the
Czech Republic is now also completed with the closure of the injection
department in Italy. In 2006, we produced all of our ski boots in the Czech
Republic.

Snowboards

    We market our snowboard products under the Head brand. These products
accounted for 9.4% of our total Winter Sports revenues in 2006.

    The following table sets forth our principal categories of snowboarding
products:

<TABLE>
<CAPTION>


                                                    Number of
                 Line             Target Market      Models                            Features
           ---------------    -------------------  ----------  --------------------------------
<S>                           <C>                  <C>         <C>

           Boards             Freestyle/Freeride        15     Intelligence Chip Technology and Intellifiber
                                                               Technology, Dimensional concept: perfect
                                                               boot-binding-board match
                                                               Free Flex rail system: innovative binding fixation
           Softboots          Freestyle/Freeride         9     BOA and Speed Winch comfort lacing systems, Zone
                                                               Control liner fixation from outside

           Softbindings       Freestyle/Freeride         9     New PX line featuring : first tool free adjustable, full
                                                               Contact heelcups.
                                                               Auto-Open straps: reentry improvement
                                                               Auto-Lock highback: automatic fixation of highback
                                                               to heelcup

           Rental             Freeride/Freestyle         8     New rental boards with TNT shield protection
                                                               Dimensional concept: perfect boot-binding match
                                                               New Speed disc: tool free angle adjustment
           Protection         Freeride/Freestyle        22     Better fitting helms, to eliminate pressure points and
                                                               increase comfort, jacket, vest and pants weight reduced
                                                               and effective anatomical fit
</TABLE>


                                       15
<PAGE>

    Technology. In 2003, we introduced Head Intelligence with Head Chip System
in our snowboards and took advantage of the momentum already created in skis at
dealers and media. In 2005, we launched the new binding concept - PX- next
generation of our powerframe concept bindings. These bindings feature a unique
toolfree forward lean adjustment of the highback. Our bindings feature auto-open
straps for reentry comfort and autolock highbacks for automatic fixation of the
highbacks to the heelcup on top. In 2006 we introduced Speed Winch, Zone Control
to maximize our comfort lacing systems. In the rental market Speed Disc and TNT
Shield contributed to our overall rental program competitiveness.

    We believe that the Head "Rent'n Ride in 58 Seconds Program", introduced in
2003, is still the fastest and most versatile rental system offered to the
market.

    Market Share. We estimate that the global market for snowboards was
approximately 1.2 million units in 2006 and that our market share was
approximately 6.4% worldwide.

    Manufacturing. We rely on contract manufacturers in Austria (snowboards) and
China (snowboard bindings, boots, helmets and body protection).

     The Protection line for snowboarders and skiers, including helmets and body
protection contributes to the overall completeness of our winter sports offer.


Racquet Sports

    Racquet Sports products accounted for 35.2% of our total net revenues in
2006. Under the Head brand name, we design, engineer and manufacture a broad
offering of tennis, squash and racquetball racquets. We also sell tennis
accessories under the Head brand and tennis balls and racquetball balls under
the Head and Penn brand name. During the fall of 2006 we also introduced a full
range of Head badminton products, including racquets, shuttlecocks, footwear,
apparel and accessories.

Head Racquets

    We estimate that in 2006 our Head racquets were the number two brand
worldwide, comprising 19% and 23% of the world wholesale market in units and
revenue, respectively. Revenues from racquets amounted to 63.6% of our total
Racquet Sports revenues in 2006.

    The following table sets forth the principal Head racquet product lines:


<TABLE>
<CAPTION>

                                                                         Number of
            Category                  Line              Target Market     Models                Features
        ----------------   ----------------------   -----------------   ---------   ----------------------------
<S>                        <C>                      <C>                      <C>    <C>
         Tennis Racquets   Metallix and Flexpoint   Tennis                   10     Performance racquets
                           racquets                 enthusiasts at                  featuring MX and FXP
                                                    all level of play               technology for enhanced
                                                                                    ball control

                           Head Liquidmetal Series  All levels of play        6     Performance racquets
                                                                                    featuring Head Liquidmetal
                                                                                    for perfect energy transfer

                           Protector Series                                   2     Tailored racquets designed
                                                                                    to cure acute Tennis elbow
                                                                                    through a proprietary
                                                                                    racquet design featuring a
                                                                                    Chip system with
                                                                                    piezoelectric materials

                           Nano-Titanium and        Entry level              11     Lightweight value products
                           Performance racquets     players                         for short and medium swings

                           Junior Series            Young players            11     Lightweight racquets for
                                                                                    juniors from ages 6 to 14

         Squash                                     All players              14     Racquets for all skill
                                                                                    levels and price points

         Racquetball                                All players              11     Racquets for all skill
                                                                                    levels and price points

         Accessories                                All players               *     A full assortment of Tennis
                                                                                    and racquetball accessories

----------
* Not meaningful.

</TABLE>


                                       16
<PAGE>

    Technology. Over a period of ten years we have gained technological
leadership in the tennis market with many new, innovative technologies such as
Titanium, Intelligence, Liquidmetal and Flexpoint. In 2006 we launched another
superior technology with the Metallix Series of racquets for the recreational
players. Year-long leading global tennis publications such as "U.S. Tennis
Magazine" and the German "Tennis Magazin" thoroughly playtest Head racquets
against relevant competitor products and consistently rate new Head racquets
amongst their best choices.

    Market Share. We estimate that the market for tennis racquets worldwide was
approximately 10 million units and EUR 300 million at the wholesale level in
2006. We believe, based on our market knowledge and experience, that Head
branded tennis racquets were number one in Europe and number two worldwide in
2006. We estimate that market share of overall revenues generated for 2006 was
approximately 23% worldwide and that our European market share was 29%.

    On a long-term basis, due to our continued investment in research and
development, global sales, marketing and distribution network and high level of
market penetration, we seek to continue to grow our global market share for our
tennis racquet products, with an increased presence in the U.S. and Japan and
opportunities in developing markets such as Asia, South America and Eastern
Europe, where a growing middle class is showing an increasing interest in
tennis.

    We believe that our significant global market share is partly a result of
our strong presence on the professional tennis circuit. Based upon the February
2007 ATP Tour Entry-List Rankings, Head racquets were used by more than 25 of
the top-rated 100 professional male players, including career grand slam
champion and 2003 Australian Open winner Andre Agassi and 2005 Australian Open
Champion Marat Safin, making Head the most used racquet brand used on the ATP
Tour. Recently world number five Ivan Ljubicic joined the professional players
worldwide sponsored by Head. Anastasia Myskina won the 2004 French Open and
Svetlana Kuznetsova the US Open 2004 using Head racquets. Amelie Mauresmo,
currently number three on the WTA Tour, started to endorse Head products in
February 2007. In addition, we operate a strong grassroots program, introducing
our products to leading instructors, coaches and other professionals who are in
a position to generate interest in a product and influence ultimate customer
decisions. As part of this program, we sponsor the world's largest tennis
teaching organizations (based on size of membership), the United States
Professional Tennis Association and the Professional Tennis Registry.

    We cross-leveraged these technologies to create line extensions in Head
Squash and Racquetball and the Titanium, Intelligence and Liquidmetal models,
which we believe improved our position in other racquet sports markets as well.
In 2006, our racquetball racquet market share decreased to 29% in the U.S.
racquetball market. We estimate that we were the number two brand in the
racquetball racquet market in 2006.

    Manufacturing. All of our globally sold tennis, squash and racquetball
racquets are outsourced to third-party manufacturers in China and other Asian
countries.

Penn and Head Tennis Balls

    We believe that Penn is one of the world's leading manufacturers and
marketers of tennis and racquetball balls. Revenues from our tennis ball
division amounted to 36.4% of our total Racquet Sports revenues in 2006.

    In 2006, we launched the Head tennis ball brand in all markets outside the
Americas to take advantage of Head's strength in the market for tennis racquets
worldwide. Penn balls will continue to be marketed and sold in these markets.

    The following table sets forth the principal Penn and Head balls:

<TABLE>
<CAPTION>

                                                                          Number of
                 Line                               Target Market          Models                      Features
         ----------------------------     ---------------------------    ----------  ----------------------------------------
<S>                                     <C>                               <C>       <C>
          Tennis Balls
          Championship Penn               Frequent players                    3      Designed for specific court surfaces
          Championship Head               Frequent players                    2      Designed for specific court surfaces
          Pro Penn USPTA                  Teaching professionals              2      Highest quality felt/premium rubber balls
                                                                                     made for specific court surfaces
          Head ATP, No 1 and Pro balls    Top professionals and               3      Balls for tournament play made of long-
                                          serious tournament players                 wearing felt and rubber-coated for
          Penn ATP and Pro Penn                                                      moisture/stain resistance; Including: No
                                                                              4      1specifically for Germany and Pro Penn for
                                                                                     US and International Markets
          Pro Penn Stars and Pressure     Beginners (sold in all              5      Manufactured with less pressure
          less                            channels of distribution
          Penn Titanium                   Premium3                            2      Titanium enhanced core
          Penn Court One                  Casual/Recreational                 1      ITF approved

</TABLE>


                                       17
<PAGE>

<TABLE>
<CAPTION>
<S>                                     <C>                               <C>       <C>
          Private Label                   Casual/Recreational                 3      Special orders

          Racquetball Balls
          Pro                             Tournament players                  1      Premium price/performance
          Ultra-Blue                      All players                         1      Flagship brand
          Titanium                        All players                         1      Titanium enhanced core
</TABLE>

    Technology. Penn and the tennis ball division have introduced many
innovations, including:

    o   "play related" tennis balls for different court surfaces and high
        altitude play;

    o   optical yellow tennis balls, which have become industry standard;

    o   the pull ring can with plastic lid;

    o   recyclable plastic tennis ball containers;

    o   Smart Optic felt with 19% more visibility; and

    o   "Encore" technology for enhanced ball durability.

    Market Share. We estimate that the market for tennis balls is approximately
EUR 178 million worldwide, with approximately 21.7 million dozen tennis balls
sold in 2006. We believe Penn was the market leader in 2006, with an estimated
volume market share of 31% worldwide and of 51.2% in the United States, the
world's largest market in 2006.

    We believe that Penn's strong market position is a result of the superior
quality of our products, economies of scale through our plant in
Phoenix/Arizona, which is the world's largest plant , and close affiliation with
the local grassroots federations and professional tennis circuit in the
Americas. In 2006 we introduced the Head brand of tennis balls outside the
Americas, leading to growth in our market share in Europe. Penn is the official
ball used in many major tennis tournaments in the Americas, while Head is used
in other global markets. Sponsorships include the Tennis Masters Cup and Tennis
Masters Series events, the ATP Tour and WTA tour events, and some of the Davis
Cup and Federation Cup tournaments. We are the exclusive tennis ball sponsor of
the Masters Series tournaments, the highest profile tournaments in tennis
outside the Grand Slam events. This exclusive sponsorship provides live
broadcast brand exposure globally as well as merchandising opportunities. We are
also the exclusive tennis ball sponsor of the world's largest tennis teaching
organization, the USPTA, and in 2006 Head became the official ball and racquet
of Tennis Europe, the largest regional association of the International Tennis
Federation (ITF).

    The market for racquetball balls is concentrated mainly in the United
States, which we estimate accounts for over 90% of the world market. In the
United States, we estimate our market share was approximately 67% in 2006. Since
the early 1990s, annual racquetball balls sales, including Penn racquetball
balls sales, have been declining, and we expect the market to remain flat over
the next few years.

    Manufacturing. We currently manufacture our tennis balls and racquetball
balls (with the exception of less than 5% of the low-end products) at our
facility in Phoenix, Arizona. In 2006 we completed a new tennis ball plant in
China, which began producing pressureless tennis balls in January 2007. In 2004,
when we closed our Ireland factory, we stopped manufacturing pressureless tennis
balls and outsourced them. These balls, as well as pressurized balls for the
Asia markets, will be manufactured in China as we ramp up production for the
important growth opportunity we believe exists in China and other Asian markets.

    Several years ago, we entered into an agreement with a South American
company, which, in addition to tennis balls sold from our U.S. facility,
manufactures and distributes Penn tennis balls in Argentina exclusively for the
South American markets.

Head Badminton Products

     The Company is entering the badminton business and plans a simultaneous
rollout globally to present Head Badminton products to retailers during the
spring 2007. Consumers should be able to purchase these products starting in the
summer 2007. To support the introduction of our new business, Head has formed a
partnership with the Danish Badminton Association (DBA) as the organization's
exclusive equipment supplier. With this partnership Head has also secured
worldwide television exposure through the international tournaments in Denmark,
the Denmark Open and Copenhagen Masters. The Denmark Open is the biggest
badminton tournament in Europe in prize money and will be part of the new
International Super Series introduced by the International Badminton Federation
in January 2007.


                                       18
<PAGE>

     The following table sets forth our principal categories of Head badminton
products:

<TABLE>
<CAPTION>

                                                       Number of
                 Line                Target Market      Models                Features
           ---------------       -------------------  ----------   --------------------------------
<S>                             <C>                       <C>     <C>

           Racquets
           Metallix Series       Expert Players             5      Strong and durable
           Airflow Series        Women                      2      Speed and control
           Nano Power and Ti     Recreational               9      Ght and large sweet spot
           Series                Players
           Junior Series         Young Players              3      Light and maneuverable
           Kit's                 Kids                       2      Full equipment set

           Accessories
           Full range of         All Players          ca. 25       Consistent quality
           Accessories incl.
           bags, strings, grips

           Shuttlecocks
           Feather               Serious Players            6      Consistent quality
           Nylon                 Recreational               3      Consistent quality
                                 Players
           Indoor Shoes
           Premium               Serious Players            4      Light weight and flexible
           Entry Level           Recreational               8      Durable
                                 Players
           Clothing
           Track Suits, Polo                           Ca. 60      Great designs and breathable materials
           Shirts, T-Shirts,
           Shorts and Dresses

</TABLE>

    Manufacturing. All of our badminton products are outsourced to third-party
manufacturers in China and other Asian countries.

Diving

    We believe, based on our market knowledge and experience, that our diving
products had an estimated global market share of approximately 10% in 2006. The
Mares and Dacor products cover the upper and middle market segments and include
several models of air regulators, buoyancy compensator jackets, diving fins,
diving masks, snorkels, exposure suits and diving computers.

    Each of these brands has different product features and is aimed to cover
the various international market needs. In addition, we offer a variety of air
tanks and valves, diving boots and gloves, underwater flashlights, equipment
bags, knives and various other accessories and diving instruments. Our diving
business represented 12.9% of our total net revenues in 2006.

    The following table sets forth the principal Mares and Dacor products:

<TABLE>
<CAPTION>

                                                  Number of
                           Line                    Models                  Features
            ---------------------------------    ----------  ----------------------------------------------
<S>                                                   <C>    <C>
            Regulators                                21     Lightweight, durable; high performing
            Air tanks                                  3     High resistance to impact and aging
            Valve sets                                 2     Designed to guarantee optimal air flows at any
                                                             pressure
            Buoyancy compensator jackets              20     Devices for airflow control and better buoyancy
            Wetsuits                                  20     Designed to ensure warmth and comfort
            Wetsuit accessories                        9     Gloves, boots and socks
            Fins                                      23     Designed to provide maximum power using minimum
                                                             effort
            Masks and goggles                         36     Includes single, two and four lens models, with
                                                             maximum visibility
            Snorkels                                  24     Designed to provide easy and dry breathing
            Computers                                  9     Designed to provide enhanced performance and
                                                             safety
            Other accessories                         72     Knives, spearguns, flashlights, bags, etc.

</TABLE>

    Technology. Mares historically has been the industry's technological leader
and has introduced many ground-breaking diving products ahead of the
competition, including plastic fins, underwater guns and high-performance
regulators. A large part of Mares' sales is dependent on patented technology,
including air regulators, diving fins and diving masks, including the new Liquid
Skin technology, and a new generation of buoyancy control vests (HUB) to provide
maximum freedom during diving and a new algorithm for decompression.


                                       19
<PAGE>

    Market Share. We estimate that the market for diving equipment was
approximately EUR 450 million in 2006 based on exchange rates at that time. We
believe, based on our market knowledge and experience, that in 2006 our Mares
brand of diving equipment had one of the best market positions in Europe and
worldwide at the wholesale level. Our market share worldwide for the Mares,
Dacor and Sporasub brands for 2006 is estimated at 10.2%.

    We are working to expand our presence in key markets such as the United
States, where, we believe, Mares and Dacor combined held a 5% market share, and
in Asia Pacific, where both brands combined had an estimated 7% market share in
2006. We also expect to grow our global market share through new product
introductions and the addition of advanced technological features in our
existing products. Many new patents have been introduced in 2006, thus
strengthening our product offering. In addition, we expect the fragmented nature
of the diving industry to provide increased opportunity for growth.

    Manufacturing. We currently manufacture the majority of our diving products,
including Dacor products, in Italy. We have transfered all of our diving
production in Tallinn, Estonia, to our plant in Litovel, Czech Republic. We are
focused on in-house production of our high-technology products, such as
regulators and computers, and outsource the remainder of our products to
manufacturers in countries such as Italy and Thailand. We have made a number of
improvements to our manufacturing processes in the last three years to reduce
cost and improve efficiency. In addition, we outsource the assembly of a number
of products. In 2007, we expect to finalize a restructuring program to reduce
production capacity for diving products in Italy and transfer production to
Eastern Europe and the Far East, as a consequence of reductions in sales. This
initiative has had a beneficial impact on our 2006 results.

Licensing

    In 1996, we formed a licensing division to capitalize on opportunities
resulting from the worldwide brand recognition of the Head name, which has
existed for six decades. We believe the Head brand name is associated with
innovative, high quality, well-designed, high performance products. Licensing
enables us to expand the Head name to additional product categories. Revenues
from licensing amounted to 2.1% of our total net revenues in 2006.

    Head apparel contributes approximately two thirds of the total royalty
income and is licensed in all important markets worldwide (e.g. Europe, U.S.,
Japan and China). We also grant rights to the Head brand for other product
categories such as footwear, luggage, eyewear, watches, equipment, bikes,
toiletries and accessories. In addition to Head, we also license the Penn brand
name to approximately 10 licencees worldwide, primarily for apparel, footwear
and golf products.

    Licensing generated EUR 8.1 million in revenues in 2006 for the Head and
Penn brands. We intend to explore other licensing opportunities for products
suitable to the image of our brands. We believe that China may offer
considerable potential for a further increase in licensing revenues.

    We believe that substantial licensing opportunity exists by capitalizing on
the success of our strong-selling products as well as through improved
leveraging of our brand portfolio. We also intend to protect and maintain the
premium image of our brands by licensing only high quality goods within
compatible product lines.

Sales and Distribution

     Our products are sold in over 85 countries to approximately 29,000
accounts. Our worldwide sales force comprised approximately 390 people as of
December 31, 2006. In addition, we utilize sales representatives and independent
distributors to serve specialized markets and related distribution channels.

Europe

    Sales to customers within Europe accounted for 60.1% of our 2006 net sales.
We have centralized our European distribution organizations for Winter Sports
and Racquet Sports products so that Head International GmbH operates as a single
distribution company for several key markets. Since January 1, 2004, Head
International invoices and ships products from one European distribution center
in Klaus, Austria to our customers in Switzerland, Germany, Italy and Austria.
As a result, all of our invoicing to customers in these markets, and to
third-party distributors worldwide, occurs from Head International. The related
former European distribution companies function as sales agencies.

North America

    Sales to customers in North America accounted for 27.4% of our 2006 net
sales. We distribute Head, Tyrolia, Penn and Mares/Dacor through our
subsidiaries Head USA and Head Tyrolia Canada subsidiary. Under Head USA's
leadership, Winter Sports, Racquet Sports and Diving have separate
sales/marketing organizations and sales forces but share all administrative and
logistical functions. Our goal is to improve distribution to increase
penetration in North America and reestablish Head and Tyrolia brand names in the
U.S. winter sports market.


                                       20
<PAGE>

    The success of our Head Flexpoint, Titanium and Intelligence and Head
Liquidmetal racquets has helped to significantly raise Head's profile as a
tennis brand in North America. We hope to further heighten this profile through
the endorsement by the US Professional Tennis Association, the world's largest
association of tennis-teaching professionals, and other sales and marketing
efforts.

Asia

    Sales to customers in Asia accounted for 8.7% of our 2006 net sales. In
Japan, our largest market in Asia, our winter sports products are distributed by
our own subsidiary distribution unit, while our racquet sports and diving
products are distributed by third parties. Our products are sold in the rest of
Asia only to independent importers or distributors on a wholesale basis. Because
we believe that we have significant growth potential in Asia, we are developing
closer working relationships with all Asian Head distributors through newly
established representative offices in Hong Kong and Shanghai, and in Japan we
plan to integrate the Racquet Sports distribution from a third-party distributor
into our own subsidiary.

Other Markets

    Sales to customers in other markets accounted for 3.8% of our 2006 net
sales. These markets mainly consist of Latin America, Africa and Australia. We
believe the number of countries in these markets in which sales were made
exceeded 50 in 2006. Sales of our products to these regions are made by
independent importers/distributors.

Marketing

    We consider the marketing function to be key to promoting our brand names
worldwide. Our marketing strategy is centered around the Head, Tyrolia, Penn and
Mares brands. We believe that there are significant opportunities to continue to
build these brands and that increased coordination between our marketing and
product development teams has greatly improved our ability to efficiently
develop products consistent with consumer preferences. As a result, we have been
able to increase the frequency and efficiency of our product innovations as well
as the depth of our product lines in each of our key categories. Consumer
research has become an integral part of product development and advertising
campaigns. Each of our products is fully supported by a consistent, integrated
marketing program, which is designed to be responsive to the demands of our
target customers.

    We attribute our consistently successful product launches to our strong
emphasis on marketing in all of our divisions. We use marketing strategies
directed at retailers, as well as the final end-user of our products, to
increase demand. Our marketing strategy for retailers is aimed at educating them
on the technical features of our products. We hold clinics for retailers and
sales people to inform them about the various product lines. We provide
retailers with videotapes, DVDs and product brochures to further educate and
assist the retail sales team.

    We currently operate several websites including www.head.com,
www.ridehead.com, www.tyrolia.com, www.pennracquet.com, www.mares.com and
www.divedacor.com, which advertise our products and list our distributors. In
recognition of the penetration of the internet and growth in e-commerce, we have
set up a project to expand our usage and reliance on the internet, including:

    o   an "Online Management System", allowing retailers to place and track
        orders and review credit status; and

    o   expanded website content to cover sports and related information. We
        believe that this project can improve brand recognition and generate
        incremental sales.

    In addition, to create consumer interest, we use product promotions and
point of sale advertising with sporting goods chains and through our dealers in
each of our product categories. Our website (www.head.com) communication
continues to take a more dominant role in our overall advertising.

    o   We devote significant marketing resources to our ski business, including
        training by an in-house winter sports specialist to educate retail
        salespersons so they can sell Head skis more effectively. We also
        coordinate with retailers to improve display of Head products and place
        in-store promotional materials such as consumer catalog, banners and
        posters. Head participates in a number of trade fairs annually in order
        to launch its new products and advertises its skis in leading specialty
        ski publications.

    o   In order to promote use of the carving ski, we host promotional
        activities such as Head promotional days, Head "demo" days and Head test
        sessions. With respect to the marketing of Tyrolia bindings, we utilize
        international advertising and promotional activities with a strong focus
        on brand awareness, new product presentations, dealer promotion tools
        (catalogs, racing folders, consumer leaflets), point of sale materials,
        product visibility and media advertising.

    o   Our snowboarding products are promoted through our sponsorship of top
        caliber riders, international snowboard camps, special interest media
        events, snowboarding videos and internet sites. We also have promotions
        in ski resorts in Europe in which potential customers can try our
        snowboarding equipment. Sales to end-users are supported by in-store
        training and point of sale materials.


                                       21
<PAGE>

    o   Our Racquet Sports division conducts a variety of marketing programs
        targeted to a broad range of players, including demonstration programs
        for consumers and, in coordination with retailers, in-store promotions
        and dealer incentive programs. We advertise our racquets in specialty
        tennis magazines and participate in advertising programs with specific
        sporting goods chains.

    o   We operate a strong grassroots program, introducing our tennis products
        to instructors, coaches and other opinion leaders who are in a position
        to generate interest and influence the decision of the ultimate
        customer. For example, through Head and Penn, we participate in the U.S.
        "Tennis Welcome Center" program, sponsored by the Tennis Industry
        Association (TIA) and the United States Tennis Association (USTA), which
        is designed to introduce consumers to tennis through free coaching
        sessions, equipment and access to courts.

    o   Our Diving division advertises in a number of specialized publications
        worldwide and conducts promotions and media campaigns in stores, diving
        centers and tourist resorts. Mares, Dacor and Sporasub achieve high
        visibility in major specialized magazines as well as larger mass media
        due to focused partnerships with diving resorts, aquariums and athletes.
        Special attention is dedicated to the Mares website (www.mares.com),
        which we believe is considered one of the best in the industry and hosts
        over half a million visitors per year.

    To complement our marketing strategies, we cultivate the endorsement and
promotion of our products among athletes. These endorsements emphasize technical
performance and increase brand awareness.

    o   In Winter Sports, we maintain a strong program of endorsements by high
        profile athletes, such as Bode Miller, Didier Cuche, Johann Grugger,
        Maria Riesch, Marco Buchel, Sarka Zahrobska and Patrick Staudacher who
        won two gold medals in the recent World Championships, Evelyne Leu, who
        won the gold metal in free style skiing at the Winter Olympics 2006 in
        Turin and former champions such as "legend" Franz Klammer, the 1976
        Olympic Champion, and Patrick Ortlieb, another Olympic Champion. We also
        have an endorsement arrangement with the Austrian national ski team. In
        snowboarding, we have received endorsements from the German athlete, Jan
        Michaelis, who won the overall 2002 world championship title in Halfpipe
        and the Finnish athlete, Jukka Eratuli, who won the 2002, 2003 and 2005
        overall world championship title in the Big Air discipline, as well as
        from the U.S. athlete Steve Fisher, who won the X-games 2004.

    o   Our tennis racquet endorsement program is focused and highly selective.
        It includes current top level ATP players popular among the youth market
        such as Marat Safin and Gustavo Kuerten, WTA players such as Patty
        Schnyder, Anastasia Myskina and Swetlana Kusnezowa, as well as players
        from the ATP Senior Tour popular among mature players, including
        "legends" Thomas Muster, Bjorn Borg, Emilio Sanchez and Ilie Nastase.
        Recently world number five Ivan Ljubicic on the ATP Tour and world
        number three on the WTA Tour, Amelie Mauresmo, joined the professional
        players worldwide sponsored by Head. It was with the Head Flexpoint
        Radical that Andre Agassi reached the final of the US Open in 2005.
        Marat Safin won the Australian Open in 2005 with a Head racquet. In
        addition, since January 2003, we are the official tennis racquet of the
        US Professional Tennis Association with over 10,000 members. We are also
        the key racquet sponsor of the Professional Tennis Registry, the leading
        global tennis teaching organization.

    o   Penn is the official tennis ball for many major tennis tournaments
        worldwide, including ATP Tour and WTA Tour events, the Tennis Masters
        Series and Tennis Masters Cup. Penn is the exclusive sponsor/supplier of
        the US Professional Tennis Association and is the official ball of the
        USTA League Tennis Program as well.

    o   Most free diving world records have been set using Mares equipment. The
        last record set by Gianluca Genoni in Sharm el Sheikh/Egypt, October
        2006, was of 141 meters, variable ballast, which received worldwide
        recognition. In 2006, Mares was - for the sixth time - chosen the best
        manufacturer of Buoyancy Control vests (BC). "Tauchen" magazine awarded
        Mares the first prize for the best Buoyancy Compensator line of the
        year.

Research and Development

    We believe that we are an industry leader in the development of innovative
and technologically advanced sports equipment. Our research and development
groups identify consumer needs and shifts in consumer preferences in order to
develop new product ideas and concepts to satisfy such needs or preferences. To
ensure quality and precision, the majority of our products are designed on our
own computer-aided design and manufacturing (CAD/CAM) systems.

    We believe that our high level of expertise is evident in all our product
lines. Since Howard Head developed the first metal ski in 1950, we have
consistently introduced new materials and processes into the manufacture of
skis, including fiberglass, graphite, aluminum and titanium and led the industry
with the introduction of a complete line of carving skis. We utilize
sophisticated manufacturing processes to integrate torsion rib systems in all
Head skis in order to produce a torsionally stiff ski without losing softer


                                       22
<PAGE>

flexing properties. We have also developed an exponential dampening system for
skis and traction plates to promote top performance for all types of skiers. In
2002, we successfully adapted the piezoelectric Head Intellifiber and Head Chip
System to skis and launched Head Intelligence skis and Head Intelligence
snowboards in 2003. In 2003, we introduced the first fully integrated
ski-binding system in the lower- and mid-price segment. In 2005, we introduced
the new Supershape ski, appropriately named because of the pronounced side-cut
in the design. We believe that the incorporation of Intelligence Technology, to
enable the ski to adapt rapidly to different conditions, and Liquidmetal
qualities create a highly competitive product. We have also focused on our range
of skis for women with the Head Thang series, which is designed to provide
improved edge grip and easy turn initiation for the mid-speed range.

    Head ski boots has well established research and development resources and
is one of the leading innovators, with a long history in ski boot manufacturing.
In 2004, we introduced the "full custom system" which allows the width of the
boot to be adapted with an internal wedge. In 2006, we introduced a new line of
boots, named Dream Thang, specifically designed for women. The project
represents the first 4 buckle boot entirely developed specifically for women's
needs in terms of fit and skiing performance.

    In the area of bindings, we continually introduce new technical features for
improved performance, safety and comfort such as new Free Flex systems, the
unique safety "ABS" anti-friction toeplates, new and lighter designs of our
unique Diagonal safety feature, new integrative solutions with new mounting
processes (Railflex System), innovative light-weight constructions, as well as
changes in styling and appearance in each two- to three-year product cycle. In
2004, Tyrolia also introduced the second generation of Rail Flex, an integrated
tool free binding system. In 2005, we offered adapted bindings for the new
segments Freeride and Park & Pipe. In 2006, we introduced a redesigned junior
line with improved performance and, for women, light-weight Railflex models.

    Our expertise in tennis racquet design resulted in the 1997 launching of the
Head Titanium Tennis series and in 2000 the Head Intelligence racquet
technology. Some of these racquets feature a Microchip design, which converts
mechanical energy into electrical energy and the result is the first
chip-powered, electronically dampened tennis racquet. In 2002 we launched Head
Intelligence X, further advancing the performance benefits of the proprietary
Head Intelligence technology. In 2003 we introduced the Head Liquidmetal
technology in our racquets, which "Fortune" magazine and "Business Week"
declared to be one of the best 25 products of the year. Tennis magazines in the
United States and Germany also have recognized the state-of-the-art design of
this proprietary technology. In 2004 we brought the Protector series of racquets
to the market. These are specially designed to address the needs of players with
tennis elbow and contain the first-ever Electronic Dampening System (EDS). Our
EDS is different from other dampening systems because it reacts immediately upon
ball impact, not after, giving a revolutionary vibration dampening. Combined
with a special cushioned grip and strings, the system reduces stress on the arm
and can alleviate pain symptoms for some players with acute tennis elbow. In
2005, we launched Head Flexpoint, a unique racquet design that allows the user
to obtain better control over the ball without sacrificing power. 2006 saw the
launch of our latest technology, Metallix, geared to recreational players.

    Penn has long been a major source of innovation in the tennis ball market,
improving tennis balls through such innovations as the introduction of "play
related" tennis balls for different court surfaces and altitudes; optical yellow
tennis balls, which have become industry standard; and recyclable plastic tennis
ball containers with pull ring and plastic lid.

    Mares has a 57 year history of product innovation and we believe is one of
the most advanced research and development centers in the industry. In 2002,
Mares invented the new Airtrim Aystem for BCs which eliminates the old style
inflators. This technology approach is now also followed by other mayor players
in the market and seen as a new standard. Mares has thus renewed some key
elements in the area of diving. In 2005, we launched a range specifically
tailored to women divers, with a focus on performance, fashion and comfort.. In
2006, we released the new state-of-the-art diving computer Nemo Wide, which is
achieving considerable interest. Our latest product launch was the Liquid Skin
mask, which consists of two different areas of silicone to provide superior
comfort in wearing. The technology used to produce this skirt is patented and
differentiates us strategically not only by its appearance but also as compared
to the growing imports of inexpensive masks produced in Asia. Introduced
recently to the public at the most important Diving show in Europe, EUDI in
Rome, this product generated substantial interest.

Customers

    We sell our products to approximately 29,000 specialty sporting goods
stores, chain stores and department stores in over 85 countries. Our customers
vary depending on where our products are sold. Our largest customers include
Price Costco, The Sports Authority and Wal Mart in the United States; Victoria,
Alpen and Xebio in Japan; Intersport International, a voluntary buying group
which distributes our products predominantly in Europe; and Decathlon in France
and other European countries.

     The payment terms that we offer to customers in our three business areas
are consistent with the terms offered by other participants in the market.

     Winter Sports. This business area is very seasonal. We start our winter
sport sales in July and August, but our customers' sales to retail customers
occur primarily in November and December. Payment by our customers is not
contingent upon resale of our product by our customers. However, the standard
practice in this business area is for customers to pay their vendors only after
they begin to sell the vendor's products. Therefore, as a result of this
practice, payment terms for this business area typically exceed 90 days since we


                                       23
<PAGE>

receive cash payments between November and February for sales starting in July.
In the rental business we agree to payment terms over one year.

     Racquet Sports. Generally payment terms are between 60 and 90 days.
However, in limited cases, such as when we deliver products early or in
connection with certain sales campaigns, we may grant terms over 90 days.

     Diving. As a result of competition in this business area, and in line with
the standard practice of our competitors, we grant payment terms of 120 days to
our key customers for shipments to Italy, our major market. In addition, the
diving business in Europe is very seasonal with most sales occurring in the
spring and summer months. Despite this, we produce and deliver diving equipment
and products throughout the entire year so as to improve our production and
logistical capabilities.

Competition

    The sporting goods industry is highly competitive. We compete primarily on
the basis of product features, brand recognition, quality and price. We compete
with numerous international and national companies that manufacture and
distribute sporting goods and related equipment. We believe that we are
generally in a favorable position to face the consolidation of the sports
equipment market across all of our product lines.

    We compete in individual market segments against various competitors.

    o   The main competitors to our Head ski brand, are Rossignol, which is
        owned by Quiksilver; Salomon and Atomic, which are owned by Amer Group
        Plc; Fischer, which is owned by Fischer GmbH; and K2, which is owned by
        K2 Inc. Our Tyrolia bindings division competes primarily with Salomon,
        Marker and Atomic. With respect to Head ski boots, our main competitors
        are Salomon; Nordica, Technica and Dolomite - all of which are owned by
        the Technica-Lowa-Dolomite Group; and Lange and Rossignol, part of
        Rossignol S.A, now owned by Quicksilver.

    o   The principal competitors of the Head tennis racquet division are Wilson
        Sporting Goods Co., which is owned by Amer Group Plc, and Prince Sports
        Group Inc., which is owned by a partnership of the Prince Senior
        Management and the Lincolnshire Equity Fund II, L.P.

    o   The principal competitors of Penn/Head tennis balls are Wilson Sporting
        Goods Co., and Dunlop Slazenger International. In racquetball balls, our
        principal competitor is Ektelon, which is owned by Prince Sports Group,
        Inc.

    o   Competitors of the Mares and Dacor diving division include Scubapro,
        Uwatec (computers only), the Aqualung Group (which includes the U.S.
        Divers and Sea Quest brands), and Cressi.

    Some of our competitors, notably Salomon and Atomic, which are part of the
Amer Group Plc, are larger and have greater financial and other resources than
we do. We generally compete on a product-by-product basis, and believe that we
generally are preserving or acquiring market share as the sporting goods
industry consolidates.

Seasonality

    As many of our goods, especially winter sports goods, are shipped during a
specific part of the year, we experience highly seasonal revenue streams.
Following industry practice, we begin to receive orders from our customers in
the Winter Sports division from March until June, during which time we book
approximately three quarters of our orders for the year. We typically begin
shipment of skis, boots, bindings and snowboard equipment in July and August,
with the peak shipping period occurring in October and November. At this time,
we will begin to receive re-orders from customers, which constitute the
remaining quarter of our yearly orders. Re-orders are typically shipped in
December and January. Racquet Sports and Diving product revenues also experience
seasonality, but to a lesser extent than Winter Sports revenues.

Materials

    As a result of the price increases for oil and steel in the world market, we
faced significant cost increases in plastic components (bindings, ski boots,
diving fins), carbon-fibres (racquets) and metal parts (binding components and
ski edges) during 2005. In 2006, rubber prices (tennis and racquetball balls)
increased substantially. Price increases for plastic components continued in
2006 partly driven by the power energy crisis. However, prices for our key
materials peaked in 2006, and now appear to have stabilized.


Patents and Trademarks

    Our major trademarks are registered in the United States, throughout the
European Union and in several other countries, and we


                                       24
<PAGE>

consider trademark protection to be very important to our business. Significant
trademarks include Head, Tyrolia, Penn, Mares and Dacor. We believe that these
trademarks are important in identifying our products and the trademarks are
often incorporated prominently in product designs. Other trademarks include
Sporasub, Munari, Cyber and San Marco. We do not own the trademark "Liquidmetal"
but rather license the name pursuant to an agreement we have with Liquidmetal
Technologies, Inc. This agreement had an initial term of four years commencing
January 1, 2003, and the parties agreed to extend the agreement under similar
terms to December 31, 2008.

    We utilize some proprietary or patented technologies in the formulation or
manufacturing of a number of our products, including Free Flex technology in the
manufacture of our precision bindings, "Dimple" and "Shock Stop" technology in
the manufacture of our tennis racquets, "Autowalk" and "Double Power" buckles in
the manufacture of Head ski boots and various other proprietary technologies
used in the manufacture of our diving products. We also use patents in
connection with our Head Titanium tennis racquets and with Head Intelligence
technology, particularly the Chip System technology. We believe our proprietary
information to be among our most important and valuable assets, and generally
seek patent protection for our products in countries where significant existing
or potential markets for our products exist. We believe we have taken adequate
measures to protect our proprietary information in all of our major markets.

    We consider our proprietary technology and patent protection to be important
to our business. However, we are not dependent on any one patent or set of
patents. Some of our recently introduced products like Titanium, Intelligence,
Liquidmetal and Metallix tennis racquets, the Mares HUB system and Tyrolia
"Super Light" bindings have patents that have many years to run.

4.C.     Organizational Structure

     We were formed as a public company with limited liability in 1998 and hold
100% of the issued and outstanding share capital of Head Holding
Unternehmensbeteiligung GmbH, our intermediate holding company incorporated in
Austria. Our primary operating subsidiary is HTM Sport-und Freizeitgerate AG,
which in turn owns all of our worldwide operating and distribution subsidiaries
and is the issuer of our senior notes. For further discussion of how our Group
is managed and controlled, see "Item 3.D Risk Factors".

    The following is a list of Head N.V.'s significant subsidiaries and their
country of incorporation:

<TABLE>
<CAPTION>

                                                                                                  Proportion of
                             Subsidiary                                    Domicile            Issued Capital Held
  ----------------------------------------------------------------    -----------------        -------------------
<S>                                                                   <C>                               <C>
  Head Holding Unternehmensbeteiligung GmbH.......................    Austria                           100%
  HTM Sport- und Freizeitgerate AG................................    Austria                           100%
  Head Sport AG...................................................    Austria                           100%
  Head International GmbH.........................................    Austria                           100%
  Head Austria GmbH...............................................    Austria                           100%
  Head Technology GmbH............................................    Austria                           100%
  Tyrolia Technology GmbH.........................................    Austria                           100%
  Head Canada Inc.................................................    Canada                            100%
  Head Sport s.r.o................................................    Czech Republic                    100%
  HTM s.r.o.......................................................    Czech Republic                    100%
  Head France S.A.S...............................................    France                            100%
  Head Germany GmbH...............................................    Germany                           100%
  Head UK Ltd.....................................................    Great Britain                     100%
  Mares S.p.A.....................................................    Italy                             100%
  HTM Sports Japan KK.............................................    Japan                             100%
  Head Spain S.L..................................................    Spain                             100%
  Head Switzerland AG.............................................    Switzerland                       100%
  HTM USA Holdings Inc............................................    USA                               100%
  Head USA Inc....................................................    USA                               100%
  Penn Racquet Sports Inc.........................................    USA                               100%
  Power Ahead Holding Ltd.........................................    British Virgin Islands             70%
  Head Sports (Hui Zhou) Corp.....................................    China                              70%

</TABLE>

4.D.     Property, Plant and Equipment

    The following table sets forth information as of December 31, 2006 with
respect to the manufacturing, production, warehousing and office facilities used
by us in our business:

<TABLE>
<CAPTION>

                                                                                                 Area (in
            Location                              Description                 Owned/ Leased   square meters)
-------------------------------    ----------------------------------------  -------------------------------
<S>                                <C>                                       <C>                  <C>
Kennelbach, Austria............    Ski manufacturing                         Leased                12,665
                                   Administration, marketing, research       Leased                 4,670
                                   and development
Klaus, Austria.................    Warehousing                               Leased                 8,710

</TABLE>


                                       25
<PAGE>

<TABLE>
<CAPTION>
<S>                                <C>                                       <C>                  <C>
Schwechat, Austria.............    Binding manufacturing                     Leased                12,709
                                   Warehousing                               Leased                 5,510
                                   Administration, marketing, research       Leased                 1,472
                                   and development
Neusiedl, Austria..............    Warehousing                               Leased                 2,974
Maser, Italy...................    Ski boot research and development         Leased                 1,800
Litovel, Czech Republic........    Ski boot and diving products
                                   Manufacturing                             Owned                  8,122
                                   Warehousing                               Owned                  7,182
Budweis, Czech Republic........    Ski manufacturing                         Owned                  5,790
                                   Warehousing                               Owned                  4,199
Rapallo, Italy.................    Diving manufacturing                      Owned                  1,500
                                   Warehousing                               Owned                  2,000
                                   Administration, marketing, research       Owned                  2,500
                                   and development
Casarza, Italy.................    Manufacturing                             Owned                  3,966
                                   Warehousing                               Owned                  3,742
Phoenix, Arizona...............    Tennis and racquetball ball               Owned                 13,009
                                   administration, manufacturing,
                                   research and development
Daya Bay, China.................   Manufacturing, warehousing and            Owned                 15,158
                                   administration
</TABLE>

    In 2005, we outsourced our tennis racquet production from our sites in
Kennelbach, Austria, and Budweis, Czech Republic, to a contract manufacturer in
China. We closed down our production site for ski bindings in Neusiedl, Austria
which we will use for warehousing. Binding assembly is partially outsourced to a
partner located in the Czech Republic. We also extended our warehouse facilities
in Budweis, Czech Republic.

    Additionally, we rely on third-party manufacturers in Austria (snowboards),
Estonia, Italy and Bulgaria (diving products), and in Asia, such as in China
(accessories and snowboards, bindings, boots, helmets, body protection,
badminton) and Thailand (diving products, badminton).

    In addition, to the facilities described above, we own and lease additional
facilities in various areas throughout the world. Our leased facilities have
remaining terms generally ranging from one to four years.

    Substantially all leases contain renewal options pursuant to which we may
extend the lease terms in increments of one to four years. We do not anticipate
any difficulty in renewing our leases as they expire.

    Management considers our facilities to be well maintained and satisfactory
for our operations, and believes that our facilities, together with our contract
manufacturing relationships, provide sufficient capacity for our current and
expected production requirements.

Environmental Matters

    Our operations are subject to European Union, federal, state and local laws,
regulations and ordinances relating to the operation and removal of underground
storage tanks and the storage, handling, generation, treatment, emission,
release, discharge and disposal of various materials, substances and wastes. The
nature of our operations exposes us to the risk of claims with respect to
environmental matters and we cannot assure you that material costs or
liabilities will not be incurred in connection with such claims.

    Based on our experience to date, we believe that future cost of compliance
with environmental laws, regulations and ordinances, or exposure to liability
for environmental claims, will not have a material adverse effect on our
business, operations, financial position or liquidity. However, future events,
such as changes in existing laws and regulations, or unknown contamination of
sites owned or operated by us (including contamination caused by prior owners
and operators of such sites), may give rise to additional compliance costs which
could have an adverse effect on our operating results and financial condition.

ITEM 5:  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     Effective January 1, 2006, we have changed our basis of accounting to IFRS
as adopted. We have also changed our reporting currency from U.S. dollars to
euro. For a discussion of the principal differences between IFRS as adopted and
US GAAP, as they relate to us and our consolidated subsidiaries, and a
reconciliation of profit (loss) and total shareholders' equity to US GAAP, see
Note 31 to our consolidated financial statements for the years ended December
31, 2006, 2005 and 2004, included in this annual report.


                                       26
<PAGE>

5.A.     Operating Results

Overview

     We generate revenues in our principal markets by selling goods directly to
retail stores and, to a lesser extent, by selling to distributors. We also
receive licensing and royalty income. As many of our goods, especially Winter
Sports goods, are shipped during a specific part of the year, we experience
highly seasonal revenue streams. Following industry practice, we begin to
receive orders from our customers in the Winter Sports division from March until
June, during which time we book approximately three quarters of our orders for
the year. We typically begin shipment of skis, boots and bindings in July and
August, with the peak shipping period occurring in October and November. At this
time, we begin to receive re-orders from customers, which constitute the
remaining quarter of our yearly orders. Re-orders are typically shipped in
December and January. Racquet Sports and Diving product revenues also experience
seasonality, but to a lesser extent than Winter Sports revenues.

     Winter Sports. Snowfalls at the end of November and the beginning of
December 2005 in all the Company's major winter sports markets, including Japan,
generated early interest in winter sports products, and retailers reported
improved sales at the beginning of the winter sports season 2005/2006 compared
to the previous year. Ski boots, in particular, reported comparatively high
sales. Reorders of winter sports products during January through March 2006 were
substantially higher than in previous years, as skiing conditions remained
excellent all over the world. The total winter sports retail market for the
2005/2006 season reported an increase in sales of ski boots and a slight decline
in sales of skis. In 2006, pre-season orders for Winter Sports products from
March until June showed some growth for all winter sports equipment, but
reorders at the end of 2006 were negatively impacted by the bad snow conditions
in almost all major winter sports areas. Overall we estimate that the total
market for winter sports products was relatively stable in 2006, with a relative
increase in sales at the beginning of the year and a relative decrease at the
end.

     Racquet Sports. Tennis racquet sales were strong throughout the global
market for the first six months of 2006, in particular in North and South
America, as well as in Europe. In the spring, poor weather conditions slowed
sales markedly and caused higher inventories at the retail level. As a result,
during the second half of 2006, retailers purchased fewer products to allow
their inventories to come back down. Over the full year 2006, the US market
finished with a slight increase in tennis racquet sales compared to 2005, with
an increase of 1.3% in units sold and of 1.8% in revenue. In Europe, in 2006,
the market declined by 4.5% and 3.1% in units sold and revenue, respectively,
compared to 2005, while in Japan, the tennis racquet market declined by 5.2% and
3.9% in units sold and revenue, respectively, compared to 2005. Based on this
information, we estimate that the global tennis racquet market declined by
approximately 3% and 2% in units sold and revenue, respectively, compared to
2005. Global market sales of tennis balls in 2006 had mixed results. The US
market performed very well and gained 5.2% and 8.1% in units sold and revenue,
respectively, compared to 2005, while the European market recorded an increase
of 3.5% in units sold and a decline of 1.3% in revenue, indicating a further
deterioration in the average selling price. This decline in revenues from sales
of tennis balls is a result of the declining value of the US dollar compared to
the euro, as all tennis balls are produced in US dollar-based countries, which
permits companies based in Europe to lower manufacturing costs.

     Diving. The consensus among manufacturers is that the European market has
begun to stabilize during 2006, and the Eastern European market continues to
grow, albeit slowly. The American and Asian markets also showed a positive trend
during 2006, although the Japanese market continued to decline.

     The Company operates in a multi-currency environment and is subject to
currency translation risk and, to a lesser extent, currency transaction risk,
principally between the euro and U.S. dollar. See "Item 3.D Risk Factors", the
discussion below regarding the impact of exchange rate fluctuations and "Item
11. Quantitative and Qualitative Disclosure about Market Risk".

Business Rationalization

     As part of our strategy to manage costs, we have undertaken a series of
measures to rationalize our manufacturing structure in each of our product
lines.

     In 2003, we purchased a manufacturing facility in Litovel, Czech Republic,
for EUR 2.1 million, to which we transferred our ski boot production from
Tallinn, Estonia. In 2005, our property in Tallinn, Estonia, was sold for
EUR 7.7 million and we realized a gain of EUR 5.9 million.

     In 2004, we closed our tennis ball production in Mullingar, Ireland, and
sold our property there for EUR 5.7 million ($6.9 million).

     In April 2005, we decided to outsource our tennis racquet production from
our European sites in Kennelbach, Austria and Eeske Budejovice, Czech Republic
to China. As of December 31, 2005, we had recorded EUR 3.2 million in
restructuring costs relating to this program, consisting mainly of an impairment
of EUR 1.4 million pertaining to machinery and equipment, additional costs of
EUR 0.9 million due to production inefficiencies (mainly personnel costs) and
EUR 0.8 million of employee severance costs. The fair value of the impaired
assets was determined using the discounted cash flow method for cash flows
expected to be generated in the future. We largely completed the program during
2005.


                                       27
<PAGE>

     In 2004, we transferred the production of our ski boots from Estonia to our
new factory in Litovel, Czech Republic, which allowed us to improve our
efficiency and service. In November 2005, we decided to move our remaining ski
boot production from the Maser plant, Italy, to our plant in the Czech Republic.
The transfer from Italy to the Czech Republic was completed in 2006 with the
closure of the injection department in Italy. In 2006, we produced all of our
ski boots in the Czech Republic

     In July 2005, we started to restructure our ski binding production and
recorded EUR 0.6 million in employee severance costs. This restructuring
process was largely finalized at the end of 2005.

     In July 2005, we also entered into an important business venture for the
manufacture of tennis balls, as described below under "Business Venture
Agreement".

     In November 2005, as a consequence of reduced sales in Diving, we approved
a restructuring program to reduce our production capacity in Italy and transfer
production to Eastern Europe and the Far East starting in January 2006. In 2005,
the total costs for the restructuring program were EUR 1.0 million and
represented personnel costs. As of December 31, 2005 those costs were fully
accrued and EUR 0.9 million were paid in 2006. This restructuring process will
be finalized in 2007 with a final anticipated additional payment of EUR 0.3
million.

     For information regarding restructuring costs related to our business
rationalization programs, see "Item 3A. Selected Financial Data", and the
"Restructuring Costs" discussions in the year-to-year analyses under "Results of
Operations" below.

Business Venture Agreement

     In July 2005, the Company signed an agreement for the establishment of a
company in the British Virgin Islands. The business venture was established to
found a company in China which, starting in January 2007, manufactures tennis
balls for exclusive sale to the Company. We believe that this business venture
will lead to cost savings beginning in 2008. The Company and its venture partner
have a 70% and 30% interest, respectively, in the newly formed company. We
expect that the total amount to be invested by our partner and us will be
approximately EUR 9.2 million ($12.0 million), of which we had invested
EUR 5.1 million as of December 31, 2006.

     In accordance with IAS 27 in connection with SIC 12 this venture qualifies
as a special purpose entity due to the fact that the Chinese company was formed
to manufacture tennis balls solely on behalf of the Company. As a result the
Company consolidated this entity and, in accordance with IAS 32, recorded other
long-term liabilities of EUR 2.2 million and EUR 0.3 million as of December
31, 2006 and 2005, respectively, for the contribution of its partner.

     The Company's partner in this venture has the right to receive a guaranteed
yearly dividend on its investment balance starting in the month after the
operation has started. In 2006, no dividend was paid. Operations started in
January 2007.

Factors Affecting Revenues

    As a manufacturer and distributor of branded sporting goods, our revenues
are affected by the overall economic trends of our principal geographic markets,
mainly Europe, but also the United States and Japan, and related changes in
consumer spending on leisure goods. Weather can also affect our revenues. For
example, a lack of snow in a particular area in a particular season will result
in fewer purchases of skiing and snow boarding equipment and poor weather at a
diving location may reduce interest in the sport and related equipment
purchases. We believe our global geographic penetration and diversification of
sports products help to mitigate any localized adverse impacts from weather.
Other factors that can affect our revenues are consumer preferences based on
technical innovations, and the general level of interest in the sports for which
we produce equipment. In addition, the rate of leisure travel can affect our
revenues as purchases of our equipment are often related to customers traveling
to ski and diving destinations. For further discussion of the factors affecting
demand for our products, see "Item 3.D Risk Factors".

    Most of our revenues are denominated in euro, the functional currency of our
European operations, and approximately 40% is denominated in U.S. dollars. Our
revenues are thus affected by movements in the exchange rate of the U.S. dollar
and other currencies against the euro. Our revenues are also affected by
fluctuations in the value of the currency in which the products are sold
relative to the value of the currencies of the countries from which the products
were shipped. For example, appreciation of the euro against the U.S. dollar may
adversely affect the revenues or margins from our products manufactured on an
euro-cost basis and sold in the United States if they become less price
competitive on a U.S. dollar basis or sell for lower prices on a euro basis,
which reduces our margins.

Factors Affecting Expenses

    We separate our principal expenses into:

    o   cost of sales;

    o   selling and marketing expenses;


                                       28
<PAGE>

    o   general and administrative expenses; and

    o   interest expense.

    The major components of cost of sales are raw materials and payroll and
energy expenses related to the manufacturing of our products. Depreciation of
our manufacturing equipment and production sites, as well as research and
development expenses associated with the development of our products, are also
included in this category.

    In 2005, as a result of the price increases for oil and steel in the world
market, we faced significant cost increases in plastic components (for bindings,
ski boots, diving fins), carbon-fibers (for racquets) and metal parts (for
binding components and ski edges). In 2006, rubber prices (for tennis and
racquetball balls) increased substantially. The trend in price increase of
plastic components continued in 2006, partly driven by the high oil prices.
However, prices for our key materials peaked in 2006, and now appear to have
stabilized.

    Selling and marketing expenses are comprised primarily of advertising
expenses (including the sponsorship of professional athletes) and payroll
expenses related to the selling department. Also included in this category are
commission payments to sales teams. General and administration expenses include
warehousing expenses and various administrative costs.

    Approximately 80% of our annual capital expenditures are for maintenance of
our facilities and equipment, including molds and tools. Some product lines
change annually as new products are introduced, while others are in use for
several years. In 2006, 2005 and 2004, we spent approximately EUR 15.0
million, EUR 14.6 million and EUR 19.1 million, respectively, on facilities
and equipment maintenance. These expenditures are financed through our operating
cash flow. We expect our annual capital expenditures to be stable during the
next three years due to our reliance on outsourced production.

    In connection with ordinary share options granted to officers we have
incurred share-based compensation expenses of approximately EUR 1.8 million
expense in 2006 and we recorded EUR 0.9 million of income in 2005 and
EUR 1.9 million of expense in 2004. As of December 31, 2006, other long-term
liabilities with regards to our stock options amounted to approximately
EUR 6.7 million. The change in fair value will be recognized as income or
expense over the remaining life of the options. Any further stock option grants
will result in additional income or expense being recognized.

    Our expenses, as reported in euro, are also affected by movements in the
exchange rate of the euro against the currencies of the countries in which we
operate and sell our goods. Of our cost of goods sold and other operating
expenses approximately 64% is generated in euro whereas approximately 33% is
generated in U.S. dollar. Because a portion of our U.S. dollar revenues are
generated from products manufactured on an euro-cost basis, the appreciation of
the euro against the U.S. dollar has decreased our revenues when translated into
euro and negatively impacted our margins.


Restatement of Previously-Issued Financial Statements

     As described in Note 2 to the financial statements, the Company operates a
number of share-based compensation plans which were originally accounted for as
equity-settled. In the process of preparing the consolidated financial
statements for the year ended December 31, 2006, the Company determined that
certain share-based compensation awards should have been accounted for as
cash-settled (liability awards) under IFRS 2, "Share-based Payment".
Accordingly, the Company recognized an additional liability of EUR 5.4 million
and EUR 5.4 million, as of December 31, 2005 and 2004 and recognized different
share-based compensation income (expense) of EUR 0.7 million and EUR 1.3
million), for the years ended December 31, 2005 and 2004.

Critical Accounting Policies and Estimates

     Our consolidated financial statements prepared in accordance with IFRS as
adopted, and the reconciliation of our consolidated financial statements from
IFRS as adopted to US GAAP, are dependent upon and sensitive to accounting
methods, assumptions and estimates that we use as bases for the preparation of
our consolidated financial statements and reconciliation. We have identified the
following critical accounting estimates and related assumptions and
uncertainties inherent in our accounting policies that we believe are essential
to an understanding of the underlying financial reporting risks, and the effect
that these accounting estimates, assumptions and uncertainties have on our
consolidated financial statements under IFRS as adopted and our reconciled US
GAAP financial information.

Impairment of Trade Receivables

     We maintain impairment of trade receivables for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional impairment may be required. We
specifically analyze trade receivables and evaluate historical bad debt,
customer concentrations, customer creditworthiness, current economic trends and
changes in our customer payment terms when evaluating the adequacy of the
impairment of trade receivables. These estimations are continually reviewed.
Recoveries related to changes in reserves did not occur in 2006.


                                       29
<PAGE>

Impairment of Long Lived Assets

     Property, plant and equipment and other intangible assets with a definite
useful life are initially stated at cost less accumulated depredation and
impairment loss. Depreciation on property, plant and equipment is computed using
the straight-line method over their estimated useful lives. We have determined
useful lives of property, plant and equipment after consideration of historical
results and anticipated results based on our current plans. Our estimated useful
lives represent the period the asset remains in service assuming normal routine
maintenance. We review the estimated useful lives assigned to property, plant
and equipment when our business experience suggests that they do not properly
reflect the consumption of the economic benefits embodied in the property, plant
or equipment nor result in the appropriate matching of cost against revenue.
Factors that lead to such a conclusion may include physical observation of asset
usage, examination of realized gains and losses on asset disposals and
consideration of market trends such as technological obsolescence or change in
market demand.

     Goodwill and other intangible assets with an indefinite useful life are
carried at cost less accumulated impairment loss and are tested annually. The
classification if an intangible asset has an indefinite useful life is when the
future economic benefit is not limited to a certain period of time.

     When events or changes in circumstances indicate that the carrying amount
may not be recoverable, property, plant and equipment and intangible assets are
reviewed for impairment. When such assets' carrying amount is greater than the
recoverable amount of those assets, an impairment loss is recognized equal to
the difference between the fair value of the assets and their carrying value.
Factors we consider important, which could trigger an impairment review, include
the following:

    o   significant underperformance relative to historical or projected future
        results;
    o   significant changes in the manner of our use of the acquired assets or
        the strategy for the related business; and
    o   significant negative industry or economic trends.

     The assessment of tangible and intangible long-lived assets for possible
impairment requires certain judgements and estimates to be made by us, primarily
related to our future cash flows. Our future cash flows reflect a number of
assumptions including sales volume, prices, and terminal values of tangible
long-lived assets, which are based on the expected life of products and
forecasted life cycle.

     Under US GAAP, the recoverability of assets that are held and used is
measured by comparing the sum of the future undiscounted cash flows derived from
an asset (or a group of assets) to their carrying value. If the carrying value
of the asset (or the group of assets) exceeds the sum of the future undiscounted
cash flows, an impairment is considered to exist. If an impairment is considered
to exist on the basis of undiscounted cash flows, the impairment charge is
measured using an estimation of the assets' fair value. Reversal of previously
recognized impairment losses is not permitted.

     The determination of the recoverable amount of a cash-generating unit
(under IFRS as adopted) or the fair value of an asset group or a reporting unit
(under US GAAP) involves the use of estimates by management. Methods used to
determine the fair value less costs to sell (under IFRS as adopted) or fair
value of an asset group (under US GAAP), include discounted cash flow
methodologies and models based on quoted stock market prices. Key assumptions on
which management has based its determination of fair value include primarily
related to our future cash flows. Our future cash flows reflect a number of
assumptions including sales volume, prices, and terminal values of tangible
long-lived assets, which are based on the expected life of products and
forecasted life cycle. These estimates can have a material impact on fair value
under both IFRS as adopted and US GAAP and the amount of any impairment loss.

       While we believe that our assumptions are appropriate, such estimates
could differ materially from what will actually occur in the future.

Liabilities for Product Warranties

     We provide for the estimated cost of product warranties and product returns
at the time revenue is recognized. Our warranty provision is established based
on our best estimates of the amounts necessary to settle future and existing
claims on products sold as of the balance sheet date. Our product return
provisions are based on our historical experiences. While we believe that our
warranty and product return provisions are adequate and that the judgment
applied is appropriate, such amounts estimated to be due and payable could
differ materially from what will actually transpire in the future. We update
these estimated charges periodically. The actual product performance and/or
field expense profiles may differ, and in those cases we adjust our warranty
reserves accordingly. Future warranty expenses may exceed our estimates, which
could lead to an increase in our cost of sales. Significant differences from our
estimates did not occur in the past.


                                       30
<PAGE>

Inventory Obsolescence

     Our chosen markets are competitive and subject to fluctuations in demand
and technological obsolescence. We periodically review our inventory for
obsolescence and declines in market value below cost. Estimated obsolescence or
unmarketable inventory led to write-downs of our inventory to the estimated
market value based upon assumptions about future demand and market conditions.
If actual future demand or market conditions are less favourable than those
projected by us, additional inventory write-downs may be required. No
significant write downs were recognized in 2006.

Realization of Tax Loss Carry Forwards

     We reduce our deferred tax assets to the amount that we believe is probable
to be realized. While we have considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the amount to be
realized, in the event we were to determine that we would not be able to realize
all or part of our net deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to income in the period such determination
was made. Changes in local income tax rates may also affect deferred tax assets.

     As of December 31, 2006, we had approximately EUR 299.2 million of net
operating tax loss carry forwards, primarily in Austria. Austria allows an
unlimited carryover of net operating losses. Accordingly, we believe it is
probable that we will utilize EUR 257.2 million of net operating loss carry
forwards to lower cash taxes on future taxable income (see Note 21 to our
consolidated financial statements). The realization of operating loss carry
forwards is ultimately dependent upon our ability to generate future earnings in
the respective jurisdictions. There can be no guarantee that we will generate
future earnings.

First-Time Adoption of International Financial Reporting Standards

     The IASB issued a series of amendments to existing standards and published
new standards and interpretations, which have been mandatory since January 1,
2006. These new regulations are also applicable in the EU and relate to the
following areas:

-   IAS 19, (Amended 2004), Employee Benefits- Actuarial Gains and Losses, Group
    Plans and Disclosures.
-   IAS 21, (Amendment), Net Investment in a Foreign Operation.
-   IAS 39, (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup
    Transactions.
-   IAS 39, (Amendment), The Fair Value Option.
-   IAS 39, and IFRS 4 (Amendment), Financial Guarantee Contracts.
-   IFRS 1, (Amendment), First-time Adoption of International Financial
    Reporting Standards and IFRS 6 (Amendment), Exploration for and Evaluation
    of Mineral Resources.
-   IFRS 6, Exploration for and Evaluation of Mineral Resources.
-   IFRIC 5, Rights to Interests arising from Decommissioning, Restoration and
    Environmental Rehabilitation Funds. - IFRIC 6, Liabilities arising from
    Participating in a Specific Market - Waste Electrical and Electronic
    Equipment.
-   IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting
    in Hyperinflationary Economies (effective from March 1, 2006).
-   IFRIC 8, Scope of IFRS 2 (effective for annual periods beginning on or after
    May 1, 2006).
-   IFRIC 9, Reassessment of embedded derivates (effective for annual periods
    beginning on or after June 1, 2006).

Standards effective in 2006 early adopted

     IFRIC 4 requires the determination of whether an arrangement is or contains
a lease to be based on the substance of the arrangement. It requires an
assessment of whether: (a) fulfillment of the arrangement is dependent on the
use of a specific asset or assets (the asset); and (b) the arrangement conveys a
right to use the asset. The Company has already adopted IFRIC 4 on a 2004
long-term supplier contract.

     The following of the aforementioned standards and interpretations were
adopted for the first time:

     IAS 19 (Amendment), Employee Benefits, introduces the option of an
alternative recognition approach for actuarial gains and losses. It may impose
additional recognition requirements for multi-employer plans where insufficient
information is available to apply defined benefit accounting. It also adds new
disclosure requirements. As the Company does not intend to change the accounting
policy adopted for recognition of actuarial gains and losses and does not
participate in any multi-employer plans, adoption of this amendment only impacts
the format and extent of disclosures presented in the accounts.

     IFRIC 8 requires consideration of transactions involving the issuance of
equity instruments - where the identifiable consideration received is less than
the fair value of the equity instruments issued - to establish whether or not
they fall within the scope of IFRS 2. The Company will apply IFRIC 8 from
January 1, 2007, but it is not expected to have any impact on the Company's
accounts;

     Management assessed the relevance of the other amended standards and
interpretations with respect to the Company's operations and concluded that they
are not relevant to the Company.


                                       31
<PAGE>

New financial reporting standards not yet adopted

     The IASB issued further standards and amendments to standards and
interpretations, which are not yet mandatory in the financial year 2006. The
following standards had been endorsed by the EU and published in the official
journal by the time these consolidated financial statements were prepared.

-   IAS 1 (amended 2006), Presentation of Financial Statements - Capital
    Disclosures
-   IFRS 7, Financial Instruments - Disclosures

     IFRS 7 introduces new disclosures to improve the information about
financial instruments. It requires the disclosure of qualitative and
quantitative information about exposure to risks arising from financial
instruments, including specified minimum disclosures about credit risk,
liquidity risk and market risk and also including sensitivity analysis to market
risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and
Similar Financial Institutions, and disclosure requirements in IAS 32, Financial
Instruments: Disclosure and Presentation. It is applicable to all entities that
report under IFRS.

     The amendment to IAS 1 introduces disclosures about the level of an
entity's capital and how it manages capital.

     The Company assessed the impact of IFRS 7 and the amendment to IAS 1 and
concluded that the main additional disclosures will be the sensitivity analysis
to market risk and the capital disclosures required by the amendment, of IAS 1.
The Company will apply IFRS 7 and the amendment to IAS 1 from annual periods
beginning January 1, 2007.

     The IASB has issued additional financial reporting regulations, which,
however, at the time the consolidated financial statements were prepared, had
not yet been endorsed by the EU.

-   IFRS 8, Operating Segments
-   IFRIC 10, Interim Financial Reporting and Impairment
-   IFRIC 11, IFRS 2 Group and Treasury Share Transactions
-   IFRIC 12, Service Concession Arrangements

     IFRIC 10, Interim Financial Reporting and Impairment (effective for annual
periods beginning on or after November 1, 2006). IFRIC 10 prohibits the
impairment losses recognized in an interim period on goodwill, investments in
equity instruments and investments in financial assets carried at cost to be
reversed at a subsequent balance sheet date. The Company will apply IFRIC 10
from January 1, 2007 but it is not expected to have any impact on the Company's
accounts.

     The Company will evaluate the effect of the first time adoption of the new
standards and interpretations.

Recent Accounting Pronouncements

     In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109," ("FIN
48"). FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain
tax positions that it has taken or expects to take on a tax return. FIN 48 is
effective for us as of January 1, 2007. The Company is currently evaluating the
impact of adopting FIN 48 and is unable to estimate the impact at this time, if
any, on the consolidated financial statements.

     In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. The
provisions of SFAS 157 are effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the potential impact, if any, that
the adoption of SFAS 157 will have on its financial statements.

     In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"), which provides
interpretive guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of a
materiality assessment. SAB 108 is effective for fiscal years ending after
November 15, 2006.

Results of Operations

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

     The following table sets forth each line item of our consolidated statement
of operations as a percentage of total net revenues for the periods shown:


                                       32
<PAGE>

<TABLE>
<CAPTION>


                                                            For the Years Ended
                                                                December 31,
                                             -----------------------------------------------------------------
                                                      2006                        2005               Change
                                             ------------------------    -----------------------    ----------
                                                 EUR            %            EUR           %            EUR
                                             -----------   ----------    ----------    ---------    ----------
                                                            (in thousands, except percentages)
                                             -----------------------------------------------------------------
                                                                                Restated
                                             -----------   ----------    -----------------------    ----------
<S>                                             <C>           <C>          <C>           <C>            <C>
Total net revenues....................          366,762       100.0%       359,566       100.0%         7,196
Cost of sales.........................          222,597        60.7%       221,536        61.6%         1,061
                                             -----------   ----------    ----------    ---------    ----------
Gross profit..........................          144,165        39.3%       138,030        38.4%         6,134
                                             ===========   ==========    ==========    =========    ==========
Selling and marketing expense.........           92,929        25.3%        92,053        25.6%           876
General and administrative expense....           32,160         8.8%        29,595         8.2%         2,565
Gain on sale of property..............               --           --       (5,876)       (1.6%)         5,876
Restructuring costs...................               --           --         5,073         1.4%        (5,073)
Other operating (income) expense......             (902)       (0.2%)        1,533         0.4%        (2,435)
                                             -----------   ----------    ----------    ---------    ----------
Operating profit......................           19,978         5.4%        15,652         4.4%         4,325
                                             ===========   ==========    ==========    =========    ==========
Interest expense......................          (12,376)       (3.4%)      (12,808)       (3.6%)           432
Interest income.......................            1,609         0.4%         2,110         0.6%           (500)
Foreign exchange gain (loss)..........             (297)       (0.1%)        2,121         0.6%         (2,417)
                                             -----------   ----------    ----------    ---------    ----------
Profit before income taxes............            8,914         2.4%         7,075         2.0%          1,839
                                             ===========   ==========    ==========    =========    ==========
Income tax expense....................           (4,499)       (1.2%)         (348)       (0.1%)        (4,152)
                                             -----------   ----------    ----------    ---------    ----------
Profit for the year...................            4,415         1.2%         6,728         1.9%         (2,313)
                                             ===========   ==========    ==========    =========    ==========

</TABLE>

     Total Net Revenues. For the year ended December 31, 2006, total net
revenues increased by EUR 7.2 million, or 2.0%, to EUR 366.8 million from
EUR 359.6 million in 2005. This increase was due to higher sales volumes in
our winter sports products. The strengthening of the euro against the U.S.
dollar during 2006 and a decline in licensing revenues partly offset this
positive development.

     The following table sets forth revenues for each of our product categories
for each of the years ended December 31, 2006 and 2005:



                                          For the Years Ended December 31,
                                   -------------------------------------------
                                       2006             2005         % Change
                                   --------------     ----------    ----------
                                         (in thousands, except percentages)
                                   -------------------------------------------
Product category:
Winter Sports..............        EUR 188,070      EUR 177,311          6.1%
Racquet Sports.............            132,683          132,935         (0.2%)
Diving.....................             48,623           48,937         (0.6%)
Licensing..................              8,078            9,309        (13.2%)
                                   ------------      -----------    -----------
Total Revenues.............            377,454          368,492           2.4%
Sales Deductions...........            (10,692)          (8,926)         19.8%
                                   ------------      -----------    -----------
      Total Net Revenues...        EUR 366,762      EUR 359,566           2.0%
                                   ============      ===========    ===========

     Winter Sports revenues increased by EUR 10.8 million, or 6.1%, to
EUR 188.1 million from EUR 177.3 million in 2005. This increase was due to
higher sales volumes in all of our product categories and almost all of our
geographic markets as a result of good snow conditions during the winter season
2005/2006, as well as to relatively low inventories at the retail level, which
lead to strong pre-season orders of winter sports products from March until June
2006. Reorders from October through December 2006, however, were below prior
year levels, as snow conditions were unfavourable in most geographic markets. At
retail level we experienced increased demand mainly for racing and junior
products during the last part of 2006 as a result of the success of Bode Miller,
Marco Buchel, Maria Riesch and Didier Cuche in the Worldcup events of Lake
Louise, Beaver Creek, Val Gardena and Hinterstoder.

     Racquet Sports revenues decreased by EUR 0.3 million, or 0.2%, to
EUR 132.7 million from EUR 132.9 million in 2005. Higher sales volumes in
racquets and balls were offset by negative product mix. While units and revenue
in the U.S. market grew by 1.3% and 1.8%, respectively, in 2006, declines in the
European and Japanese markets more than offset these gains.

     Diving revenues decreased by EUR 0.3 million, or 0.6%, to EUR 48.6
million from EUR 48.9 million in 2005. This decrease was mainly due to a
special product launch in the first quarter of 2005 (Limited Edition) which was
not repeated in 2006. Our growth in the Mares diving business was partially
offset by an expected decline in the Dacor diving business, as well as declines
in the snorkeling and spear fishing categories due to our emphasis on the
promotion of our Mares products.


                                       33
<PAGE>

     Licensing revenues decreased by EUR 1.2 million, or 13.2%, to EUR 8.1
million from EUR 9.3 million in 2005. This decrease reflected the termination
of a footwear license agreement which we plan to replace by taking advantage of
our own distribution network, and the termination of an apparel license
agreement in the UK which we expect will be replaced in 2007.

     Sales deductions consist of sales incentives, which are earned by our
customers subsequent to delivery of our product, including cash discounts for
volume rebates and other than cash consideration. Sales deductions increased by
EUR 1.8 million, or 19.8%, to EUR 10.7 million from EUR 8.9 million in
2005 due to increased sales in winter sports products and higher sales volumes
in racquet sports.

     Cost of Sales. Cost of Sales increased by EUR 1.1 million, or 0.5%, to
EUR 222.6 million from 221.5 million in 2005 due to increased sales volumes
and continuing high oil and steel prices on the world market. The high
commodities prices led to cost increases in plastic components (for bindings,
ski boots, diving fins),carbon-fibers (for racquets), metal parts (for binding
components and ski edges) and rubber (for tennis and racquetball balls) which
were partially offset by the reductions in manufacturing costs for ski boots,
tennis racquets, tennis balls and diving fins resulting from our business
rationalization programs.

     Gross Profit. Gross profit increased by EUR 6.1 million, or 4.4%, to
EUR 144.2 million from EUR 138.0 million in 2005 due to increased revenues
and the improvement in manufacturing costs resulting from our business
rationalization programs. Gross margin increased to 39.3% in 2006 from 38.4% in
2005. The positive development in gross margin was due to our winter sports and
diving business and reflected improved production efficiency. Gross margin was
also positively affected by the reductions in manufacturing costs for tennis
racquets and tennis ball.

     Selling and Marketing Expense. Selling and marketing expense increased by
EUR 0.9 million, or 1.0%, to EUR 92.9 million from EUR 92.1 million in
2005. This increase was mainly due to the higher advertising and departmental
selling expenditures in connection with our new branding. The increased selling
and marketing expenses were partly offset by a lower provision for bad debt.

     General and Administrative Expense. General and administrative expense
increased by EUR 2.6 million, or 8.7%, to EUR 32.2 million from EUR 29.6
million in 2005. This increase was due to higher compensation expenses of
EUR 2.7 million, resulting from the cash-settled stock option plans.

     Gain on Sale of Property. In June 2005, we sold a property in Tallinn,
Estonia, previously used for manufacturing purposes, and realized a gain of
EUR 5.9 million.

     Restructuring Costs. In 2005, we recorded restructuring costs of EUR 5.1
million relating to the reduction of our tennis racquet production in
Kennelbach, Austria, and Budweis, Czech Republic, and the restructuring program
of our ski binding production. The restructuring costs reflected primarily an
impairment of EUR 1.4 million, employee severance cost of EUR 2.7 million of
which EUR 1.4 million were accrued, and additional cost due to production
inefficiency of EUR 0.9 million. In 2006, we paid EUR 1.3 million and an
additional EUR 0.1 million will be paid in 2007.

     Operating Profit. As a result of the foregoing, operating income increased
by EUR 4.3 million to EUR 20.0 million from EUR 15.7 million in 2005.
Excluding the impact in 2005 of the sale of property (gain of EUR 5.9 million)
and restructuring costs (EUR 5.1 million), operating profit increased by
EUR 5.1 million compared to 2005.

     Interest Expense. For the year ended December 31, 2006, interest expense
decreased by EUR 0.4 million, or 3.4%, to EUR 12.4 million from EUR 12.8
million in 2005. This decrease was due to the repurchase of a portion of our
8.5% senior notes in 2005.

     Interest Income. Interest income decreased by EUR 0.5 million, or 23.7%,
to EUR 1.6 million from EUR 2.1 million in 2005. This decrease was due to
the gain of EUR 0.9 million on the repurchase of a portion of our 8.5% senior
notes realized in 2005.

     Income Tax Expense. For the year ended December 31, 2006, we recorded an
income tax expense of EUR 4.5 million, an increase of EUR 4.2 million
compared to the income tax expense of EUR 0.3 million in 2005. This increase
was due to an adjustment of tax loss carry forwards in Austria. As a result, we
recorded a decrease of EUR 4.3 million in tax loss carry forwards. We also
recorded additional tax expense resulting from prior year adjustments mainly in
Italy, Austria and Canada as well as a non-taxable gain of EUR 5.9 million on
the sale of property in 2005.

     Profit for the Year. As a result of the foregoing factors, we reported a
profit of EUR 4.4 million, compared to a profit of EUR 6.7 million in 2005.


Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

     The following table sets forth each line item of our consolidated statement
of operations and its percentage of total revenues for the years shown:


                                       34
<PAGE>

<TABLE>
<CAPTION>

                                                                For the Years Ended
                                                                   December 31,
                                              -------------------------------------------------------       ----------
                                                        2005                          2004                   Change
                                              --------------------------    --------------------------      ----------
                                                   EUR            %              EUR           %                EUR
                                              ------------    ----------    ------------   -----------      ----------
                                                                (in thousands, except percentages)
                                                      Restated                      Restated
                                              --------------------------    --------------------------
<S>                                               <C>            <C>            <C>            <C>           <C>
Total net revenues.......................         359,566        100.0%         374,996        100.0%         (15,430)
Cost of sales............................         221,536         61.6%         235,777         62.9%         (14,241)
                                              ------------    ----------    ------------   -----------      ----------
Gross profit.............................         138,030         38.4%         139,219         37.1%          (1,189)
                                              ============    ==========    ============   ===========      ==========
Selling and marketing expense............          92,053         25.6%          94,232         25.1%          (2,180)
General and administrative expense.......          29,595          8.2%          36,401          9.7%          (6,805)
Gain on sale of property.................          (5,876)        (1.6%)         (4,665)        (1.2%)         (1,211)
Restructuring costs......................           5,073          1.4%           1,895          0.5%           3,179
Other operating expense..................           1,533          0.4%             176          0.0%           1,356
                                              ------------    ----------    ------------   -----------      ----------
Operating profit.........................          15,652          4.4%          11,181          3.0%           4,472
                                              ============    ==========    ============   ===========      ==========
Interest expense.........................         (12,808)        (3.6%)        (20,671)        (5.5%)          7,863
Interest income..........................           2,110          0.6%           1,715          0.5%             395
Foreign exchange gain (loss).............           2,121          0.6%            (432)        (0.1%)          2,553
                                              ------------    ----------    ------------   -----------      ----------
Profit (loss) before income taxes........           7,075          2.0%         (8,208)        (2.2%)          15,283
                                              ============    ==========    ============   ===========      ==========
Income tax expense.......................            (348)        (0.1%)       (22,858)        (6.1%)          22,511
                                              ------------    ----------    ------------   -----------      ----------
Profit (loss) for the year...............           6,728          1.9%        (31,066)        (8.3%)          37,793
                                              ============    ==========    ============   ===========      ==========

</TABLE>

     Total Net Revenues. For the year ended December 31, 2005, total net
revenues decreased by EUR 15.4 million, or 4.1%, to EUR 359.6 million from
EUR 375.0 million in 2004. This decrease was due to lower sales in all of our
divisions except licensing and was partially offset by lower sales deductions.

     The following table sets forth revenues for each of our product categories
for each of the years ended December 31, 2005 and 2004:

                                     For the Years Ended December 31,
                               -------------------------------------------------
                                 2005             2004            % Change
                               ---------- ----- ---------- -- ------------------
                                      (in thousands, except percentages)
Product category:
Winter Sports.............     EUR  177,311      EUR  178,787            (0.8%)
Racquet Sports............          133,858           136,106            (1.7%)
Diving....................           48,937            61,348           (20.2%)
Licensing.................            8,386             8,455            (0.8%)
                               -------------     -------------     -------------
Total Revenues............          368,492           384,696            (4.2%)
Sales Deductions..........           (8,926)          (9,700)            (8.0%)
                               -------------     -------------     -------------
      Total Net Revenues..     EUR  359,566      EUR  374,996            (4.1%)
                               =============     =============     =============

     Winter Sports revenues decreased by EUR 1.5 million, or 0.8%, to
EUR 177.3 million from EUR 178.8 million in 2004. This decrease was due to
lower sales volumes for skis and bindings partly offset by higher sales volumes
for ski boots, the introduction of snow board protection wear, better product
mix for skis and bindings and the weakening of the euro against the U.S. dollar
in the last quarter of the year.

     Racquet Sports revenues decreased by EUR 3.2 million, or 2.3%, to
EUR 132.9 million from EUR 136.1 million in 2004. This decrease resulted
mainly from lower sales due to less favorable product mix for our tennis
racquets and lower sales volumes of ourbags and tennis balls. This decrease was
partly offset by significantly higher sales volumes in tennis racquets, better
product mix in tennis balls and the strengthening of the euro against the U.S.
dollar during the main delivery period during the first half of the year.

     Diving product revenues decreased by EUR 12.4 million, or 20.2%, to
EUR 48.9 million from EUR 61.3million in 2004, reflecting the unfavorable
market conditions and our strategy of improving product mix and generating
higher margins rather than increasing revenues. The strengthening of the euro
against the U.S. dollar partly offset the decline in revenues.

     Licensing revenues increased by EUR 0.9 million, or 10.1%, to EUR 9.3
million from EUR 8.5 million in 2004 mainly due to increased revenues from
existing contracts and from new licensing agreements.


                                       35
<PAGE>

     Sales deductions consist of sales incentives, which are earned by our
customers subsequent to delivery of our product, including cash discounts for
volume rebates and other than cash consideration. Sales deductions decreased by
EUR 0.8 million, or 8.0%, to EUR 8.9 million from EUR 9.7 million in 2004
mainly due to declining revenues.

     Cost of Sales. Cost of Sales decreased by EUR 14.2 million, or 6.0%, to
EUR 221.5 million from EUR 235.8 million in 2004 due to declining revenues
and our business rationalization programs which positively affected
manufacturing costs for ski boots, tennis racquets, tennis balls and fins. The
positive impact of these business rationalization programs was partially offset
by the increase in oil and steel prices on the world market, which led to cost
increases in plastic components (bindings, boots, fins), carbon-fibers and metal
parts (e.g., binding components and ski edges).

     Gross Profit. Gross profit decreased by EUR 1.2 million, or 0.9%, to
EUR 138.0 million from EUR 139.2 million in 2004 due to improved operating
performance as a result of our business rationalization programs which
positively affected manufacturing cost, as well as more favorable product mix.
Gross margin increased to 38.4% for year ended December 31, 2005 from 37.1% in
2004.

     Selling and Marketing Expense. Selling and marketing expense decreased by
EUR 2.2 million, or 2.3%, to EUR 92.1 million from EUR 94.2 million in
2004. The decrease was due mainly to lower variable distribution costs as a
consequence of declining sales partly offset by higher expenditures for
advertising and selling departments.

     General and Administrative Expense. General and administrative expense
decreased by EUR 6.8 million, or 18.7%, to EUR 29.6 million from EUR 36.4
million in 2004. This decrease was mainly due to a decrease in fair value of
long-term liabilities in relation to the stock option plans, lower expenses for
warehouse and administration due to tight expense controls and our business
rationalization programs.

     Gain on Sale of Property. In June 2005, we sold the property in Tallinn,
Estonia which was previously leased and realized a gain of EUR 5.9 million. In
September 2004, we realized a gain of EUR 4.7 million from the sale of our
property in Mullingar, Ireland.

     Restructuring Costs. We recorded restructuring costs of EUR 5.1 million
in the year ended December 31, 2005 in relation to the outsourcing of our tennis
racquet production in Kennelbach, Austria and Budweis, Czech Republic, the
restructuring program of our ski binding production, the reduction of production
capacity in our plant in Rapallo, Italy and the transfer of the remaining ski
boot production from Maser, Italy to Litovel, Czech Republic. We recorded
restructuring costs of EUR 1.9 million, in the year ended December 31, 2004
consisting of dismissal and transfer costs in connection with the closing of our
production facility in Mullingar, Ireland and the plant in Tallinn, Estonia.

     Operating Profit. As a result of the foregoing factors, operating income
for the year ended December 31, 2005 increased by EUR 4.5 million to
EUR 15.7 million from EUR 11.2 million in 2004.

     Interest Expense. For the twelve months ended December 31, 2005 interest
expense decreased by EUR 7.9 million or 38.0% to EUR 12.8 million from
EUR 20.7 million in 2004. This decrease was mainly due to the write-off of the
capitalized debt issuance costs of EUR 2.4 million relating to our former
10.75% senior notes, which were repaid with proceeds from our newly issued 8.5%
senior notes in January 2004. The premium of EUR 3.5 million for the early
redemption of the 10.75% senior notes was reported in 2004. In addition,
interest expenses for the 8.5% senior notes decreased as a result of our note
repurchase program.

     Interest Income. Interest income increased by EUR 0.4 million to
EUR 2.1 million from EUR 1.7 million in 2004. This increase was due mainly
to higher cash on hand.

     Foreign Exchange (Gain) Loss. In 2005, we recorded a foreign currency
exchange gain of EUR 2.1 million, compared to a loss of EUR 0.4 million in
2004, as a result of the revaluation of foreign currency assets and liabilities
at the exchange rate as of December 31, 2005.

     Income Tax Expense. In 2005, income tax expense decreased by EUR 22.5
million to EUR 0.3 million from EUR 22.8 million in 2004. This decrease in
income tax expense is mainly due to a reduction in the Austrian tax rate which,
in 2004, led to a decrease in deferred tax assets resulting from tax losses
carried forward of EUR 20.2 million as well as the non-taxable gain on sale of
property in Estonia in 2005.

     Profit (Loss) for the Year. As a result of the foregoing, we recorded net
income of EUR 6.7 million for 2005, compared to a net loss of EUR 31.1
million in 2004.

5.B.     Liquidity and Capital Resources

     Our liquidity needs arise principally from working capital requirements,
capital expenditures and asset acquisitions. Given the nature of winter sports,
and to a lesser extent racquet sports, our operating cash flow and working
capital needs are highly seasonal. See "Item 5.A. Operating Results - Overview"
above. Our need for cash is greater in the third and fourth quarters when cash
generated from operating activities, together with draw downs from our bank
lines, are invested in inventories and receivables. Historically, our


                                       36
<PAGE>

primary sources of liquidity have been cash provided from operating activities,
proceeds from the issuance of debt and equity securities and borrowings under
various credit facilities available to us and our subsidiaries.

     For the year ended December 31, 2006, net cash generated from operating
activities decreased by EUR 7.0 million, or 23.2% to EUR 23.1 million from
EUR 30.2 million in 2005. This decrease is mainly the result of lower profit
for the year and of our higher net working capital requirements in 2006, due to
increased trade accounts receivable resulting from increased sales at year end
compared to 2005. We used this cash from operations to purchase property, plant
and equipment for EUR 15.0 million, to purchase available-for-sale financial
assets principally cash bonds for EUR 5.0 million and to repay EUR 9.4
million of our capital stock.

     At the last Annual General Meeting of the shareholders held on May 24,
2006, the Company's shareholders approved the resolution to amend the Articles
of Association to firstly increase the nominal value of the shares from
EUR 0.20 to EUR 0.45 out of our cash reserves and to subsequently reduce the
nominal value of the shares from EUR 0.45 to EUR 0.20. As a consequence of
the adoption of the resolution, we made a capital repayment of EUR 0.25 per
share totaling EUR 9.4 million to our shareholders in September 2006.

     For the year ended December 31, 2005, net cash generated from operating
activities increased by EUR 28.3 million to EUR 30.2 million from EUR 1.9
million in 2004. This increase is mainly the result of our higher profit for the
year and lower working capital requirements in 2005, due to lower trade accounts
receivable resulting from lower sales and lower inventories at year end compared
to 2004. We used this cash from operations and cash from the sale of our
premises in Estonia to purchase property, plant and equipment for EUR 14.6
million, to repurchase EUR 14.3 million of our 8.5% senior notes and to pay
back EUR 1.6 million of other long term debt and to purchase
available-for-sale financial assets principally cash bonds for EUR 4.1
million.

      As of December 31, 2006, we had EUR 155.8 million of total debt,
consisting of EUR 111.4 million of 8.5% senior notes due 2014 outstanding,
EUR 13.1 million of long-term obligations under a sale-leaseback agreement and
a mortgage agreement due 2017 and EUR 11.9 million of other long-term debt
comprising secured loans in Italy, the Czech Republic and Japan. In addition, we
had drawn down EUR 19.5 million from lines of credit with several banks in
Austria, Canada and Japan.

     As of December 31, 2005, we had EUR 161.4 million of total debt,
consisting of EUR 111.1 million of senior notes due 2014, EUR 13.7 million
of long-term obligations under a sale-leaseback agreement and a mortgage
agreement due 2017, EUR 8.8 million of other long-term debt comprising secured
loans in Italy and the Czech Republic and lines of credit with several banks in
Austria, Canada and Japan of EUR 27.7 million.

     As of December 31, 2006, we had EUR 40.5 million cash on hand, mainly in
euro, and no available unused credit facilities. In addition, we had EUR 17.8
million cash bonds held in euro which were recognized in our balance sheet as
"Available-for-sale financial assets".

     As of December 31, 2005, we had EUR 45.5 million cash on hand, mainly in
euro, and EUR 0.8 million in available unused credit facilities. In addition,
we had EUR 14.8 million cash bonds held in euro which were recognized in our
balance sheet as "Available-for-sale-financial assets".

     As described above, we operate in a multi-currency environment and are
subject to currency translation risk and, to a lesser extent, currency
transaction risk. We incur transaction risk whenever one of our subsidiaries
enters into a transaction using a currency other than our functional currency.
In order to reduce this risk, we seek to match our revenues and costs in each
currency. We also hedge part of our firm commitments for sales to Japan,
Switzerland and Canada through forward contracts and options with Austrian and
Italian banks. As of December 31, 2006, we had ten British pounds forward
contracts totaling EUR 3.4 million, six Swiss franc forward contracts totaling
EUR 7.6 million, two option contracts on Swiss franc totaling EUR 0.4
million and one option on British pounds totaling EUR 1.2 million. We recorded
foreign exchange gains of EUR 0.7 and of EUR 1.3 in 2006 and 2005,
respectively and foreign exchange loss of EUR 0.2million in 2004. See "Item 11
- Quantitative and Qualitative Disclosures About Market Risk".

     Based upon current operations and our historical results, we believe that
our cash flow from operations will be adequate to meet our anticipated
requirements for working capital, capital expenditures and scheduled interest
payments. In January 2004, we sold EUR 135 million of 8.5% senior notes. With
the proceeds of this sale, we redeemed all of our outstanding 10.75% senior
notes, paid back certain other debts and retained the remaining funds for
working capital and general corporate purposes. As a result of the repayment of
certain debt, our available credit facilities have been reduced. Additional
financing may be required to fund unanticipated capital and working capital
expenditures. Although we believe that we will have enough money available to
fund our planned working capital and capital expenditures for the next several
years, we cannot assure you that we will not require additional financing for
our operations.

Loan Agreements

     Senior Notes. On July 15, 1999, one of our wholly-owned subsidiaries, Head
Holding, issued EUR 100.0 million of senior notes. The notes bore interest of
10.75% per annum, which was payable semi-annually and was to mature in total on
July 15, 2006. On January 5, 2000, a registration statement for the exchange of
the original 10.75% senior notes for new 10.75% senior notes was made effective
by the U.S. Securities Exchange Commission (SEC). On February 9, 2000, this
exchange offer was consummated. In October 2000, we repurchased EUR 30.9
million of our senior notes in a series of transactions using part of the
proceeds of our initial public offering. In July


                                       37
<PAGE>

2002, we repurchased another EUR 3.6 million of our senior notes. At December
31, 2003, we had EUR 65.5 million ($82.9 million) of senior notes outstanding.
In January 2004, one of the Company's subsidiaries issued EUR 135.0 million of
8.5% unsecured senior notes due 2014, guaranteed by the Company and certain of
its subsidiaries. The notes are listed on the Luxembourg Stock Exchange. With
the proceeds from the sale, all of the Company's outstanding 10.75% senior notes
due 2006 were redeemed. The total redemption payment was EUR 70.1 million of
which EUR 3.5 million represented the redemption premium. In addition, the
Company used a portion of the remaining proceeds to repay EUR 25.8 million of
other outstanding debt. In June 2004, the Company repurchased the equivalent of
EUR 5.5 million of its 8.5% senior notes for EUR 5.0 million and realized a
gain of EUR 0.3 million. As a result of this transaction, the Company
wrote-off EUR 0.1 million of debt issue costs. In 2005, the Company
repurchased the equivalent of EUR 15.7 million of its 8.5% senior notes for
EUR 14.3 million and realized a gain of EUR 0.9 million. As a result of this
transaction, the Company wrote off an additional EUR 0.1 million of debt issue
costs. At December 31, 2006 and 2005, the Company had EUR 111.4 million and
EUR 111.1 million, respectively of unsecured 8.5% senior notes due 2014
outstanding.

     Sale-Leaseback One of the Company's subsidiaries entered into an agreement
on June 28, 2002, whereby it sold land and building to an unrelated bank and
leased it back over a 15-year term. The proceeds of this sale were EUR 10.6
million. The Company has the obligation to purchase the property back after 15
years for EUR 8.2 million. The Company may also repurchase the property at its
option from the first until the tenth year of the arrangement for the present
value of the future lease payments and the remaining residual value. The Company
is also required to pay the bank a monthly deposit of EUR 0.01 million, which
will be repaid to the Company, plus interest of 6.7%, at the time of repurchase.
Because of the Company's continuing involvement, this transaction has been
accounted for as a financing such that the Company has recorded EUR 10.6
million of cash and long-term borrowings at the inception date of this
agreement. At December 31, 2006 and 2005, the remaining obligation under the
financing agreement was EUR 10.1 and EUR 10.2 million, respectively.

     Mortgage Agreement. In 2002, one of the Company's subsidiaries entered into
a mortgage agreement secured by the Penn Phoenix property with an unrelated
financial institution of EUR 4.9 million ($4.8 million) over a 15 year term at
an interest rate of 7.33%. At December 31, 2006 and 2005, the outstanding
balance of the mortgage was EUR 3.0 million ($3.9 million) and EUR 3.5
million ($4.1 million), respectively, and the carrying value of the property was
EUR 2.1 million and EUR 2.5 million as of December 31, 2006 and 2005,
respectively.

     Other Long-Term Debt. In August 2006, the Company renegotiated the terms of
its outstanding credit lines of Japanese Yen ("JPY") 1,382.9 million (EUR 8.8
million) with a Japanese bank and agreed a semi-annual prepayment of JPY 24.5
million EUR 0.2 million) for five years. As a consequence the Company
reclassified EUR 4.5 million from bank overdraft to long-term debt and
EUR 0.2 million to current maturities of long-term debt. Other long-term debt
comprises secured loans in Italy and the Czech Republic outstanding with several
banks. The weighted average interest rate on other long-term debt was 3.1% and
2.4% as of December 31, 2006 and 2005, respectively. Borrowings mature at
various dates through 2011. At December 31, 2006 and 2005, the remaining
outstanding long-term debt was EUR 11.9 million and EUR 8.8 million,
respectively.

     Oesterreichische Kontrollbank Aktiengesellschaft (OeKB). In the second
quarter of 2001, the Company's subsidiaries entered into a new financing
agreement providing multiple revolving credit lines with the "Osterreichische
Kontrollbank" ("OEKB") which were renegotiated in 2003 for a total amount of
EUR 15.0 million secured by all Austrian trade receivables. As of December 31,
2006, the fair value of trade receivables that serve as collateral for the
Company's revolving credit lines was EUR 60.7 million (2005: EUR 61.6
million). As of December 31, 2006 and 2005, we had outstanding borrowings under
this line of credit of EUR 15.0, respectively. The weighted average interest
rate on this indebtedness was 3.5% as of December 31, 2006 and 2.9% as of
December 31, 2005. These loans had been made in the form of credits for specific
exports. No more credit facilities are available under these terms of
commitment.

     Japanese Bank Loans. As of December 31, 2006 and 2005, HTM Sports Japan KK,
our Japanese subsidiary, had short-term credit lines with Sumitomo Bank of
approximately EUR 4.3 million and EUR 11.4 million, respectively, that are
renewed annually. We guarantee the payments to Sumitomo Bank in the amount of
the outstanding debt. The weighted average interest rate on these loans was
2.75% as of December 31, 2006 and 3.0% as of December 31, 2005, respectively.


                                       38
<PAGE>

     Capital Expenditures; Research and Development

     In 2006, 2005 and 2004, we spent approximately EUR 15.0 million,
EUR 14.6 million and EUR 19.1 million, respectively, on facilities and
equipment maintenance (upkeep, replacement and/or improvement). We expect to
spend approximately EUR 44 million on investment in property, plant and
equipment, including expenditures for maintenance of our facilities and
equipment, and EUR 36 million on research and development, in the 2007 to 2009
period. We expect that these expenses will be financed through our operating
cash flow. These expenses will be primarily for the design and manufacturing of
products that are scheduled to be introduced and existing products which we
expect to continue selling during the period.

5.C.      Research and Development, Patents and Licenses

     We believe that we are an industry leader in the development of innovative
and technologically advanced sports equipment. Our research and development
groups identify consumer needs and shifts in consumer preferences in order to
develop new product ideas and concepts. In addition, we encourage
cross-fertilization of ideas among divisions, which has led to further product
innovations. The Company incurred research and development costs amounting to
EUR 10.1 million for each of the years ended December 31, 2006 and 2005, and
EUR 12.5 million for the year ended December 31, 2004. For patents and
licenses the Company incurred EUR 2.0 million, EUR 0.4 million and EUR 0.6
million for the years ended December 31, 2006, 2005 and 2004, respectively. To
ensure quality and precision, the majority of our products are designed on our
own computer-aided design and manufacturing (CAD/CAM) systems.

5.D.     Trend Information

     We operate in mature markets that in 2006 experienced flat to slightly
declining conditions on a worldwide basis. The industry trend continues to be
towards a consolidation of participants who are able to provide retailers with
offerings across all product segments within the sporting categories. This trend
has been most pronounced in the Winter Sports market, where almost all companies
now offer the full range of products consisting of skis, ski boots, bindings and
snowboards.

     Continuing weakness in the Japanese market has particularly affected the
Winter Sports market and we expect this trend to continue in 2007. We have seen
some recovery in the U.S. market, especially in Racquet Sports, although on a
worldwide basis this growth was offset by poor weather conditions depressing
Racquet Sports sales in Europe.

     Given the current order flow, we expect that our revenue in 2007 will be
below the 2006 level due to challenging market conditions for 2007, particularly
in the light of the poor snow conditions globally to date.

     Our overriding strategy continues to be the development of innovative
products across all of the markets within which we operate.

     Revenue Growth and Currency Fluctuations

         While we report our results in euro, approximately 40% of our revenues
are in U.S. dollars and the majority of our manufacturing is on a euro cost
basis. As a consequence, currency fluctuations have an effect upon our reported
results. Within a given period, the appreciation of the U.S. dollar against the
euro will be reflected in higher revenues on a translation basis, and
conversely, if the U.S. dollar depreciates, we would expect to show lower
revenues.

     Currency fluctuations can also affect gross margins. This is especially
true in Winter Sports, where we incur a majority of our costs in the first six
months and receive a majority of our revenues in the last six months of the
year, and costs are primarily euro-based. Accordingly, a strong euro in the
first six months, when we incur costs, or a weak euro in the last six months,
when we receive revenues, will adversely affect our reported margins on a euro
basis.

     Product Outlook

     In Winter Sports we see a trend towards the development of specific new
segments, such as Freeride, Park & Pipe and products for women. The poor snow
conditions worldwide during the season 2006/2007 had a more pronounced negative
impact on the sales of low-end and junior equipment, while high-end models, such
as our Supershape models, sold relatively well. For 2007, we will concentrate on
improving product mix, especially with Race, Supershape and Monster Skis, as
well as with the new Raptor Boot. We have extended the line of Supershape models
and also the range of Monster Freeride skis in sandwich construction and have
also introduced a number of high-end skis for women. Because most skis are
offered as pre-defined sets including a binding, we have launched Head branded
bindings to be sold together with all head skis well coordinated in function and
design. For the free market on skis we will continue to offer Tyrolia branded
bindings. We continually introduce new technical features for improved
performance, safety and comfort such as the integrative solutions with new
totally integrated tool free systems such as "Speed Rail", innovative
light-weight constructions such as Air-coat technology for the Allmountain Ski
line. We have developed a completely new Skiboot "Raptor" designed for the high
performance skier and racer and this boot has already captured the attention of
opinion leading skiers as Bode Miller and Didier Cuche won World Cup races and
Patrick Staudacher and Sarka Zahrobska became World Champions at the recent
Alpine Skiing World Championships in Aare Sweden.

     In snowboard we have extended and coordinated the range of helmets and
protection gear for both the snowboarder and alpine skier.


                                       39
<PAGE>

     In ski boots, where we have renewed our high end range, we plan to maintain
our cost efficiency in production and concentrate on improving our product mix.
We have also extended and coordinated the range of helmets and protection gear
for both the snowboarder and alpine skier.

     All Head products for the winter season 2007/2008 are designed according to
the new brand guidelines and already bear the new Head Logo and new branding
elements.

     In Racquet Sports, we expect the tennis racquet and ball market to be
stable during 2007. New racquet products will be launched during the summer of
2007. We also expect no major changes in tennis balls, but believe the current
industry overcapacities will maintain pressure on prices and margins.

     The Company is entering the badminton business and plans a simultaneous
rollout globally to present Head Badminton products to retailers during the
spring 2007. Consumers should be able to purchase these products starting in the
summer 2007. To support the introduction of our new business, Head has formed a
partnership with the Danish Badminton Association (DBA) as the organization's
exclusive equipment supplier. With this partnership Head has also secured
worldwide television exposure through the international tournaments in Denmark,
the Denmark Open and Copenhagen Masters. The Denmark Open is the biggest
badminton tournament in Europe in prize money and will be part of the new
International Super Series introduced by the International Badminton Federation
in January 2007.

     In Diving, we are introducing our products in new geographical areas such
as Eastern Europe and South Asia. In 2006, the Diving division launched a range
of innovations with a focus on performance, fashion and comfort. The diving
division's latest product launch is the Liquid skin mask, incorporating new,
bi-silicone technology to improve comfort and fit. Mares has extended its line
of dive computers with the new Nemo wide and Nemo Sport models. In 2007, we plan
to continue our focus on the Asian market through our new subsidiary in Hong
Kong, Mares Asia Pacific, which acts as regional headquarters.

5.E.     Off-Balance Sheet Arrangements

     We have no off-balance sheet entities or off-balance sheet arrangements
that are reasonably likely to have a material impact on our financial position
and consolidated results of operations.

5.F.     Disclosures of Contractual Obligations

     Obligations to make future payments under contracts for the periods
indicated are as follows as of December 31, 2006 (in thousands):

<TABLE>
<CAPTION>
                                             Less than                               After 5
Contractual Obligations                      1 year     1 - 3 years  3 - 5 years     years            Total
                                            ---------------------------------------------------------------------
<S>                                           <C>              <C>           <C>        <C>           <C>
Long-Term Debt Obligations
      8.50% Senior Notes due 2014.......      EUR     --           --           --      111,353      EUR 111,353
      Mortgage..........................             186          415          481        1,880            2,962
      Other Long-Term Debt                         2,224        4,099        1,336        4,280           11,939
Capital (Finance) Lease Obligations
      Sale-Leaseback....................             133          296          337        9,358           10,124
Operating Lease Obligations
      Operating Leases..................           3,519        5,228        3,336        1,407           13,491
      Sourcing Agreements...............             227          454           --           --              681
</TABLE>


                                       40
<PAGE>

     In connection with our benefit plans we are required to meet certain
funding requirements, which could require us to make certain cash payments in
the future. The Company does not expect to make significant contributions during
2007.

     In January 2004, one of our subsidiaries sold EUR135.0 million of 8.5%
unsecured senior notes due 2014. With the proceeds from the sale, all of our
outstanding 10.75% senior notes due 2006 were redeemed.

     The contractual interest in our mortgage agreement is 7.33%, in our
sales-leaseback agreement 6.7% and in our other long-term debt it varies between
2.8% and 4.2% (3.1% on average).

     Expected interest expense on contractual obligations for the periods
indicated are as follows as of December 31, 2006 (in thousands):


<TABLE>
<CAPTION>

                                              Less than                               After 5
Expected Interest Expense                      1 year     1 - 3 years  3 - 5 years     years            Total
-------------------------------------       ---------------------------------------------------------------------
<S>                                           <C>              <C>           <C>        <C>           <C>
Long-Term Debt Obligations
      8.50% Senior Notes due 2014....         EUR  9,675       19,350       19,350       20,157       EUR 68,532
      Mortgage.......................                217          392          329          413            1,352
      Other Long-Term Debt...........                367          530          320          368            1,585
Capital (Finance) Lease Obligations
      Sale-Leaseback.................                670        1,311        1,269        3,220            6,470

</TABLE>


ITEM 6:  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A.      Directors and Senior Management

     Under Head N.V.'s articles of association, a Dutch foundation called the
Stichting Head Option Plan has the power to nominate all members of the
Management Board, appoint one-third of the Supervisory Board and nominate the
remaining members of the Supervisory Board. The Board of the Stichting is
controlled by Head Sports Holdings N.V. and Johan Eliasch jointly. Head Sports
Holdings N.V. is an entity controlled by Johan Eliasch and his family members.

Supervisory Board

    The Supervisory Board is responsible for overseeing Head N.V.'s Management
Board and the general course of affairs of Head N.V.'s business. Head N.V.'s
Supervisory Board currently has three members, whose names and biographies are
set forth below.

    The following table sets forth information with respect to Head N.V.'s
Supervisory Board.

<TABLE>
<CAPTION>

        Name                                 Age                          Title
--------------------                        ---------    --------------------------------------------------
<S>                                          <C>         <C>
William S. Cohen                             66          Member of the Supervisory Board
Jurgen Hintz                                 64          Member of the Supervisory Board and Audit Committee
Viktor Klima                                 59          Member of the Supervisory Board and Audit Committee

</TABLE>

     Secretary William S. Cohen has been a Member of the Supervisory Board of
Head N.V. since May 2001. Secretary Cohen is a former U.S. Secretary of Defense
(1997-2001) and has served in both the U.S. Senate (1979-1997) and the U.S.
House of Representatives (1973-1979). He is currently the Chairman and CEO of
The Cohen Group, an international strategic business consulting firm based in
Washington, DC. Secretary Cohen also serves as a Director of CBS.

     Mr. Jurgen Hintz has been a Member of the Supervisory Board of Head N.V.
since May 2003. He retired in December 2004 as Group Chief Executive Officer of
Novar plc, an international group with core activities in Intelligent Building
Systems, Aluminum Extrusion Solutions, and Security Printing Services with an
annual turnover of (pound)1.5 billion. Prior to this he was President and Chief
Executive of Carnaud/Metalbox until October 1995, Executive Vice-President and
member of the main Board of Procter & Gamble Company and non-Executive Director
of Inchcape plc and Apple Computers Inc.

    Mr. Viktor Klima served as Chancellor of the Republic of Austria from
January 1997 until his resignation February 2000. In this capacity Mr. Klima
held the Presidency of the European Union in the second half of 1998. Prior to
serving as Chancellor, he served as Minister of Finance 1996-97 and Minister of
Public Economy and Transport 1992-96. Prior to his political career, he was a
member of the management board of the OMV oil company, responsible for finance,
capital markets and acquisitions. Prior to this position he held various
management positions within OMV. Mr. Klima took up a senior management position
with Volkswagen in October 2000.


                                       41
<PAGE>

Management Board and Key Executive Officers

    Our articles of association provide for a Management Board that is
responsible for our management under the general supervision of the Supervisory
Board. Our Management Board currently has three members, whose names and
biographies are set forth below along with those of our executive officers. See
"Item 10.B Articles of Association - Management Board".

    The following table sets forth information with respect to our Management
Board and other key executive officers of our consolidated group.

<TABLE>
<CAPTION>

                      Name              Age                                     Title
            -----------------------    -----       ----------------------------------------------------------
<S>                                     <C>        <C>
            Johan Eliasch..........     45         Chairman of the Management Board, and Chief Executive
                                                   Officer
            Ralf Bernhart..........     55         Member of the Management Board and Chief Financial
                                                   Officer (Managing Director of HTM Sport- und Freizeitgerate
                                                   AG)
            George F. Nicolai......     54         Member of the Management Board
            Robert van de Voort*...     51         Member of the Management Board
            Klaus Hotter...........     51         Executive Vice President, Winter Sports Division (Managing
                                                   Director of Head Sport AG)
            Georg Kroll............     58         Executive Vice President, Licensing Division (Managing
                                                   Director of Head Sport AG)
            Robert Marte...........     53         Executive Vice President, Racquet Sports
                                                   Division (Managing Director of Head Sport AG)
            Edgar Pollmann.........     62         Executive Vice President, Operations (Managing
                                                   Director of HTM Sport- und Freizeitgerate AG)
            Gerald Skrobanek.......     41         Managing Director, Diving Division (Managing Director
                                                   of Head Sport AG and Mares S.p.A.)
            Gunter Hagspiel........     43         Vice President Finance and Controlling (Managing
                                                   Director of Head Sport AG)
            Jacques Altimani.......     60         Vice President, European Distribution (Managing
                                                   Director of Head International GmbH)
            David Haggerty.........     49         President, Head/Penn Racquet Sports Inc.
            Kevin Kempin...........     48         Vice President, Sales/Marketing Racquet Sports U.S. and
                                                   Penn Worldwide

                          *As of March 1, 2007, Mr. Van de Voort resigned from the Management Board

</TABLE>

    Mr. Johan Eliasch has served as Chairman of the Management Board of Head
N.V. and Group Chief Executive Officer since September 1995. He has been
Managing Director of Head Holding Unternehmensbeteiligung GmbH since September
10, 1998 and a member of the Supervisory Board of HTM since 2000. Since 1991, he
has been Chairman of Equity Partners Limited. Mr. Eliasch serves as The Deputy
Party Treasurer of the UK Conservative Party. Mr. Eliasch is also Co-Chairman of
Cool Earth Limited and President of the Global Strategy Forum. Mr. Eliasch
serves on the Advisory Boards of Brasilinvest and Societe du Louvre.

    Mr. Ralf Bernhart has served as the Chief Financial Officer of the Head
group of companies since March 1996. He was a member of the HTM Supervisory
Board in 1995 prior to becoming a member of the HTM Management Board in 1996. He
has been a Managing Director of Head Holding Unternehmensbeteiligung GmbH since
July 19, 1999, and in October 2000, he became a member of the Management Board
of Head N.V. Prior to joining Head N.V., from 1990 to 1995, Mr. Bernhart was a
member of the Executive Board of Hafslund Nycomed Pharma AG, Austria, a leading
pharmaceutical company.

    Mr. George F. Nicolai, was a member of the management team of MeesPierson
Intertrust BV from 1989 until 2003, and continues to act as a non-executive
director. After finishing his law degree at the University of Utrecht, he joined
Pierson Heldring & Pierson (now Fortis Bank) serving in a variety of executive
positions, both in the Netherlands and abroad. He currently also serves as a
member of the board of directors of several Dutch subsidiaries of international
companies such as Rothschilds, Volvo, National Grid and Pirelli and as chairman
of several foundations.

    Mr. Robert van de Voort was named to the Management Board. Mr. van de Voort
is a lawyer and is the co-founder and managing director of the TMF Group of
companies. This group is active in a wide range of financial services including
corporate and structured finance. Mr. van de Voort has a number of other board
directorships as well as Supervisory Board memberships. Mr. van de Voort has
resigned from the Board for personal reasons effective as of March 1, 2007.

     Mr. Klaus Hotter has served as Vice President of Head Sport AG since 1986
and managed our Winter Sports Division. In November 2002, he was appointed
Managing Director of Head Sport AG and assumed full responsibility for the
Winter Sports


                                       42
<PAGE>

Division. He managed European distribution at Blizzard from 1981 to 1986.

    Mr. Georg Kroll has served as Vice President of Head Sport AG since 1990 and
was appointed Managing Director of Head Sport AG in November 2002. In 1996, he
became the Division Manager for Licensing. From 1990 to 1995, he was the
Division Manager for the Footwear Division of HTM. Prior to joining Head in 1981
where he managed distribution for Head in Germany, Austria and International
Trade, he served as General Manager for Kneissl of America.

   Mr. Robert Marte has served as Vice President of Head Sport AG since 1987. He
manages our Racquet Sports Division and was appointed Managing Director of Head
Sport AG in November 2002. He began with HTM in 1980 as a product manager.

   Mr. Edgar Pollmann has served as General Manager of the Tyrolia bindings
division of HTM since 1996. In November 2002, he was appointed Managing Director
of Global Operations. From 1995 to 1996, he was an industrial consultant for HTM
responsible for the restructuring and turn-around program of the Tyrolia binding
division of HTM. Prior to joining HTM, he served as Managing Director of Steyr
Auto GesmbH (the national importer and distributor of Fiat, Lancia and Alfa
Romeo automobiles) from 1981 to 1993 and as industrial consultant for various
companies from 1994 to 1995.

    Mr. Gerald Skrobanek joined Head in September 2000. After having managed IT,
Global Supply Chain Management and HEAD's worldwide operations for 5 years,
Gerald Skrobanek was promoted to Executive Vice President of the Diving division
in September 2005. Prior to joining Head, he served as CIO for Vianova Resins,
an international chemical company and Wienerberger a leading building material
producer.

    Mr. Gunter Hagspiel joined Head Sport AG in May 1996. After working in
Controlling for 2 years in Austria, he went on an international assignment to
the U.S. to become the Controller of Head USA. In 2001 Mr. Hagspiel was promoted
to CFO and COO of the U.S. company. Since August 2005, he has served as Vice
President Finance & Controlling in Austria and was appointed Managing Director
of Head Sport AG. Prior to joining Head, Mr. Hagspiel was working as a
Management Consultant at the Management Zentrum St. Gallen (MZSG) and as Manager
at IBM in Vienna.

    Mr. Jacques Altimani joined our group in 1975 and was responsible for
building up our French subsidiary, now Head Tyrolia Sports S.A. In addition to
acting as Managing Director of our French subsidiary, he took over the
responsibility for our European Distribution and was appointed Managing Director
of Head International GmbH in 2002. Prior to joining us, Mr. Altimani worked as
area manager for the North American market for Hart skis and Ramy skis, bindings
and ski poles.

    Mr. David Haggerty was named President of Head/Penn Racquet Sports in
January 2001. In November 2002, he was appointed as Chief Executive Officer of
Head N.V.'s business in the U.S. From January 1999 until taking this position,
he was chief operating officer of Head USA, and Vice President/ General Manager
of Head USA Racquet Sports from August 1998 until January 1999. Mr. Haggerty was
President of Dunlop Slazenger Racquet Sports from October 1994 to August 1998.
From 1980 to 1993, he held various management positions with Prince Sports
Group. He serves on the Sporting Goods Manufacturers Board of Trustees, is
President of the Tennis Industry Association (TIA) and began a term in January
2007 on the United States Tennis Association (USTA) Board of Directors.

    Mr. Kevin Kempin joined the Head Group in 1993 as Vice President of Key
Accounts in our U.S. Racquet Sport business. Before joining Head, Mr. Kempin was
Director of Tennis at the University of Utah in 1983-84, and thereafter served
for eight years as a key sales manager and then vice president at Prince Sports.
Mr. Kempin is currently Vice President of Sales and Marketing for our U.S.
Racquet Sports business and for Penn Worldwide.


                                       43
<PAGE>

6.B.     Compensation

     The table below shows the compensation of the Management and Supervisory
Board for the year ended December 31, 2006 (in thousands):

                                                                Accrued for
                                                                   future
                                               Paid              payments
                                          ---------------     ---------------

Management Board
     Johan Eliasch................        EUR        591      EUR         --
     Ralf Bernhart................                   622                  22
     George Nicolai...............                    10                  --
     Robert van de Voort..........                    10                  --
                                          ---------------     ---------------
                                          EUR      1,233      EUR         22
                                          ===============     ===============

Supervisory Board
     Viktor Klima................         EUR          8      EUR         --
     William S. Cohen............                      8                  --
     Jurgen Hintz................                      8                  --
                                          ---------------     ---------------
                                          EUR         24      EUR         --
                                          ===============     ===============

       For the year ended December 31, 2006, the aggregate compensation paid by
us to our key executive officers, excluding the members of the Management Board,
was EUR 3.1 million. The expense for accrued compensation for these key
executive officers was EUR 0.3 million. The total amount accrued by us and our
subsidiaries to provide pension, retirement or similar benefits was EUR 1.6
million for the year ended December 31, 2006. Share-based compensation expenses
amounting to EUR 1.4 million were recorded in 2006 with respect to Management
Board members, key executive officers and Supervisory Board members.

     Under the Head Tyrolia Mares Group Executive Stock Option Plan 1998
described below under "Stock Option Plans," we have issued options to purchase
an aggregate of 1,839,188 depositary receipts representing ordinary shares to
some of our Management Board members, key executive officers and Supervisory
Board members. For the year ended December 31, 2006, share-based compensation
amounted to EUR 0.2 million. Options vested over a period of four years and
were subject to the Company meeting specified earnings performance targets
during this period. These options were exercisable beginning on January 1, 2002,
but the shares were subject to a lock-up until October 3, 2002. Each option may
be exercised for a nominal price.

     Under the Head N.V. Executive Stock Option Plan 2001 described below under
"Stock Option Plans", we have issued options to purchase an aggregate of
3,203,826 depositary receipts representing ordinary shares to some of our
Management Board members, key executive officers and Supervisory Board members.
For the year ended December 31, 2006, share-based compensation amounted to $0.1
million. The exercise price for all stock options granted under the 2001 Plan
was fixed at inception of the Plan.

     Under the Head N.V. Executive Stock Option Plan 2005 described below under
"Stock Option Plans", we have issued options to purchase an aggregate of
2,902,346 depositary receipts representing ordinary shares to our Management
Board members and some of our key executive officers. For the year ended
December 31, 2006, share-based compensation amounted to EUR 1.1 million. The
exercise price for all stock options granted under the 2005 Plan was fixed at
inception of the Plan. The vesting period is four years.

     The table below shows the details of all vested options under the three
Executive Option Plans for current and former Management and Supervisory Board
members:


                                       44
<PAGE>


<TABLE>
<CAPTION>



                                                   Number of                                                             Number of
                                                 non-exercised                                                         non-exercised
                                Exercise           shares at                            Number of                        shares at
                              price at the        beginning of        Number of         exercised       Exercise        the end of
                                issuance            the year        written shares        shares          price          the year
                              --------------     ---------------    ---------------    -------------    -----------    ------------
<S>                                   <C>               <C>                 <C>            <C>               <C>             <C>
Option Plan 1998
     Johan Eliasch........            $0.19             838,622                - -              - -          $0.42           838,622
     Ralf Bernhart........            $0.19             175,714                - -              - -          $0.42           175,714
     Christoph Henkel.....            $0.19               3,636                - -              - -          $0.42             3,636
     Rene Jaggi...........            $0.19               3,636                - -              - -          $0.42             3,636
     Michael Treichl......            $0.19               2,424                - -              - -          $0.42             2,424

Option Plan 2001
     Johan Eliasch........            $4.31           1,426,470                - -              - -          $4.31         1,426,470
     Karel Vuursteen......            $4.31              55,002                - -              - -          $4.31            55,002
     Christoph Henkel.....            $4.31              55,002                - -              - -          $4.31            55,002
     Viktor Klima.........            $4.31              85,002             15,000              - -          $4.31           100,002
     William S. Cohen.....            $4.31              85,002             15,000              - -          $4.31           100,002
     Rene Jaggi...........            $4.31              40,002                - -              - -          $4.31            40,002
     Jurgen Hintz.........            $4.31              55,002             15,000              - -          $4.31            70,002

Option Plan 2005
     Johan Eliasch........        EUR  2.17                  --                 --              - -       EUR 2.17                --
     Ralf Bernhart........        EUR  2.17                  --                 --              - -       EUR 2.17                --

</TABLE>

6.C.     Board Practices

     Prior to the adoption of the U.S. Sarbanes-Oxley Act of 2002, we maintained
formal and informal procedures that were designed to ensure that we complied
with our various disclosure obligations. In response to the Sarbanes-Oxley Act,
we continued to use such procedures but also evaluated and, where necessary,
formalized them in order to ensure that we are in compliance with applicable
U.S. Securities and Exchange Commission (SEC) and New York Stock Exchange (NYSE)
regulations, Dutch Law and the rules set out by the Vienna Stock Exchange and to
facilitate improvement of the internal control framework. Such procedures were
and are intended to assist the Management Board by ensuring that the disclosure
in all filed reports is accurate, complete, timely, understandable and that it
fairly presents the condition of the group.


     As a Dutch company listed on both the Vienna Stock Exchange and the NYSE,
we must consider different corporate governance systems. On December 9, 2003 a
corporate governance code ("Dutch CGC") was presented which became effective to
Dutch listed companies as per the financial year beginning on or after January
1, 2004. The Dutch CGC specifically states that a company may choose to not
comply with certain of its provisions if the deviation is explained to and
approved by the general meeting of shareholders. In Austria a voluntary
self-regulatory Code of Corporate Governance was drafted in October 2002, which
provides corporations with a framework for the management and control of
enterprises. This Code of Corporate Governance recommends Austrian stock listed
companies to voluntarily adhere to such Code or parts of it. We are listed on
the Vienna Stock Exchange, but as a Dutch company we are not subject to such
Code's recommendations. Since we are not listed in the Netherlands, it seemed
appropriate to focus on specifically the NYSE and SEC rules on corporate
governance. Therefore, at our annual general meeting in 2004 we asked our
shareholders to approve that we will apply the NYSE and SEC rules of corporate
governance and not specifically the rules of the Dutch CGC. Our shareholders
approved such proposal and we therefore comply with the NYSE corporate
governance rules applicable to controlled companies. We believe that by
complying with the NYSE and SEC rules, and our current internal Code of Conduct
setting out general standards for ethical behavior, we should also meet many of
the recommendations of the Austrian Code of Corporate Governance. Our Corporate
Governance Guidelines are posted on our website www.head.com, section "Investor
Relations".


     As notified to the NYSE in October 2005, following the resignation of
Secretary William Cohen from our audit committee, we had, and we continue to
have, two audit committee members. Secretary Cohen continues to serve as a
member of the Supervisory Board.


     At our Annual General Meeting in May 2005, our shareholders authorized the
Management Board to apply for a de-listing from the New York Stock Exchange and
terminate the "Common Share Agreement" between us and The Bank of New York as
U.S. transfer agent and registrar. The present costs of compliance with the
requirements of the Sarbanes-Oxley Act ("SOX") have had, and will continue to
have, an impact on our operating results. This led the Management Board to
analyze and discuss the benefits and issues associated with our current
listings, particularly the listing on the NYSE. As a result of this analysis,
the Management Board had made a proposal to the Supervisory Board to discuss the
de-listing of our ordinary shares from the NYSE and to terminate the "Common
Share Agreement" between us and the Bank of New York. These discussions may
possibly lead to a de-listing of our ordinary shares from the NYSE and
termination of the Common Share Agreement.


                                       45
<PAGE>

     When reviewing any resolution to de-list from the NYSE and terminate the
Common Share Agreement, the Management Board and the Supervisory Board will
among other things carefully consider the possibility of de-registering under
SEC rules and the interests of all of our shareholders, the advantages and
disadvantages of the de-listing, the financial savings achieved by the
de-listing, the particular impact of the de-listing and possible de-registration
on the holders of our ordinary shares listed on the NYSE and any feasible
alternatives to the de-listing.


     None of our directors have service contracts that provide for benefits upon
termination of employment.

6.D.     Employees

     The table below shows the number of employees by geographic location at
December 31, 2006, 2005 and 2004:

<TABLE>
<CAPTION>


                                                   For the Years ended December 31,
                                          ----------------------------------------------------
                                               2006              2005               2004
                                          ---------------    --------------    ---------------

<S>                                                  <C>               <C>                <C>
Austria.......................                       617               717                885
Italy.........................                       251               315                331
Czech Republic................                       501               417                662
Other (Europe)................                       160               156                169
USA...........................                       339               370                378
Other.........................                        52                48                 47
                                          ---------------    --------------    ---------------
Total.........................                     1,920             2,023              2,472
                                          ===============    ==============    ===============
</TABLE>


     The table below shows the number of employees by main category at December
31, 2006, 2005 and 2004:


<TABLE>
<CAPTION>

                                                   For the Years ended December 31,
                                          ----------------------------------------------------
                                               2006              2005               2004
                                          ---------------    --------------    ---------------

<S>                                                <C>               <C>                <C>
Manufacturing..................                    1,173             1,296              1,736
Engineering and Patent.........                      108               103                108
Selling and Advertising........                      398               381                385
Warehouse......................                      103               100                 92
Business Unit Administration...                      138               143                151
                                          ---------------    --------------    ---------------
Total..........................                    1,920             2,023              2,472
                                          ===============    ==============    ===============

</TABLE>

     We believe that our employee relations are generally good. In Austria, most
of our employees are subject to collective labor agreements covering the metal
and wood processing industries. Collective labor agreements have also been
entered for some employees in other countries.

6.E.     Share Ownership

     Head Sports Holdings N.V., a Netherlands Antilles corporation, is
controlled by Johan Eliasch and his family members. Head Sports Holdings N.V.
held 18,987,344, or 47.7%, of Head N.V.'s issued shares as of March 31, 2007.
Mr. Eliasch is eligible to receive all options issued under the 1998 Plan that
do not vest to current participants in the 1998 Plan. None of the remaining
officers and directors own or hold options under which the underlying shares
amount to one percent or more of the Company's share capital.

     The key executive officers (other than Johan Eliasch) and members of the
Supervisory Board hold collectively less than 1% of the issued shares.

     The exercise price for all stock options granted under the 1998 Plan was
fixed at inception of the Plan and increases at the rate of 10% per annum until
the options are exercised. As of December 31, 2006, the exercise price was
$0.42. Options generally were vested over a period of 4 years and were subject
to the Company meeting certain earnings performance targets during this period.
Options have a maximum term of 10 years. Johan Eliasch, our Chairman and Chief
Executive Officer received options representing 838,622 shares under this grant.
The weighted average remaining contractual life of the outstanding stock option
is 2.2 years, and options representing 861,760 shares have been exercised. As of
December 31, 2006, options representing 1,393,208 shares are vested and
exercisable.

     The exercise price for all stock options granted under the 2001 Plan was
fixed at inception of the Plan at $4.31. The vesting period varies from 0 to 6
years. As of December 31, 2006, Johan Eliasch, our Chairman and Chief Executive
Officer, received 1,894,794


                                       46
<PAGE>

options under this grant, of which 1,426,470 options vested immediately. He has
the right to receive additional 96,240 options up to a total amount of 1,991,035
options. Options have a maximum term of 10 years. The weighted average remaining
contractual life of the outstanding stock option is 4.7 years, and 1,866,482
options are exercisable under the 2001 Plan. As of December 31, 2006, no other
shares were available for grant under the 2001 Plan.

     The exercise price for all stock options granted under the 2005 Plan was
fixed at inception of the Plan at EUR 2.168 Options have a maximum term of 10
years. Johan Eliasch, our Chairman and Chief Executive Officer, received
1,937,346 options under this grant. The weighted average remaining contractual
life of the outstanding stock option is 8.7 years. As of December 31, 2006,
options representing 205,345 shares are available for grant.

Stock Option Plans

The Stichting Head Option Plans

     We have established a Dutch foundation, the Stichting Head Option Plan (the
"Stichting"), the Board of which is controlled by Head Sports Holdings N.V. and
Johan Eliasch jointly. Head Sports Holdings N.V. is an entity that is controlled
by Johan Eliasch and his family members. The Stichting holds certain of our
ordinary shares and issues depositary receipts to our employees and other third
parties. The Stichting is the shareholder and therefore votes, collects
dividends on behalf of the holders of depositary receipts and may also buy and
sell shares in its own name and for its own account. Holders of the depositary
receipts issued by the Stichting have no voting rights. The Stichting's sole
corporate body is its Board; it does not have any members or shareholders. The
named Administrator, Head Sports Holdings N.V., decides on the composition of
the board and has the sole power to appoint any successor administrator.

     Options are granted by means of an agreement between the participant, the
Stichting and us. Upon the exercise of an option, the option price is paid to
us, and we issue the shares or transfer to the Stichting listed shares that we
have purchased, which issues the same number of depositary receipts to the
participant. Holders of depositary receipts are entitled to proceeds of the
sales of their shares upon request to the Stichting. However, a lockup on such
shares was in effect for two years following the initial public offering on
October 3, 2000.

     As of December 31, 2006, the Stichting had rights to acquire 7,627,990
ordinary shares at the exercise price, to enable the Stichting to issue
depositary receipts representing ordinary shares upon the exercise of options.
In, 2006, no options were exercised and the Stichting held 1,416,634 shares, as
of December 31, 2006.

1998 Stock Option Plan

     In November 1998, our Management Board approved the Head Tyrolia Mares
Group Executive Stock Option Plan. The 1998 Plan calls for the grant of options
to officers and key employees to purchase for a nominal fee depositary receipts
representing ordinary shares of Head N.V. The 1998 Plan provides for the
issuance of a maximum aggregate number of options equal to 10% of the then
outstanding shares of Head N.V., on a fully-diluted basis, subject to
adjustments upon the occurrence of a stock split or dividend or in the event of
a merger, reorganization or other similar event.

     Upon exercise of the options, option holders receive depositary receipts
rather than shares in the Company. Depositary receipts issued under the 1998
Plan will be administered by the Stichting. Holders of depositary receipts may,
upon request, receive from the Stichting the proceeds from the sale of their
shares.

     Options granted under the Plan vest over a four-year period, each year
being a "performance period", and may each be exercised at a nominal price
within a period of 10 years from the date of grant. With respect to each
"performance period", the options vest depending on the participant's
performance, expressed as the "overall performance percentage" (as defined in
the 1998 Plan). For purposes of determining such overall performance percentage,
the administrator of the 1998 Plan has determined, for each participant and for
each performance period, performance targets which comprise a minimum target, a
maximum target and a relative target weight. Johan Eliasch, our Chairman and
Chief Executive Officer received options representing 838,622 shares under this
grant. The exercise period for options which vest prior to January 1, 2002,
began on January 1, 2002. The exercise period for options which vest after
January 1, 2002, began at the date of vesting.

     Under the 1998 Plan, options to purchase 2,278,394 depositary receipts have
been granted. No further options will be granted by the Company to the
Stichting, under the 1998 Plan.

2000 Stock Option Plan

     In August 2000, our Management Board adopted the Head N.V. Executive Stock
Option Plan 2000, but that plan has not been implemented.

2001 Stock Option Plan

     In September 2001, we adopted the Head N.V. Executive Stock Option Plan
2001 (the "2001 Plan"). The 2001 Plan provides for grants of stock options to
officers and employees of Head N.V. and its subsidiaries to purchase for $4.31
depositary receipts representing ordinary shares of Head N.V. On September 28,
2001, a total of 3,982,070 options were granted under the terms of the


                                       47
<PAGE>

2001 Plan. Upon exercise of the options, option holders receive depositary
receipts rather than our shares. Depositary receipts issued under the 2001 Plan
will be administered by the Stichting. Holders of depositary receipts may, upon
request, receive from the Stichting the proceeds from the sale of their shares.

     The exercise price for all stock options granted under the Plan was fixed
at inception of the 2001 Plan. The vesting period varies from 0 to 6 years. All
options that have been vested shall become immediately exercisable. As of
December 31, 2006, Johan Eliasch, our Chairman and Chief Executive Officer,
received 1,894,794 options under this grant, of which 1,426,470 options vested
immediately. We assume that all options granted will become fully vested.
Options have a maximum term of 10 years. As of December 31, 2006, no other
shares were available for grant under the 2001 Plan.

2005 Stock Option Plan

     In May 2005, at the annual general meeting the shareholders approved the
Head N.V. Executive Stock Option Plan 2005 (the "2005 Plan"). The 2005 Plan
provides for grants of stock options to officers and key employees of Head N.V.
and its subsidiaries to purchase for EUR 2.168 depositary receipts
representing ordinary shares of Head N.V. As of December 31, 2006, a total of
3,669,346 options were granted under the terms of the 2005 Plan. Johan Eliasch,
our Chairman and Chief Executive Officer, received 1,937,346 options under this
grant. Upon exercise of the options, option holders receive depositary receipts
rather than our shares. Depositary receipts issued under the 2005 Plan will be
administered by the Stichting. Holders of depositary receipts may, upon request,
receive from the Stichting the proceeds from the sale of their shares.

     The exercise price for all stock options granted under the 2005 Plan was
fixed at inception of the 2005 Plan. Options generally vest over a period of 4
years. We assume that 99% of all options granted will become fully vested.
Options have a maximum term of 10 years. As of December 31, 2006, 205,345 shares
were available for grant under the 2005 Plan.

ITEM 7:  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A.     Major Shareholders

     Head Sports Holdings N.V., a Netherlands Antilles corporation controlled by
Johan Eliasch and his family members, held 18,987,344, or approximately 47.7%,
of Head N.V.'s issued shares as of December 31, 2006. See "Item 3.D Risk
Factors".

     Donald Smith & Co., Inc. held 3,737,900, or 9.4%, and Aegis Financial
Corporation held 2,097,350, or 5.3%, of Head N.V.'s issued shares as of December
31, 2006. As of December 31, 2006 no other person is known to us to hold 5% or
more of our issued shares.

     As of December 31, 2006, 12,455,774 shares were listed on the Vienna Stock
Exchange and 8,377,559 shares were listed on the New York Stock Exchange.

7.B.     Related Party Transactions

The Company receives administrative services from a corporation which is
ultimately owned by the principal shareholder of the Company. Administrative
expenses amounted to approximately EUR 4.6 million, EUR 4.2 million and
EUR 4.5 million for the years ended December 31, 2006, 2005 and 2004,
respectively. The related party provides investor relations, corporate finance,
legal and consulting services and since 2004 internal audit and other services
in relation to compliance with the Sarbanes-Oxley Act of 2002.

     One of the Company's subsidiaries leased its office building from its
general manager. Rental expenses amounted to approximately EUR 0.04 million
for each of the years ended December 31, 2006, 2005 and 2004.


7.C.     Interest of Experts and Counsel

         Not applicable.

ITEM 8:  FINANCIAL INFORMATION

8.A.     Consolidated Statements and Other Financial Information

       8.A.1      See Item 17.

       8.A.2      See Item 17.

       8.A.3      See Report of Independent Registered Public Accounting Firm,
                  page F-1.

       8.A.4      Not applicable.

       8.A.5      Not applicable.


                                       48
<PAGE>


       8.A.6      See Note 5 to the Financial Statements.

       8.A.7      Legal or Arbitration Proceedings

     From time to time, we are party to lawsuits and proceedings in the normal
course of our business. We cannot predict the outcome of these lawsuits.
Nevertheless, we do not believe that we are currently party to any lawsuits or
proceedings that will have a material effect on our financial condition or
results of operations.

       8.A.8.     Dividend Policy

     Under Netherlands law, we may only pay dividends on our shares if we
maintain minimum paid-up share capital and the reserves required by Dutch law or
by our amended articles of association. If dividends on our ordinary shares are
paid in cash, we expect to pay these dividends in euros.

     While we currently intend to retain future earnings to finance operations,
we will evaluate our dividend policy annually in light of results. Pursuant to
our articles of association, the Management Board may decide which part of the
free distributable profits shall be reserved. It should be noted that if
preference shares are issued (which is presently not the case) this authority
shall be applicable to the remainder of the profit after the preferred dividend
to the holders of preference shares have been paid. Because our articles of
association require that the part of the profit which is not reserved by the
Management Board must be distributed to the holders of ordinary shares, the
Management Board effectively decides which part of the profit (after possible
satisfaction of the preferred dividend of holders of preference shares) shall be
distributed to the holders of ordinary shares.

     Cash dividends, if any, payable to holders of ordinary shares listed on the
New York Stock Exchange will be paid to The Bank of New York which will convert
the dividends into U.S. dollars at the rate of exchange applicable on the date
such dividends are paid, for disbursement to such holders. Cash dividends
payable to holders of ordinary shares listed on the Vienna Stock Exchange will
be paid to Bank Austria Creditanstalt AG in euros for disbursement to holders.
Any dividend payments would be subject to Netherlands statutory withholding
taxes.

8.B.     Significant Changes

     No significant change has occurred since the date of the annual financial
statements included in this document.

ITEM 9:  THE OFFER AND LISTING

9.A.     Offer and Listing Details

     The total nominal value of our issued share capital is EUR 7,964,135.40
and consists of 39,820,677 ordinary shares of EUR 0.20 each.

     Our shares were listed on the New York Stock Exchange and the Vienna Stock
Exchange on September 28, 2000 in connection with our initial public offering.

     The chart below shows the high and low market prices of our ordinary shares
on each exchange for the financial periods indicated:


                                       49
<PAGE>


                           New York Stock Exchange        Vienna Stock Exchange
                         --------------------------     -----------------------
                            High           Low             High            Low
                         -----------    -----------     -----------     -------
                             (amounts in dollars)         (amounts in EUR)
Years Ended
December, 2002........         3.54           1.85          3.88           1.80
December, 2003........         2.90           1.45          2.52           1.36
December, 2004........         3.93           2.40          3.20           1.82
December, 2005........         4.40           2.45          3.50           2.02
December, 2006........         4.90           2.90          3.95           2.41

Quarters Ended
March, 2005...........         4.40           3.40          3.50           2.65
June, 2005............         3.40           2.45          2.80           2.02
September, 2005.......         3.40           2.50          2.69           2.10
December, 2005........         3.30           2.56          2.89           2.12
March, 2006...........         4.80           3.16          3.55           2.73
June, 2006............         4.90           3.50          3.95           2.74
September, 2006.......         3.87           2.90          3.05           2.43
December, 2006........         4.00           2.98          2.98           2.41

Months Ended
September, 2006.......         3.58           2.90          2.85           2.43
October, 2006.........         3.90           2.98          2.70           2.41
November, 2006........         3.75           3.16          2.82           2.49
December, 2006........         4.00           3.65          2.98           2.72
January, 2007.........         3.80           3.36          2.90           2.63
February, 2007........         4.90           3.55          3.19           2.66

9.B.     Plan of Distribution

     Not applicable.

9.C.     Markets

     The ordinary shares were listed on the New York Stock Exchange on September
29, 2000 and are available in registered form only. Our shareholders register is
maintained in New York, by The Bank of New York, our U.S. transfer agent and
registrar. All of the New York Stock Exchange shares are represented by a single
global share certificate held through the Depository Trust Company and
registered with our transfer agent and registrar in the name of Cede & Co., the
nominee of DTC.

     At our Annual General Meeting in May 2005, our shareholders authorized the
Board of Management to apply for a de-listing from the New York Stock Exchange
and terminate the "Common Share Agreement" between us and The Bank of New York.
The present costs of compliance with the requirements of the Sarbanes-Oxley Act
("SOX") has had, and will continue to have, an impact on our operating results.
This led the Board of Management to analyse and discuss the benefits and issues
associated with our current listings, particularly the listing on the NYSE. As a
result of this analysis, the Board of Management made a proposal to the
Supervisory Board to discuss the de-listing of our ordinary shares from the NYSE
and to terminate the "Common Share Agreement" between us and the Bank of New
York as U.S. transfer agent and registrar. These discussions may possibly lead
to a de-listing of our ordinary shares from the NYSE and termination of the
Common Share Agreement.

     When reviewing any resolution to de-list from the NYSE and terminate the
Common Share Agreement, the Board of Management and the Supervisory Board will
among other things carefully consider the possibility of de-registering under
SEC rules and the interests of all of our shareholders, the advantages and
disadvantages of the de-listing, the financial savings achieved by the
de-listing, the particular impact of the de-listing on the holders our ordinary
shares listed on the NYSE and any feasible alternatives to the de-listing.


     If the Board of Management with the approval of the Supervisory Board
resolves to pursue the de-listing from the NYSE, we will submit to the NYSE an
application to de-list.

     Ordinary shares are available on the Vienna Stock Exchange in bearer form
only and represented by a single global share certificate, which we have
deposited with Oesterreichische Kontrollbank Aktiengesellschaft ("OeKB"), as
custodian. The ordinary shares in bearer form can only be transferred in
book-entry form. All ordinary shares are listed on the Vienna Stock Exchange;
however, only the Vienna Stock Exchange shares may be traded on that market.


                                       50
<PAGE>

     The Vienna Stock Exchange is operated by a stock corporation, the Wiener
Borse AG, based on a license issued by the Federal Ministry of Finance. Members
of the Exchange include banks and investment firms. The supervising authorities
are the Federal Securities Authority (Finanzmarktaufsicht) and the Federal
Ministry of Finance. The latter supervises the legality of the Vienna Stock
Exchange's resolutions and of its organization primarily by way of an authorized
exchange commissioner appointed by the Ministry. The Federal Securities
Authority monitors the prevention of insider trading, fairness in trading and
market-related aspects.

9.D.     Selling Shareholders

         Not applicable.

9.E.     Dilution

         Not applicable.

9.F.     Expenses of the Issue

         Not applicable.

ITEM 10: ADDITIONAL INFORMATION

10.A.    Share Capital

     On May 24, 2006, the Board of Management was granted the authority to
repurchase shares representing up to 30% of our issued share capital during a
period of 18 months (until November 24, 2007), although we will not hold more
than 10% of our issued shares at any time.

     Pursuant to resolutions which were approved on May 24, 2006 the Board of
Management is authorized to cancel ordinary shares which have been repurchased
by us for a maximum of 30% of our issued share capital as at December 31, 2005,
over a period of 18 months (until November 24, 2007).

10.B.    Articles of Association

Corporate Purpose

     Article 3 of our articles of association provides that we may perform all
acts and do all things (as long as these are not prohibited by law), such as
operate all kinds of businesses, hold, participate in, manage and finance other
enterprises and companies, borrow money and provide security there for and
provide security for the debts of others and do all that is connected with the
foregoing or may be conducive thereto including owning, leasing or obtaining
licenses for real and intellectual properties, all which is to be interpreted in
the widest sense. The Company's file number is 24286737 at Kamer van Koophandel,
Amsterdam.

Ordinary Shares

     Form All our ordinary shares may be either in registered or bearer form.
All our ordinary shares are listed both on the New York Stock Exchange and the
Vienna Stock Exchange. However, ordinary shares are available on the Vienna
Stock Exchange only in bearer form and on the New York Stock Exchange only in
registered form.

     Our ordinary shares in bearer form are represented by a single global
bearer share certificate, which we will deposit with Oesterreichische
Kontrollbank Aktiengesellschaft (OeKB) as custodian. Ordinary shares in bearer
form can only be transferred in book entry form. Other than the single global
share certificate, no separate share certificates representing our ordinary
shares in bearer form will be issued. Our ordinary shares listed on the New York
Stock Exchange are held through The Depository Trust Company ("DTC") and be
registered in the name of Cede & Co, the nominee for DTC.

     Holders of registered ordinary shares are entered in our shareholders
register. At the request of a shareholder a share certificate (consisting of a
"mantel" main part only) may be issued for registered ordinary shares. At such
request, we will, without a fee, issue a non-negotiable extract from the
shareholders' register in the name of the holder unless a certificate has been
issued for such holder's registered ordinary share. A deed of transfer together
with our acknowledgement in writing (or service on us of this deed) is required
to transfer registered ordinary shares.

     Voting Rights. Each ordinary share represents the right to participate and
to cast one vote at a general meeting.

     Dividends.  Each ordinary share is entitled to the same amount of dividend
if one is declared.

     Liquidation Rights. Upon liquidation, each holder of ordinary shares shall
be entitled to the balance remaining after satisfaction of all our debts in
proportion to the total number of ordinary shares held by each of them, and, to
the extent that preference shares have been issued, after an amount equal to any
previously declared but unpaid dividend and the paid-up nominal amount of such
preference shares has been distributed to the holders of preference shares. Any
dissolution or liquidation is subject to applicable provisions of Dutch law.


                                       51
<PAGE>

     Preemptive Rights. Unless restricted or limited and except for issues of
ordinary shares in return for non-cash consideration and ordinary shares issued
to our employees or employees of any of our group companies, holders of ordinary
shares generally will have preemptive rights to subscribe for their pro-rata
amount of all new ordinary share issuances. However, pursuant to the articles of
association, all authorized but unissued ordinary shares may be issued by the
Management Board and the preemptive rights associated with all currently
authorized capital may be limited or excluded by the Management Board. This
authority has been extended by resolution of the shareholders and will end on
May 26, 2009, unless further extended by an amendment of the articles of
association or by a resolution of the shareholders for a period of not more than
five years in each instance. When extending the authority of our Management
Board to issue shares and to limit or exclude preemptive rights, the general
meeting of shareholders shall determine the number of shares which may be issued
or affected as well as the date when this authorization shall expire.

Preference Shares

     Preference shares may be issued as a preventive measure against unfriendly
takeover bids. The minimum amount required to be paid on the preference shares
upon issuance is 25% of the nominal amount issued. In the event of a hostile
takeover bid, preference shares may be issued to a legal entity charged with
caring for our interests and preventing influences that may threaten our
continuity, independence or identity. Holders of preference shares do not share
in our reserves and such shares are not listed. The preference shares will be
registered shares and share certificates will not be issued. Preference shares
can be issued in the same way as ordinary shares, but carry no preemptive
rights. Preference shares and ordinary shares have equal voting rights at a
general meeting of shareholders. Holders of preference shares will be paid a
cumulative annual dividend calculated on the basis of the deposit interest rate
of the European Central Bank to the paid up part of their nominal value. To the
extent there are distributable profits, the preferential dividend shall be paid
first. An allocation of profits to the reserves or the payment of a dividend to
holders of ordinary shares may only be effected from the remaining distributable
profits.

     Authorized but unissued preference shares may be issued by the Management
Board, which is also authorized to grant rights to subscribe for such shares.
Unless extended by the amendment of our articles of association or by resolution
of the shareholders for a period of five years in each instance, these
authorizations will end on May 26, 2009, five years after the date of the last
Annual General Meeting of the Company when the authority of the Management Board
was extended by resolution of the shareholders.

     Voting and other rights. Persons who are not DTC participants may
beneficially own ordinary shares held by DTC only through direct or indirect
participants in DTC. So long as Cede & Co., as the nominee of DTC, is the
registered owner of ordinary shares, DTC for all purposes will be considered the
holder of such shares. Accordingly, any person owning a beneficial interest in
New York Stock Exchange shares held through DTC must rely on the procedures of
DTC and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a shareholder. We understand that, under existing industry practice, in the
event that an owner of a beneficial interest in New York Stock Exchange shares
held through DTC desires to take any action that DTC, as the registered
shareholder, is entitled to take, DTC would authorize the participants to take
such action, and the participants would authorize beneficial owners holding
interests through such participants to take such action or would otherwise act
upon the instructions of beneficial owners holding interests through them.

Acquisition of Our Own Shares

       We may acquire our own shares subject to the provisions of Dutch law.
Provided they are fully paid up, we may acquire our own shares for consideration
if:

       o   our shareholders' equity less the payment required to acquire the
           shares does not fall below the sum of the paid-up and called portion
           of our share capital and any statutory reserves; and

       o   we and our subsidiaries would thereafter not hold, or hold in
           pledge, shares with an aggregate nominal value exceeding 10% of our
           issued share capital.

       Shares held by us in our own capital as treasury stock may not be voted
or counted for quorum purposes at shareholders' meetings.

Obligations to Disclose Holdings

     Pursuant to the Dutch Act on Financial Supervision (Wet op het financeel
toezicht), which act contains provisions in respect of disclosure of holdings in
listed companies and which applies during the period we are listed on the Vienna
Stock Exchange, the members of the Management Board and Supervisory Board that
hold our ordinary shares must disclose the number of shares and options and the
number of voting rights to the Netherlands Authority for the Financial markets
(Autoriteit Financiele marken). Furthermore, they are required to immediately
report to the Netherlands Authority for the Financial markets any changes in the
number of shares and options. Also, during the period we are listed on the
Vienna Stock Exchange, anyone acquiring or transferring our ordinary shares,
that causes the holder's percentage of our issued capital or voting control to
fall into one of the following ranges or changes from one range to another must
notify us and the Netherlands Authority for the Financial markets..


The ranges are:

                                       52
<PAGE>


        o   0 to 5%,

        o   5 to 10%,

        o   10 to 15%,

        o   15 to 20%,

        o   20 to 25%,

        o   25 to 30%,

        o   30 to 40%,

        o   40 to 50%

        o   50 to 60%, and

        o   60 to 75%

        o   75 to 95%

        o   95% or more.

     The Netherlands Authority for the Financial markets discloses information
to the public by publication in a newspaper distributed throughout The
Netherlands. If disclosure is required, failure to disclose one's shareholding
is an offense that may result in civil sanctions, including suspension of voting
rights and criminal and administrative sanctions, including the imposition of
fines.

     The Dutch 1995 Act on Financial Supervision (Wet op het financeel toezicht)
also provides for an additional notification duty for shareholders holding a
direct or indirect interest in more than 25% of the capital in a listed company.
These shareholders are obliged to notify the Netherlands Authority for the
financial markets of any and all transactions they enter into with respect to
our securities. If a shareholder with a greater than a 25% interest is a legal
entity and not an individual, the obligation is extended to the managing
directors and supervisory directors of the legal entity.

The Stichting Head Option Plan

     The Stichting has the power to nominate all members of the Management
Board, appoint one-third of the Supervisory Board and nominate the remaining
members of the Supervisory Board. The existence of the Stichting is perpetual,
and control of the Stichting's Board of Directors may be passed to Mr. Eliasch's
affiliates or family members but may not otherwise be transferred. The
aforementioned rights of the Stichting shall cease and shall revert to the
Supervisory Board in the case of a change of control of the Stichting, which is
defined in our articles of association as an event following which Mr. Eliasch
or his affiliates or family members fail to possess the power to direct
management and policies of the Stichting, whether through the ownership of
voting securities or by contract or otherwise, or in the event Mr. Eliasch or
his affiliates or family members fail to beneficially own any shares in the
company. Upon a change of control of the Stichting and when Mr. Eliasch fails to
beneficially own any shares in the company, all members of the Supervisory Board
are appointed by our shareholders.

Management Board

     As a public limited company organized under the laws of The Netherlands,
our business is carried out primarily by a Management Board and by executive
officers appointed by our Management Board. Members of the Management Board are
appointed by our shareholders at a general shareholders' meeting from a list of
nominees drawn up by the Stichting. Our shareholders may however decide at a
general shareholders' meeting, by a resolution adopted by a two-thirds majority
vote, that a given list of nominees drawn up by the Stichting will not be
binding. In the event the Stichting makes a non-binding nomination, our
shareholders may at a general shareholders' meeting elect persons to the
Management Board not nominated by the Stichting by a resolution adopted by the
affirmative vote of two-thirds of the votes cast. Any member of the Management
Board may be suspended or removed from the Management Board at any time by a
majority vote of our shareholders at a general meeting of shareholders. However,
any suspension or removal not proposed by the Stichting may only be decided at a
general shareholders' meeting by a resolution adopted by a two-thirds majority
vote. The Management Board is authorized to represent us, as is the Chairman of
the Management Board acting alone. Our articles of association state that our
Management Board shall consist of one or more members. The aforementioned rights
of the Stichting shall cease as described above. Decisions of the Management
Board are adopted by a simple majority of votes caste.

Supervisory Board

     Our Management Board is overseen by a Supervisory Board consisting of at
least three members, which also oversees the more general course of our
business. Up to one-third of the members of the Supervisory Board are appointed
by the Stichting. The other members of the Supervisory Board are appointed by
our shareholders at a general shareholders' meeting from a list of nominees
drawn


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<PAGE>

up by the Stichting. Our shareholders may however decide at a general
shareholders' meeting, by a resolution adopted by a two-thirds majority vote,
that a given list of nominees drawn up by the Stichting will not be binding. In
the event the Stichting makes a non-binding nomination, our shareholders may at
a general shareholders' meeting elect persons to the Supervisory Board not
nominated by the Stichting by a resolution adopted by the affirmative vote of
two-thirds of the votes cast. Any member of the Supervisory Board appointed by
the Stichting may be suspended or removed from the Supervisory Board by the
Stichting at any time. Members of the Supervisory Board appointed by the general
shareholders' meeting may be suspended or removed from the Supervisory Board at
any time by a majority vote of our shareholders at a general meeting of
shareholders. However, any suspension or removal not proposed by the Stichting
may only be decided at a general shareholders' meeting by a resolution adopted
by a two-thirds majority vote. The aforementioned rights of the Stichting shall
cease as described above. Our Supervisory Board may agree, with the approval of
the Management Board, that specific Management Board resolutions be subject to
the Supervisory Board's approval. No resolutions are specified in our articles
of association that require Supervisory Board approval.

Indemnification of Management Board and Supervisory Board Members

     Our articles of association require that we indemnify any person who is or
was a member of our Management Board or Supervisory Board and who was, is or is
threatened to be made a party to, any action, suit or similar proceeding, by
reason of the fact that he or she is or was a Management Board or Supervisory
Board member. This indemnification generally covers all expenses, attorneys
fees, judgements, fines and amounts paid in settlement actually and reasonably
incurred by the indemnified person in connection with the relevant action, suit
or proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to our best interests. Whether the
indemnified person acted in such a manner may be determined by us.

Shareholders' Meetings

     We are required to hold a general shareholders' meeting annually.
Shareholders' meetings will also be called if convened by our Supervisory Board
or Management Board. Unless otherwise required by law or our articles of
association, decisions of our general meeting of shareholders may be adopted by
a majority of the votes cast. However, except that resolutions regarding
extraordinary transactions, including amendment of our articles of association,
legal merger or split-up of our company can only be adopted upon a proposal of
the Management Board, after approval of the Supervisory Board, and requires a
special majority as described herein. A resolution to dissolve our company can
only be adopted upon a proposal of the Management Board, after approval of the
Supervisory Board, and requires an affirmative vote of three quarters of the
votes cast.

     Shareholders meetings will be held in The Hague, Amsterdam, Rotterdam or
Haarlemmermeer (Schiphol Airport) and chaired by the Chairman of our Supervisory
Board. A holder of registered shares or his attorney wishing to attend a general
meeting of shareholders should notify the Management Board in writing of his
intention. Such notice must be received by the Management Board not later than
on the date mentioned in the notice of the meeting. The 2007 Shareholders
meeting will be held on May 30, 2007.

     For holders of bearer shares, attendance and exercise of voting rights are
subject to certain conditions. In particular, only those shareholders who
register in time and deposit their bearer shares until the end of the general
meeting with the depositary bank nominated by us or any other credit institution
specified in the notice of the general meeting are entitled to attend and cast
votes in a general meeting. Bearer shares are equally deemed to have been
properly deposited if with the consent of the depositary bank, they are
deposited in safe custody until the end of the general meeting. Our articles of
association provide that shareholders must be allowed to file such
acknowledgement of deposit at least fifteen days after convening the general
meeting, not counting the day of publication. The acknowledgement of deposit
must be deposited at the earliest five days before the day of the general
meeting.

Adoption of Annual Accounts

     Within five months following the end of each fiscal year, our Management
Board must prepare annual accounts accompanied by an annual report. This period
may be extended by our general meeting of shareholders on account of special
circumstances for up to six months. Within this period, the annual accounts and
annual report must then be submitted to the Supervisory Board, which will
present a report on it to the general meeting of shareholders. Our annual
accounts and the annual report will be available to our shareholders within the
period referred to in this paragraph. Our annual accounts must be adopted by our
general meeting of shareholders.

Dividends

     We may not pay dividends if the dividend payment would reduce our
shareholders' equity below the sum of our paid-up capital and any reserves
required by Dutch law or by our articles of association. Pursuant to our
articles of association, the preference shares have preferential dividend
rights. Our Management Board shall determine how much of any remaining profit
shall be allocated to our reserves before dividends are paid on the ordinary
shares. Our general meeting of shareholders may resolve, upon a proposal of our
Management Board, that some or all of any dividends declared on ordinary shares
will be paid in ordinary shares in our share capital or securities in any other
entity's share capital rather than in cash. Our Management Board may, subject to
various statutory provisions, distribute one or more interim dividends. A claim
for the payment of a dividend (including an interim dividend) lapses five years
after the first calendar day following the day on which shareholders were first
permitted to make a claim for payment of the dividend.

Capital Reduction

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<PAGE>

     Upon the proposal of our Management Board, our general meeting of
shareholders may resolve to reduce our issued share capital by canceling shares
or reducing the nominal value of our shares, subject to statutory provisions and
the provisions of our articles of association.

Amendment of the Articles of Association; Dissolution; Legal Merger; Split-up

     A resolution of our general meeting of shareholders to amend our articles
of association, or enter into a legal merger or split-up of our company can only
be adopted upon a proposal of our Management Board, after approval of the
Supervisory Board, and requires the affirmative vote of two-thirds of the votes
cast, except that a change of the authorized capital requires an absolute
majority. A resolution to dissolve our company can only be adopted upon a
proposal of our Management Board, after approval of the Supervisory Board, and
requires the affirmative vote of three quarters of the votes cast.

10.C.    Material Contracts

     We have no material contracts outside our ordinary course of business, with
the exception of the indenture entered into by one of our subsidiaries with
respect to its 8.5% Senior Notes. See "Item 5: Operating and Finance Review and
Prospects--Liquidity and Capital Resources--Loan Agreements."


10.D.    Exchange Controls

     Not applicable.

10.E.    Taxation

     This taxation summary solely addresses the material Netherlands, U.S. and
Austrian tax consequences to shareholders in connection with the ownership and
disposition of the ordinary shares. This summary does not discuss every aspect
of taxation that may be relevant to a particular taxpayer under special
circumstances or who is subject to special treatment under applicable law and is
not intended to be applicable in all respects to all categories of investors.
This summary also assumes that our business will be conducted in the manner
outlined in this annual report. Changes in our organizational structure or the
manner in which we conduct our business may invalidate this summary. The laws
upon which this summary is based are subject to change, perhaps with retroactive
effect. A change to these laws may invalidate the contents of this summary,
which will not be updated to reflect changes in laws. Shareholders should
consult their tax advisors regarding their particular personal tax consequences
of owning and disposing of ordinary shares.

           Netherlands Tax Consequences for Holders of Ordinary Shares

     This summary does not purport to be a comprehensive description of all
Netherlands tax consequences of an investment in our shares. Each investor
should consult a professional tax advisor with respect to the tax consequences
of an investment in our shares. The discussion of certain Netherlands taxes set
forth below is included for general information only and does not address every
potential tax consequence of an investment in our shares under the laws of the
Netherlands. The following summary of Netherlands tax considerations is limited
to the tax implications for an individual or corporate owner of our shares who,
directly or indirectly, owns less than 10% of the voting power of the Company (a
"holder of shares").

     This summary is based on the tax legislation, published case law, treaties,
regulations and published policy, in effect as of the date hereof.

Withholding Tax

     Dividends distributed in 2007 by the Company are generally subject to a
Netherlands withholding tax imposed at a rate of 15%. The expression "dividends
distributed by the Company" as used herein includes, but is not limited to,
distributions in cash or in kind, deemed and constructive distributions and
repayments of paid-in capital not recognised as capital for Netherlands dividend
withholding tax purposes.

     In the case of an item of income, profit or gain derived through an estate,
trust or a company that is fiscally transparent under the laws of either the
Netherlands or the United States, such item shall be considered to be derived by
a resident of the United States to the extent such item is treated as the
income, profit or gain of a resident for the purposes of the taxation law of the
United States.

     The income tax treaty between the Netherlands and the United States
provides for a complete exemption from withholding tax on dividends paid to
exempt pension trusts and exempt organisations, as defined therein. Qualifying
U.S.-exempt organizations must seek a full refund of the tax withheld by using
the Form IB 95 USA, which form also includes a banker's affidavit.


                                       55
<PAGE>

Taxes on Income and Capital Gains

     A holder of shares will not be subject to any Netherlands taxes on income
or capital gains in respect of dividends distributed by the Company or in
respect of any gain realised on the disposal of shares (other than the
withholding tax described above), provided that:

                  (i) such holder is neither resident nor deemed to be resident
         of the Netherlands for Netherlands tax purposes (nor has opted to be
         taxed as a resident of the Netherlands);

                  (ii) such holder does not have an enterprise or an interest in
         an enterprise that is, in whole or in part, carried on through a
         permanent establishment or a permanent representative in the
         Netherlands and to which Netherlands permanent establishment or
         permanent representative the shares are attributable;

                  (iii) such holder does not have a substantial interest or a
         deemed substantial interest in the Company or, in the event that such
         holder does have or is deemed to have such interest, it forms part of
         the assets of an enterprise;

                  (iv) such holder is not entitled to a share in the profits of
         an enterprise that is effectively managed in the Netherlands other than
         by way of securities, the shares being attributable to such enterprise;
         and

                  (v) such holder is an individual and such income or gains
         qualify as income from miscellaneous activities in the Netherlands,
         which include the performance of activities in the Netherlands in
         respect of the shares that exceed "regular, active portfolio
         management".

     Generally speaking, a holder of shares holds a substantial interest in the
Company, if such holder of shares, alone or, where such holder is an individual,
together with his or her partner (statutory defined term) or certain other
related persons, directly or indirectly, holds (i) an interest of 5 percent or
more of the total issued capital of the Company or of 5 percent or more of the
issued capital of a certain class of shares of the Company, (ii) rights to
acquire, directly or indirectly, such interest or (iii) certain profit sharing
rights in the Company.Shares.

Anti-Dividend Stripping Legislation

     In the Netherlands, legislation exists that affects the eligibility for an
exemption, reduction, refund or credit of Netherlands dividend withholding tax.
A recipient of a distribution on the Shares will not be entitled to any
exemption, reduction, refund or credit of Netherlands dividend withholding tax
if such recipient is not considered to be the beneficial owner of such
distribution. This is the case if the following cumulative conditions are met:

                  (i) the recipient has paid, directly or indirectly, a
     consideration in relation to the receipt of the dividend payment and this
     consideration forms part of a series of related transactions;

                  (ii) the consideration mentioned under (i) above has been paid
     to an individual or legal entity that is entitled to a less favourable tax
     treatment (including but not limited to the non-applicability of an
     exemption or a lower reduction, refund, or credit of Netherlands dividend
     withholding tax) than the recipient of the dividend payment; and

                  (iii) the person or the entity, that has received the
     consideration, mentioned under (ii) above, retains, directly or indirectly
     a position in the company that is comparable to its position therein before
     the series of related transactions were entered into.

Gift, Estate and Inheritance Taxes

     No gift, estate or inheritance taxes will arise in the Netherlands with
respect to an acquisition of shares by way of a gift by, or on the death of, a
holder of shares who is neither resident nor deemed to be resident in the
Netherlands, unless:

                  (i) such holder at the time of the gift has or at the time of
     his death had a Netherlands enterprise or an interest in a Netherlands
     enterprise that is or was, in whole or in part, carried on through a
     permanent establishment or a permanent representative in the Netherlands
     and to which Netherlands enterprise the shares are or were attributable; or

                  (ii) in the case of a gift of shares by an individual who at
     the time of the gift was neither resident nor deemed to be resident in the
     Netherlands, such individual dies within 180 days after the date of the
     gift, while being resident or deemed to be resident in the Netherlands; or


                                       56
<PAGE>

                  (iii) the shares are or were attributable to the assets of an
     enterprise that is effectively managed in the Netherlands and the donor is
     or the deceased was entitled, other than by way of securities or through an
     employment contract, to a share in the profits of that enterprise, at the
     time of the gift or, as applicable, at the time of his or her death.

     For purposes of Netherlands gift, estate and inheritance tax, an individual
who holds the Netherlands nationality is deemed to be resident in the
Netherlands if he or she has been resident in the Netherlands at any time during
the ten years preceding the date of the gift or death.

     For purposes of Netherlands gift tax, an individual not holding the
Netherlands nationality is deemed to be resident in the Netherlands if he or she
has been resident in the Netherlands at any time during the twelve months
preceding the date of the gift. The same twelve-month rule may apply to entities
that have transferred their seat of residence out of the Netherlands. Applicable
tax treaties may override this deemed residence.

Other Taxes and Duties

     No Netherlands VAT, registration tax, transfer tax, stamp duty or any other
similar documentary tax or duty other than court fees will be payable in the
Netherlands in respect of or in connection with the subscription, issue,
placement, allotment or delivery of the shares.


  United States Federal Income Tax Consequences for Holders of Ordinary Shares

     The following is a general summary of the material U.S. federal income tax
consequences to U.S. shareholders (defined below) of the ownership and
disposition of our ordinary shares. This summary is based on the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), existing temporary and proposed
Treasury Regulations, revenue rulings, administrative pronouncements, judicial
decisions and the U.S.-NL Treaty, all as currently in effect and all of which
are subject to change or changes in interpretation, possibly with retroactive
effect. This summary deals only with ordinary shares held as capital assets
within the meaning of Section 1221 of the Code. This summary does not discuss
all of the tax consequences that may apply to holders that are subject to
special tax rules, including:

     o    persons subject to the imposition of the U.S. federal alternative
          minimum tax;

     o    persons who hold the ordinary shares through partnerships or other
          pass through entities;

     o    U.S. expatriates;

     o    insurance companies;

     o    tax-exempt entities;

     o    banks; financial institutions; regulated investment companies;
          securities broker-dealers;

     o    persons who hold ordinary shares as part of a hedging, straddle,
          constructive sale or conversion transaction;

     o    traders in securities who elect to apply a mark-to-market method of
          accounting;

     o    persons who acquired the ordinary shares pursuant to the exercise of
          employee stock options or otherwise as compensation;

     o    persons whose functional currency is not the U.S. dollar; and

     o    U.S. persons owning (directly, indirectly or by attribution) 10% or
          more of the voting power or share capital of the Company.

     For purposes of this discussion a "U.S. shareholder" is a beneficial owner
     of ordinary shares that is:

     o    an individual who is a citizen or resident of the United States for
          U.S. federal income tax purposes;

     o    a corporation (or other entity taxable as a corporation for U.S.
          federal income tax purposes) created or organized in or under the laws
          of the United States or of any state thereof (including the District
          of Columbia);

     o    an estate the income of which is subject to U.S. federal income
          taxation regardless of source; or


                                       57
<PAGE>

     o    a trust if both a U.S. court is able to exercise primary supervision
          over the administration of the trust, and one or more U.S. persons
          have the authority to control all substantial decisions of the trust.

     If a partnership (including for this purpose any entity treated as a
partnership for U.S. federal income tax purposes) holds ordinary shares, the tax
treatment of a partner generally will depend upon the status of the partner and
the activities of the partnership. If a U.S. shareholder is a partner in a
partnership that holds our ordinary shares, the shareholder is urged to consider
its own tax advisor regarding the ownership and disposition of ordinary shares.

     U.S. shareholders are advised to consult their own tax advisors regarding
the U.S. federal, state, local and foreign tax consequences of owning and
disposing of ordinary shares in light of their particular circumstances as well
as any consequences arising under the laws of any other taxing jurisdiction. In
particular, U.S. shareholders are urged to consult their own tax advisors
regarding whether they are eligible for benefits under the U.S.-NL Treaty.

Taxes on Distributions

     The gross amount of any distribution, including Netherlands withholding tax
thereon, actually or constructively received by a U.S. shareholder with respect
to ordinary shares generally will be taxable as dividend income to the U.S.
shareholder, computed in the manner described in the following paragraph.
Dividends paid on ordinary shares generally will constitute income from sources
outside the United States and will not be eligible for the dividends received
deduction otherwise allowed to corporate U.S. shareholders in respect of
dividends received from U.S. corporations.

     The amount of any distribution paid in euros will be includible in the
gross income of a U.S. shareholder in an amount equal to the U.S. dollar value
of the euros based on the spot rate in effect on the date of actual or
constructive receipt by the U.S. shareholder or the Bank of New York, on behalf
of such shareholders, as the case may be, regardless of whether the euros are
converted into U.S. dollars. If euros received in a distribution are converted
into U.S. dollars on the date received by U.S. shareholders or the Bank of New
York on behalf of such U.S. shareholders, as the case may be, U.S. shareholders
generally should not be required to recognize any exchange gain or loss on such
conversion. If the euros received in the distribution are not converted into
U.S. dollars on the date of receipt, a U.S. shareholder will have a basis in the
euros equal to its U.S. dollar value on the date of receipt. Gain or loss, if
any, recognized by a U.S. shareholder on the subsequent sale, conversion or
other disposition of euros will generally be U.S. source ordinary income or
loss. Special rules govern and specific elections are available to accrual
method taxpayers to determine the U.S. dollar amount includible in income in the
case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged
to consult their own tax advisors regarding the requirements and elections
applicable in this regard.

     Subject to various conditions and limitations, and subject to the
discussion in the next paragraph, tax withheld in the Netherlands in accordance
with the U.S.-NL Treaty will be treated as a foreign tax that U.S. shareholders
may elect either to deduct in computing their U.S. federal taxable income or
credit against their U.S. federal income tax liability. Dividends on ordinary
shares generally will be treated as "passive income" or, in the case of certain
holders, "financial services income" for purposes of calculating the amount of
the foreign tax credit available to a U.S. shareholder. For taxable years
beginning after 31 December 2006, dividend income generally will constitute
"passive category income" or, in the case of certain U.S. shareholders, "general
category income." Additional withholding tax, if any, in excess of the rate
applicable under the U.S.-NL Treaty generally will not be eligible for credit
against the U.S. shareholder's U.S. federal income tax liability.

However, a U.S. shareholder should be able to obtain a refund of such excess
amount by filing the appropriate forms with the Netherlands Tax Administration
requesting such refund and providing the required information. Under various
circumstances, we will be allowed to reduce the amount of dividend withholding
tax imposed on U.S. shareholders that is paid over to the Netherlands Tax
Administration by crediting withholding tax imposed on various dividends paid to
us.

In such event, the Netherlands withholding tax imposed on dividends paid to a
U.S. shareholder may not be fully creditable against the U.S. shareholder's U.S.
federal income tax liability. The rules governing the foreign tax credit are
complex. U.S. shareholders are urged to consult their own tax advisors regarding
the availability of the foreign tax credit in their particular circumstances.

     We did not pay dividends in 2006. If we were to pay dividends in the
future, we will endeavor to provide to U.S. shareholders the information they
will need to calculate their foreign tax credit.

     Certain U.S. shareholders (including individuals) are eligible for reduced
rates of U.S. federal income tax (currently a maximum of 15%) in respect of
"qualified dividend income" received in taxable years beginning before January
1, 2011. For this purpose, qualified dividend income generally includes
dividends paid by a non-U.S. corporation if, among other things, the U.S.
shareholders meet certain minimum holding periods and other requirements and the
non-U.S. corporation satisfies certain criteria, including that either (i) the
ordinary shares with respect to which the dividend has been paid are readily
tradable on an established securities market in the United States, or (ii) the
non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income
tax treaty (such as the U.S.-NL


                                       58
<PAGE>

Treaty) which provides for the exchange of information. We currently believe
that dividends paid with respect to our ordinary shares should constitute
qualified dividend income for U.S. federal income tax purposes, however, this is
a factual matter and therefore is subject to change. We anticipate that any
dividends that we may pay would be reported as qualified dividend income on
Forms 1099-DIV delivered to U.S. shareholders. Each individual U.S. shareholder
of our ordinary shares is urged to consult his own tax advisor regarding the
availability to him of the reduced dividend tax rate in light of his own
particular situation and regarding the computations of his foreign tax credit
limitation with respect to any qualified dividend income paid by the Company to
him, as applicable.

Sale or Other Disposition of the Ordinary Shares

     Upon the sale or other disposition of ordinary shares, a U.S. shareholder
generally will recognize capital gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the U.S. dollar value of
the amount realized from such sale or other disposition and the U.S.
shareholder's tax basis (determined in U.S. dollars) in the ordinary shares.
Such gain or loss will be U.S. source gain or loss and will be treated as
long-term capital gain or loss if the ordinary shares were held for more than
one year. The deductibility of capital losses is subject to limitations. In the
case of a U.S. shareholder who is an individual, long-term capital gain
generally will be subject to preferential rates if specified minimum holding
periods are met. If a U.S. shareholder receives euros upon a sale or other
disposition of ordinary shares, gain or loss, if any, recognized on the
subsequent sale, conversion or disposition of the euros generally will be U.S.
source ordinary income or loss. However, if such euros are converted into U.S.
dollars on the date received by the U.S. shareholder, the U.S. shareholder
generally should not be required to recognize any gain or loss on the
conversion.

Passive Foreign Investment Company Status

     If during any taxable year 75% or more of our gross income consists of
various types of passive income such as dividends, interest, rents or royalties
(other than rents or royalties derived in the active conduct of a trade or
business and received from a unrelated person), or gains from disposition of
certain minority interests), or if at least 50% of the average value of all of
our assets consists of assets that produce or are held for the production of,
passive income, we will be treated as a "passive foreign investment company," or
"PFIC" for such year and in succeeding years. If we were treated as a PFIC in
any taxable year (which conclusion is a factual determination that must be made
as of the close of the taxable year), upon receipt of a distribution on, or a
sale of, ordinary shares, a U.S. shareholder generally will be required to
allocate to each day in its holding period with respect to the ordinary shares a
pro rata portion of any distributions received on the ordinary shares which are
treated as an "excess distribution." Any amount of an excess distribution, which
term includes gain on the sale of stock, treated as allocable to a prior taxable
year is subject to federal income tax at the highest applicable rate of the year
in question, plus an interest charge on the amount of tax deemed to be deferred.
Furthermore, dividends paid by us would not be "qualified dividend income" and
would be taxed at the higher rates applicable to other items of ordinary income.
We currently believe that we did not qualify as a PFIC for the 2006 taxable
year, and it is our intention to conduct our investment activities in a manner
to avoid PFIC status in the future. However, because PFIC status is a factual
matter that must be determined annually, there are no assurances in this regard.

     In the event that we were a PFIC in a subsequent taxable year, the
foregoing rules with respect to distributions and dispositions may be
ameliorated if a U.S. shareholder were eligible for and timely made either:

        o    a valid "QEF" or Qualified Electing Fund election, in which case
             the U.S. shareholder generally would be required to include in
             income on a current basis its pro rata share of our ordinary income
             and net capital gains; or

        o    a valid "mark-to-market" election, in which case, subject to
             various limitations, the U.S. shareholder would essentially be
             required to take into account the difference, if any, between the
             fair market value and the adjusted tax basis of its ordinary
             shares, at the end of a taxable year, in calculating its income for
             such year.

     A U.S. shareholder who decided not to make any of the above elections at
any time during the period in which the shareholder held our ordinary shares
while we were a PFIC nevertheless may elect to make a "deemed sale election"
pursuant to which the shareholder would be treated as having sold its ordinary
shares on the last day of the last taxable year in which we qualified as a PFIC.

     For U.S. shareholders to qualify for treatment under a QEF election, we
would be required to provide various information to the U.S. shareholders.
Although we have not definitively decided whether we would provide such
information, we currently do not intend to do so. U.S. shareholders are urged to
consult their own tax advisors regarding the application of the PFIC rules to
their ownership of our ordinary shares.

U.S. Information Reporting and Backup Withholding

     Dividend payments with respect to ordinary shares and proceeds from the
sale, exchange or other disposition of ordinary shares may be subject to
information reporting to the Internal Revenue Service (the "IRS") and possible
U.S. backup withholding at a current rate of 28%. Backup withholding will not
apply to a shareholder who furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. U.S. persons who are


                                       59
<PAGE>

required to establish their exempt status generally must provide such
certification on a properly completed IRS Form W-9 (Request for Taxpayer
Identification Number and Certification). Non-U.S. shareholders generally will
not be subject to U.S. information reporting or backup withholding. However,
such shareholders may be required to provide certification of non-U.S. status
(generally on IRS Form W-8BEN) in connection with payments received in the
United States or through certain U.S.-related financial intermediaries.

     Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a shareholder's U.S. federal income tax
liability, and a shareholder may obtain a refund of any excess amounts withheld
under the backup withholding rules by timely filing the appropriate claim for
refund with the IRS and furnishing any required information.

            Austrian Tax Consequences for Holders of Ordinary Shares

General

     The following is a summary of the principal Austrian tax consequences of
purchase, possession, ownership and disposal of the ordinary shares. This
summary is based on current law, including but not limited to the double
taxation convention between Austria and the Netherlands and practice as to
matters of Austrian taxation. It does not purport to be a complete analysis of
all potential tax effects relevant to a decision to invest in the ordinary
shares. Prospective investors who are in any doubt as to their tax position
should seek independent advice.

     An Austrian shareholder of ordinary shares is an individual who is resident
in Austria or who ordinarily resides in Austria, or corporations with Austrian
place of management or registered office in Austria.

Dividend withholding tax

     Pursuant to the Dutch dividend withholding tax act, dividends paid by Dutch
companies are, in principle, subject to Dutch dividend withholding tax amounting
to 15%.

     Gross dividend distributions to Austrian individual shareholders are
considered income as defined by the Income Tax Act. Such income is generally
subject to a special tax rate of 25 %. According to the double taxation
convention, Austrian individual shareholders may have the 15% withholding tax on
the gross dividends credited against their Austrian income tax. The maximum
amount to be credited may not exceed the tax amount calculated prior to the
credit allotted to income gained in the Netherlands.

     For qualifying shareholdings of at least 25% held by Austrian companies a
reduction of the 15% Dutch dividend withholding tax rate to 5% should be
available on the basis of the double tax treaty between Austria and the
Netherlands. For qualifying shareholdings of at least 5 % held by Austrian
companies, no Dutch dividend withholding tax should be levied if certain
requirements are met on the basis of the Dutch dividend withholding tax act.

     Gross dividend distributions to Austrian corporations are considered income
as defined by the Austrian Corporate Income Tax Act. Shareholdings of at least
10 % held for at least one year are under certain requirements tax exempted
according to Section 10 Corporate Income Tax Act (participation exemption). The
gross dividends not qualifying for the benefits under the participation
exemption according to Section 10 Corporate Income Tax Act are subject to
Austrian corporate income tax at a rate of 25%. Corporations may, as Austrian
private investors, claim a credit of the actual paid Dutch withholding tax
against the Austrian corporate income tax.

Capital Gains

     Capital gains from the alienation of ordinary shares shall be taxable in
Austria only if the alienator is resident in Austria. This does not apply if the
alienator within five years before the alienation of the ordinary shares has
been resident in the Netherlands. In such case, capital gains from the
alienation of ordinary shares should also be taxable in the Netherlands on the
basis of the double tax treaty between Austria and the Netherlands.

     In Austria, capital gains realised from the sale of ordinary shares by
individuals are subject to tax at marginal tax rates (up to 50%) if the
one-year-holding period is not met. After expiry of the holding period sales of
substantial shares (i.e., if the shareholder has owned a share of at least 1% at
any time within the five years period prior to the sale), and sales of shares
representing part of a domestic business property (Betriebsvermogen) are subject
to income tax. The capital gain is subject to half the average tax rate, if the
one-year-holding period is met.

     In general, corporations subject to unlimited tax liability in Austria are
subject to corporate income tax on any capital gains realised from any sale of
ordinary shares (with exceptions for certain foreign shareholdings). For
corporations, which have been established after December 31, 2000, no tax is
generally levied on capital gains resulting from the sale of an interest of at
least 10% in a non-resident company provided the one-year holding period is met.
On the other hand, for these corporations capital losses realised from the sale
of such interest are not tax deductible. However, these corporations have the
option to treat both, capital gains and capital losses


                                       60
<PAGE>

taxable.

     For Corporations, which have been established before January 1, 2001 the
above rules will become applicable from 2006 (assessment period) onwards.

Departure Tax

       Measures of shareholders which lead to a loss of taxation power of
Austria in relation to other countries are generally treated as a sale at fair
market value (with certain exemptions).

     However, in relation to EU member states (and, in certain cases, member
states of the European Economic Area), taxation may upon application be deferred
until the respective shareholding is actually disposed of.

Tax Upon Liquidation

     In case of liquidation of the company, a shareholder is subject to tax on
the difference between the proceeds from the liquidation and the acquisition
cost of the shares in the case of an individual shareholder or the book value in
the case of a corporate shareholder, irrespective of the extent of the
shareholding. However, an exemption generally exists for gains derived by an
Austrian corporate shareholder from the liquidation of a non-resident company if
its share is at least 10% and the one-year holding period is met. In principle,
liquidation distributions of a Dutch company should also be subject to Dutch
dividend withholding tax if the distributions exceed the average paid-up share
capital (including share premium and so-called informal capital).

Share Transfer Tax

     The share transfer tax was abolished with effect as of October 1, 2000.

Inheritance and Gift Tax

     Share transfers due to death or donation by residents of Austria are
subject to Austrian Inheritance and Gift Tax (exemptions exist for transfers of
shares of less than 1% due to death). This also applies to transfers by
non-resident shareholders or non-Austrian citizens to beneficiaries who are
Austrian residents.

     Shares held by non-resident shareholders are not subject to Austrian
inheritance and gift tax on a transfer to another non-resident of Austria by
reason of death or donation. Non-resident shareholders are Austrian non-citizens
not resident in Austria.

     For reasons of double taxation, special reference is made to double
taxation conventions entered into by the Republic of Austria. If no double
taxation convention has been concluded, foreign inheritance and gift taxes can
be allowed as credit against the Austrian inheritance and gift tax by the
Austrian Federal Ministry of Finance in case of reciprocity. Reciprocity is
assumed if the foreign country does not levy inheritance and gift tax on assets
situated in Austria or if the foreign country allows Austrian inheritance and
gift tax as credit against its own inheritance and gift tax. Application for
credit must be filed with the Austrian Federal Ministry of Finance.


10.F.    Dividends and Paying Agents

         Not applicable.

10.G.    Statement by Experts

         Not applicable.

10.H.    Documents on Display

     The documents referred to in this report can be read at the U.S. Securities
and Exchange Commission's public reference facilities at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549.

     The public may obtain information on the operation of the Commission's
public reference facilities by calling the Commission in the United States at
1-800-SEC-0330. Copies of reports, proxy statements and other information
concerning us are also available for inspection at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.

10.I.    Subsidiary Information

         Not applicable.

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                                       61
<PAGE>


Quantitative and Qualitative Disclosures About Market Risk

     In the ordinary course of business, our primary market risk exposures are
changes in interest rates and fluctuations in foreign currency exchange rates.
To meet our objective of minimizing our exposure to fluctuations in foreign
currency exchange rates, we use forward currency contracts. Such instruments are
entered into purely to meet our objective and not for speculative purposes.

     Our foreign currency risks have not changed materially over the last years.
However, with respect to interest rates, we have less exposure to interest rate
changes because we refinanced some of our floating rate debt with the proceeds
from our fixed rate senior notes issued in July 1999 and repaid another portion
of the floating rate debt with the proceeds from our initial public offering in
October 2000 and in 2004 with the proceeds of our issued bond due in 2014.

Interest Rate Exposure

     The table below provides information about our financial instruments that
are sensitive to interest rates, primarily our debt obligations. For such
obligations the table presents the repayment schedule of amounts outstanding on
December 31, 2006, based on the contractual maturity dates of our bank and other
debt facilities and the related weighted average interest rates by expected
maturity date. Variable rates are based on rates as of December 31, 2006.

     The carrying value of our senior notes and other long-term debt approximate
fair value based on current rates being offered and quoted market prices of debt
with similar terms.


                          Interest-Rate Risk Management
                 Principal (Nominal) Amount by Expected Maturity
                                  Interest Rate
<TABLE>
<CAPTION>
                                                                                                                   Year Ended
                                                                                                                   December 31,
                                                             Year Ended December 31, 2006                             2005
                                   ------------------------------------------------------------------------    ---------------------
                                                                                                    Fair
                                     2007     2008     2009    2010    2011   Thereafter    Total    Value     Total     Fair Value
                                   -------  -------  ------- ------- -------  ----------   -------  -------    -------   -----------
                                                                             (in thousands)
<S>                                   <C>      <C>      <C>     <C>      <C>   <C>        <C>       <C>       <C>         <C>
Debt, including current portion

Fixed rate (EUR)...............  EUR   133      143      153     163      174   120,711    121,477   121,477   121,360     121,360
Weighted avg. Interest rate
(fixed)........................       6.70%    6.70%    6.70%   6.70%    6.70%     8.36%      8.35%               8.35%

Fixed rate (USD)...............  EUR   186      200      216     232      249     1,880      2,962     2,962     3,500       3,500
Weighted avg. Interest rate
(fixed)........................       7.33%    7.33%    7.33%   7.33%    7.33%     7.33%      7.33%               7.33%

Fixed rate (JPY)...............  EUR   312      312      312     312      156     3,056      4,460     4,460        --          --
Weighted avg. Interest rate
(fixed)........................       2.77%    2.77%    2.77%   2.77%    2.77%     2.77%      2.77%                  --

Variable rate (EUR)............  EUR 1,698    1,627    1,472     482      385     1,224      6,890     6,890     8,009       8,009
Weighted avg. Interest rate
(variable).....................       3.17%    3.17%    3.17%   3.17%    3.17%     3.17%      3.17%               2.53%

Other currencies (CSK).........  EUR   214      214      161                                   589       589       804         804
Weighted avg. Interest rate....       4.22%    4.22%    4.22%                                 4.22%               3.11%
</TABLE>


Foreign Currency Exchange Rate Exposure

<TABLE>
<CAPTION>


     The table below provides information about our forward foreign exchange contracts and foreign exchange options contracts which
 we use to manage fluctuations in foreign currency exchange rates:


                                                  Contract
                                                Amount Sell
                                               EUR Equivalent           Average Option          Fair Value
                                                                          Strike Price        December 31, 2006

                                                          (in thousands, except for the option strike price)

<S>                                              <C>                      <C>                 <C>
Currency Pairs:
Foreign Currency Forward Contracts
EUR                                                                         1 EUR =
British Pounds........................           EUR 3,478                0.6815 GBP            EUR  (29)
Swiss Franc...........................           EUR 7,569                1.5855 CHF            EUR   31

</TABLE>


                                       62
<PAGE>

<TABLE>
<S>                                             <C>                      <C>                  <C>
Foreign Currency Option Contracts
EUR
British Pounds........................           EUR 1,193                0,6865 GBP            EUR   (1)
Swiss Franc...........................           EUR   411                1.5885 CHF            EUR    7

</TABLE>


     The fair values of the foreign currency contracts represent the amount the
Company would receive or pay to terminate the contracts, considering first,
quoted market prices of comparable agreements, or in the absence of quoted
market prices, such factors as interest rates, currency exchange rates and
remaining maturity. The foreign currency forward contracts and foreign currency
options have a term of less than one year.

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         Not applicable.

ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

         Not applicable.


PART III

ITEM 15: CONTROLS AND PROCEDURES

     Our chief executive officer and chief financial officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form
20-F, have concluded that, as of such date, our disclosure controls and
procedures were effective.

     As reflected in the restated financial statements, we have changed our
interpretation of the accounting principles applicable to share-based
compensation. See "Item 5.A. -- Operating Results - Restatement of
Previously-Issued Financial Statements". Other than with respect to such change,
there were no changes in our internal controls over financial reporting during
the year ended December 31, 2006, identified in connection with the evaluation
thereof by our management, including the Chief Executive Officer and Chief
Financial Officer, that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting. There are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention
or overriding of such controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Acknowledging this, we have designed our
disclosure controls and procedures to provide such reasonable assurance.

ITEM 16: [RESERVED]

16.A.    Audit Committee Financial Expert

     The Supervisory Board has determined that there currently is no "audit
committee financial expert" as defined under the Sarbanes-Oxley Act of 2002
serving on the Audit Committee. No single member of the Audit Committee meets
all of the five attributes required to meet the definition of audit committee
financial expert. Nonetheless, the Supervisory Board considers that the Audit
Committee members as a group possess adequate skills and expertise to fulfil the
tasks entrusted to the Audit Committee.

16.B.    Code of Ethics

     We adopted a code of ethics that applies to all of our employees, including
our Chief Executive officer and principal financial officer. Our Code of Conduct
is posted on our website at www.head.com , section "Investor Relations".

16.C.    Principal Accountant Fees and Services

                                       63
<PAGE>



     PricewaterhouseCoopers (PwC) has served as our independent public auditors
for each of the years ended in the three-year period ended December 31, 2006.
The following table presents the aggregate fees for professional audit services
and other services rendered by PricewaterhouseCoopers in 2006 and 2005 (in
thousands):

                                          Form the Years Ended December 31,
                                          ---------------------------------
                                               2006               2005
                                          ---------------     -------------

Audit Fees.......................         EUR        764      EUR      932
Audit-Related Fees...............                    163               164
Tax Fees.........................                    216               139
All Other Fees...................                    109                20
                                          ---------------     -------------
Total Audit Fees.................         EUR      1,252      EUR    1,255
                                          ===============     =============

     Audit Fees primarily relate to the audit of Head N.V.'s annual financial
statements set forth in our Annual Report on Form 20-F and other services
normally provided in connection with statutory and regulatory filings, which
mainly include the statutory audits of financial statements of our subsidiaries
and the assistance with review of documents filed with the SEC. In addition
audit fees contain also the reviews of Head N.V.'s quarter financial statements.

     Audit-Related Fees consist of fees incurred for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's financial statements or that are traditionally performed by the
external auditor, and include consultations concerning financial accounting and
reporting standards. audited related fees primarily pertain to costs incurred in
connection with the Sarbanes-Oxley Act, section 404 compliance and the change in
basis of accounting to IFRS.

     Tax Fees were comprised solely of tax services permitted under the
Sarbanes-Oxley Act of 2002. Tax services rendered in connection with the audit
of financial statements have been included in the caption Audit Fees.

     All Other Fees represent professional services provided for services not
directly supporting financial statement audits, such as local law advices.

     For 2006 the Supervisory Board pre-approved tax services to be rendered by
member firms of PwC up to an aggregate amount of EUR 0.3 million, such
services to be provided to Head NV and any of its subsidiaries or affiliated
companies. Tax services included solely tax services permitted under the
Sarbanes-Oxley Act of 2002 and any rules and regulations issued in respect to
the Sarbanes-Oxley Act.

Pre-Approval Policies and Procedures

     Our Audit Committee is responsible for the oversight of our independent
auditor's work. Our Audit Committee pre-approves all audit and non-audit
services provided by PwC, as well as all tax services performed by other
companies. These services may include audit services, audit-related services,
tax services and other services, as described above.

16.D.    Exemption from the Listing Standards for Audit Committee

         Not applicable

16.E.    Purchase of Equity Securities by the Issuer and Affiliated Purchasers

     There were no purchases by or on behalf of Head N.V. or any affiliated
purchasers of its equity securities during 2006.

ITEM 17: FINANCIAL STATEMENTS

     The following financial statements are filed as part of this annual report
on Form 20-F.

ITEM 18: FINANCIAL STATEMENTS

         Not applicable.

ITEM 19: EXHIBITS

1.1           Memorandum and Articles of Association of the Company
              (incorporated by reference from the Registration Statement on Form
              F-1 filed with the Securities and Exchange Commission ("SEC") on
              September 27, 2000).


                                       64
<PAGE>

2.1           Indenture between HTM Sport- und Freitzeigerate AG, Head N.V.,
              Head Holding Unternehmensbeteiligung GmbH, Head Sport AG, Head
              International GmbH, HTM Sport S.p.A., Head USA Inc., Penn Racquet
              Sports Inc., Head/Tyrolia Sports Canada Inc., The Bank of New
              York, As Trustee, Registrar, Transfer Agent And Principal Paying
              Agent and The Bank of New York (Luxembourg) S.A., As Paying Agent
              And Transfer Agent dated January 29, 2004 (incorporated by
              reference to the Annual Report on Form 20-F filed with the SEC on
              April 13, 2004)

4.1           Loan Agreement between Head USA, Inc., Mares America Corp., Penn
              Racquet Sport, Inc and Fleet Capital Corporation as Agent dated
              April 5, 2000 (incorporated by reference from the Registration
              Statement on Form F-1 filed with the SEC on September 27, 2000).

6.            A statement explaining in reasonable detail how earnings per share
              information were calculated (included in Note 2 to the Financial
              Statements).

8.            See "Item 4.C Organizational Structure"

12.1          Certification of the CEO pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.

12.2          Certification of the CFO pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.

13            Certification of the CEO and CFO pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.



                                       65
<PAGE>

                           HEAD N.V. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 2006



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm.....................F-1

Consolidated Balance Sheets at December 31, 2006 and 2005...................F-2

Consolidated Income Statements for the Years Ended December 31,
2006, 2005 and 2004.........................................................F-3

Consolidated Statements of Changes in Equity for the Years Ended
December 31, 2006, 2005 and 2004............................................F-4

Consolidated Cash Flow Statements for the Years Ended
December 31, 2006, 2005 and 2004............................................F-5

Notes to the Consolidated Financial Statements..............................F-6



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and General Meeting of Shareholders of Head N.V.:

We have audited the accompanying consolidated balance sheets of Head N.V. as of
December 31, 2006 and 2005 and the related consolidated income statements,
changes in equity, and cash flow statements for each of the three years in the
period ended December 31, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly in all material respects, the consolidated financial position of Head
N.V. at December 31, 2006, and 2005 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2006, in conformity with International Financial Reporting
Standards as adopted by the European Union.

As discussed in Note 2, 30 and 31 to the consolidated financial statements, the
financial statements as of and for the year ended December 31, 2005 and 2004
have been restated, for certain matters relating to accounting for stock option
plans.

International Financial Reporting Standards as adopted by the European Union
vary in certain significant respects from accounting principles generally
accepted in the United States of America. Information relating to the nature and
effect of such differences is presented in Note 31 to the consolidated financial
statements.


February 26, 2007 except for Note 2, 30 and 31
as to which the date is April 2, 2007
PwC Wirtschaftsprufung AG
Vienna, Austria


                                      F-1
<PAGE>



                           HEAD N.V. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                                                  December 31,
                                                                       --------------------------------
                                                          Note            2006                 2005
                                                                       -------------     --------------
                                                                                             Restated
                                                                           (in thousands)
<S>                                                         <C>             <C>                  <C>
ASSETS:
Non-current assets
Property, plant and equipment, net...............           6          EUR  61,821        EUR    61,617
Intangible assets................................           7               11,739               13,442
Goodwill                                                    7                3,142                3,161
Available-for-sale financial assets..............          10                1,971                1,973
Deferred income tax assets.......................          21               59,552               61,507
Trade receivables................................           9                2,082                1,854
Other non-current assets.........................                            3,625                5,381
                                                                       -------------     --------------
       Total non-current assets..................                          143,932              148,935
Current assets
Inventories, net.................................           8               64,996               68,551
Trade and other receivables......................           9              149,541              146,670
Prepaid Expense..................................                            2,635                3,890
Available-for-sale financial assets..............          10               17,828               14,834
Cash and cash equivalents........................          28               43,628               49,460
                                                                       -------------     --------------
       Total current assets......................                          278,628              283,405
                                                                       -------------     --------------
       Total assets..............................           5         EUR  422,560        EUR   432,340
                                                                       =============     ==============
EQUITY:
Share capital....................................          12         EUR    7,964        EUR     7,964
Other reserves...................................          12              115,838              125,247
Treasury shares..................................          12              (12,307)             (12,307)
Retained earnings................................                           51,853               47,438
Fair Value and other reserves including
       cumulative translation adjustments (CTA)..          20               (7,462)              (1,884)
                                                                       -------------     --------------
       Total equity..............................                          155,888              166,459

LIABILITIES:
Non-current liabilities
Borrowings.......................................          16              133,835              131,565
Retirement benefit obligations...................          18               15,744               16,449
Other long-term liabilities......................        17, 23             15,094               13,503
                                                                       -------------     --------------
       Total non-current liabilities.............                          164,673              161,517
Current liabilities
Trade and other payables.........................          13               67,144               61,980
Income taxes liabilities.........................                            1,094                  600
Borrowings.......................................        14, 16             22,010               29,856
Provisions.......................................          15               11,750               11,929
                                                                       -------------     --------------
       Total current liabilities.................                          101,999              104,364
                                                                       -------------     --------------
       Total liabilities.........................           5              266,672              265,881
                                                                       -------------     --------------
       Total liabilities and equity..............                     EUR  422,560        EUR   432,340
                                                                       =============     ==============


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

</TABLE>


                                      F-2
<PAGE>


                           HEAD N.V. AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>



                                                                        For the Years Ended December 31,
                                                           -----------------------------------------------------------
                                              Note              2006                 2005                  2004
                                                           ----------------     ----------------      ----------------

                                                                                   Restated              Restated
                                                                     (in thousands, except per share data)

<S>                                             <C>                <C>                  <C>                   <C>
Total net revenues......................        5           EUR    366,762       EUR    359,566        EUR    374,996
Cost of sales...........................                           222,597              221,536               235,777
                                                           ----------------     ----------------      ----------------
Gross profit............................                           144,165              138,030               139,219
Selling and marketing expense...........                            92,929               92,053                94,232
General and administrative expense......     22, 23                 32,160               29,595                36,400
Gain on sale of property................        6                       --               (5,876)               (4,665)
Restructuring costs.....................       15                       --                5,073                 1,895
Other operating (income) expense, net...                              (902)               1,533                   176
                                                           ----------------     ----------------      ----------------
Operating profit........................                            19,978               15,652                11,181
Interest expense........................                           (12,376)             (12,808)              (20,671)
Interest income.........................                             1,609                2,110                 1,715
Foreign exchange gain (loss)............                              (297)               2,121                  (432)
                                                           ----------------     ----------------      ----------------
Profit (loss) before income taxes.......                             8,914                7,075                (8,207)
Income tax benefit (expense):
      Current...........................                            (2,085)              (1,468)               (2,088)
      Deferred..........................                            (2,415)               1,121               (20,771)
                                                           ----------------     ----------------      ----------------
      Income tax expense................       21                   (4,499)                (348)              (22,858)
                                                           ----------------     ----------------      ----------------
Profit (loss) for the year..............                    EUR      4,415       EUR      6,728        EUR    (31,066)
                                                           ================     ================      ================

Earnings per share-basic
      Profit (loss) for the year........       29                     0.12                 0.19                 (0.86)
Earnings per share-diluted
      Profit (loss) for the year........       29                     0.12                 0.18                 (0.86)


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

</TABLE>


                                      F-3
<PAGE>


                           HEAD N.V. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

<TABLE>
<CAPTION>


                                                                                                                Minority   Total
                                    Note           Attributable to equity holders of the Company                Interest   Equity
                                   -----------------------------------------------------------------------------------------------

                                                                                                   Fair
                                                                                                   Value
                                                                                                    and
                                           Ordinary Shares                                         Other
                                       ----------------------    Other      Treasury   Retained   Reserves/
                                          Shares      Amount   Reserves      Shares    Earnings     CTA

                                                                     (in thousands, except share data)

<S>                                      <C>           <C>       <C>         <C>        <C>        <C>          <C>      <C>
Balance at January 1, 2004 (Restated)  36,022,554  EUR 7,964 EUR 125,248 EUR (13,458) EUR 71,776  EUR (4,743)  EUR  8 EUR 186,796
                                       ----------  --------- -----------  ----------  ----------  -----------  -------- -----------
Sale of treasury shares...........        197,348                              1,151                                        1,151
Loss for the year.................             --         --          --          --     (31,066)         --       --     (31,066)
     Changes in fair value and
        other reserves
        including CTA:
        Unrealized gain on
        available-for-sale
        financial assets, (net of
        tax of E18)...............             --         --          --          --         --           72       --          72
        Unrealized gain on
        derivatives instruments
        (net of tax of E88).......   11        --         --          --          --        --           264       --         264
        Reclassification
        adjustment for derivative
        gains recorded in net
        loss
        (net of tax of E143)......   11        --         --          --          --        --          (430)      --        (430)
        Foreign currency
        translation adjustment ...             --         --          --          --        --        (3,441)      --      (3,441)
                                                                                                                       ----------
Total recognised income and
expense in 2004...................             --         --          --          --        --          --         --     (34,601)
                                       ----------    --------  ---------   ---------  --------  ----------   -------- ----------
Balance at December 31, 2004
(Restated)                              36,219,902 EUR 7,964 EUR 125,247 EUR (12,307) EUR 40,711  EUR (8,277) EUR   8  EUR 153,346

Minority interest.................   12        --         --          --          --        --            --         (8)       (8)
Profit for the year...............             --         --          --          --       6,728          --         --     6,728
     Changes in fair value and
        other reserves
        including CTA:
        Unrealized gain on
        available-for-sale
        financial assets, (net of
        tax of E18)...............             --         --          --          --          --          74       --          74
        Unrealized loss on
        derivatives instruments
        (net of tax of E163)......   11        --         --          --          --          --        (489)      --        (489)
        Reclassification
        adjustment for derivative
        losses recorded in net
        income
        (net of tax of E42).......   11        --         --          --          --          --         127       --         127
        Foreign currency
        translation adjustment....             --         --          --          --          --       6,682       --       6,682
                                                                                                                       ----------
Total recognised income and
expense in 2005...................             --         --          --          --          --          --       --      13,121
                                       ----------    --------  ---------   ---------    --------  ---------- --------  ---------
Balance at December 31, 2005
(Restated)........................     36,219,902 EUR 7,964 EUR 125,247 EUR  (12,307)EUR  47,438  EUR (1,884)   EUR 0 EUR 166,459

Increase in share capital.........   12        --     9,409      (9,409)          --          --          --       --           0
Decrease in share capital.........   12        --    (9,409)      9,409           --          --          --       --           0
Capital repayment.................   12        --        --      (9,409)          --          --          --       --      (9,409)
Profit for the year                            --        --         --            --       4,415          --       --       4,415
     Changes in fair value and
        other reserves
        including CTA:
        Unrealized gain on
        available-for-sale
        financial assets, (net of
        tax of E30)...............             --        --         --            --          --         104       --         104
        Unrealized gain on
        derivatives instruments
        (net of tax of E68).......   11        --        --         --            --          --         270       --         270
        Reclassification
        adjustment for derivative
        losses recorded in net
        income
        (net of tax of E69).......   11        --        --         --            --          --        (274)      --        (274)
        Foreign currency
        translation adjustment....             --        --         --            --          --      (5,678)      --      (5,678)
                                                                                                                          -------
Total recognised income and
expense in 2006...................             --        --         --            --          --          --       --      (1,163)
                                       ----------    --------  ---------   ---------    --------  ----------    --------  -------
Balance at December 31, 2006......     36,219,902 EUR 7,964 EUR 115,838 EUR  (12,307) EUR 51,853  EUR (7,462)  EUR -- EUR 155,888
                                       ==========    ========  =========   =========    ========  ==========    ========  =======

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

</TABLE>


                                     F-4
<PAGE>



                           HEAD N.V. AND SUBSIDIARIES
                        CONSOLIDATED CASH FLOW STATEMENTS

<TABLE>
<CAPTION>
                                                                                         For the Years Ended December 31,
                                                                                      -------------------------------------
                                                                            Note       2006           2005           2004
                                                                                      --------      --------       --------
                                                                                                    Restated       Restated
                                                                                                  (in thousands)

<S>                                                                           <C>     <C>           <C>           <C>
OPERATING ACTIVITIES:
Profit (loss) for the year.......................................                  EUR  4,415    EUR  6,728   EUR (31,066)
 Adjustments to reconcile net income
          to net cash provided by operating activities:
          Depreciation and amortization..........................          6, 7        14,061        15,533        15,116
          Amortization and write-off of debt issuance cost
          and bond discount                                                               470           354         2,847
          Impairment.............................................         7, 15           184         1,444           558
          Provision (release) for leaving indemnity
          and pension benefits                                                           (532)          308           503
          Restructuring costs....................................            15        (1,261)        1,364        (3,984)
          (Gain) loss on sale of property, plant and equipment...             6            98        (5,975)       (4,530)
          Share-based compensation expense.......................            23         1,818          (899)        1,909
          Deferred income........................................            17        (1,573)         (778)           --
          Interest expense.......................................                      11,905        12,453        17,824
          Interest income........................................                      (1,609)       (1,280)       (2,110)
          Tax expense                                                                   2,085         1,468         2,088
          Deferred tax (benefit) expense.........................            21         2,415        (1,121)       20,771
Changes in operating assets and liabilities:
          Accounts receivable....................................                      (5,682)        9,567        (2,939)
          Inventories............................................                       1,656         1,854        (6,425)
          Prepaid expense and other assets.......................                         907          (167)        1,177
          Accounts payable, accrued expenses and other liabilities                      9,940         4,418         5,973
          Interest paid..........................................                     (14,972)      (13,988)      (13,545)
          Tax paid ..............................................                      (1,203)       (1,125)       (2,265)
                                                                                      --------      --------      --------
          Net cash provided by operating activities..............                      23,122        30,159         1,903
                                                                                      --------      --------      --------
INVESTING ACTIVITIES:
          Purchase of property, plant and equipment..............             6       (15,018)      (14,600)      (19,112)
          Purchase of intangible assets..........................                         (44)         (662)           --
          Proceeds from sale of property, plant and equipment....             6           114         8,001         6,708
          Purchases of available-for-sale financial assets.......            10        (5,017)       (4,113)      (21,459)
          Sale of available-for-sale financial assets............            10         2,154           444        11,181
          Interest received......................................                       1,639           954         1,207
          Sale of treasury shares................................                          --            --         1,151
          Minority interest......................................            12            --            (8)           --
                                                                                      --------      --------      --------
Net cash used for investing activities...........................                     (16,172)       (9,985)      (20,323)
                                                                                      --------      --------      --------
FINANCING ACTIVITIES:
          Change in short-term borrowings, net...................            14        (2,629)       (1,714)      (25,153)
          Proceeds from long-term debt, net of discount..........            16            --            --       135,000
          Payment of debt issuance cost..........................            16            --            --        (1,144)
          Payments on long-term debt.............................            16        (1,776)      (15,853)      (77,706)
          Proceeds from other long-term obligations..............            17         1,876           295            --
          Capital repayment......................................            12        (9,409)           --            --
          Change in restricted cash..............................            28           780           755        (2,462)
                                                                                      --------      --------      --------
Net cash provided by (used for) financing activities.............                     (11,158)      (16,516)       28,534
                                                                                      --------      --------      --------
Effect of exchange rate changes on cash and cash equivalents.....                        (844)       (1,171)           50
Net increase (decrease) in cash and cash equivalents.............                      (5,052)        2,486        10,164
Cash and cash equivalents at beginning of period.................                      45,503        43,016        32,853
                                                                                      --------      --------      --------
Cash and cash equivalents at end of period.......................            28   EUR  40,451   EUR  45,503   EUR  43,016
                                                                                      ========      ========      ========

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

</TABLE>


                                     F-5
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - General information

Head N.V. ("Head" or the "Company") was incorporated in Rotterdam, Netherlands,
on August 24, 1998. The address of its registered office is Rokin 55, 1012 KK
Amsterdam, the Netherlands. The Company's ordinary shares are listed on the New
York Stock Exchange ("HED") and the Vienna Stock Exchange ("HEAD").

The Company is a global manufacturer and marketer of branded sporting goods
serving the skiing, tennis and diving markets. The Company has created or
acquired a portfolio of brands - Head (principally alpine skis, ski boots, ski
bindings and snowboard products, tennis, racquetball and squash racquets, tennis
balls and badminton products), Penn (tennis balls and racquetball balls),
Tyrolia (ski bindings), Mares and Dacor (diving equipment).

Head conducts business in Europe (primarily in Austria, Italy, Germany, France,
Switzerland, the Netherlands, Spain and the United Kingdom), North America, and
Asia.

These consolidated financial statements were approved by the Board of Directors
on February 26, 2007.


Note 2 - Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.

Basis of Presentation

The Company and its subsidiaries maintain their accounting records in accordance
with their local regulations and have made certain adjustments to these records
to present the accompanying financial statements in conformity with
International Financial Reporting Standards as adopted by the European Union
("EU") ("IFRS as adopted").The consolidated financial statements have been
prepared under the historical cost convention and fair value accounting for
available-for-sale financial assets and derivatives.

In 2005 and prior years, the Company reported its financial statements under
generally accepted accounting principles in the United States of America
("US-GAAP") (General Accepted Accounting Principles of the Netherlands - "Dutch
GAAP" for statutory purposes). In 2004, the Company for the first time based its
financial reporting on IFRS as adopted. As of December 31, 2005, the Company
filed its financial statements under IFRS as adopted, based on its financial
statements under Dutch GAAP as of January 1, 2004 with the Dutch commercial
register.

First-Time Adoption of IFRS

The Company has made use of the following exemptions available under IFRS 1:

-    Business  combinations  (paragraph  15):  The  Company did not apply IAS 22
     retrospectively and did not restate past business  combinations but kept it
     as in its Dutch GAAP financial statements.
-    Use of the Dutch GAAP book values of property,  plant and  equipment at the
     date of transition to IFRS as deemed cost (paragraph 16-19).
-    Cumulated  translation  differences have been deemed to be zero at the date
     of transition (paragraph 21 and 22).

First-Time Adoption of International Financial Reporting Standards

The IASB issued a series of amendments to existing standards and published new
standards and interpretations, which have been mandatory since January 1, 2006.
These new regulations are also applicable in the EU and relate to the following
areas:


                                     F-6
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

-    IAS 19,  (Amended  2004),  Employee  Benefits-  Actuarial Gains and Losses,
     Group Plans and Disclosures.
-    IAS 21, (Amendment), Net Investment in a Foreign Operation.
-    IAS 39,  (Amendment),  Cash Flow Hedge  Accounting  of Forecast  Intragroup
     Transactions.
-    IAS 39, (Amendment), The Fair Value Option.
-    IAS 39, and IFRS 4 (Amendment), Financial Guarantee Contracts.
-    IFRS  1,  (Amendment),   First-time  Adoption  of  International  Financial
     Reporting Standards and IFRS 6 (Amendment),  Exploration for and Evaluation
     of Mineral Resources.
-    IFRS 6, Exploration for and Evaluation of Mineral Resources.
-    IFRIC 5, Rights to Interests arising from Decommissioning,  Restoration and
     Environmental Rehabilitation Funds.
-    IFRIC 6,  Liabilities  arising from  Participating  in a Specific  Market -
     Waste Electrical and Electronic Equipment.
-    IFRIC  7,  Applying  the  Restatement  Approach  under  IAS  29,  Financial
     Reporting in Hyperinflationary Economies (effective from March 1, 2006).
-    IFRIC 8, Scope of IFRS 2  (effective  for annual  periods  beginning  on or
     after March 1, 2006).
-    IFRIC 9, Reassessment of embedded  derivates  (effective for annual periods
     beginning on or after June 1, 2006).

Standards effective in 2006 early adopted

IFRIC 4 requires the determination of whether an arrangement is or contains a
lease to be based on the substance of the arrangement. It requires an assessment
of whether: (a) fulfillment of the arrangement is dependent on the use of a
specific asset or assets (the asset); and (b) the arrangement conveys a right to
use the asset. The Company has already adopted IFRIC 4 on a 2004 long-term
supplier contract (see Note 19).

The following of the aforementioned standards and interpretations were adopted
for the first time:

IAS 19 (Amendment), Employee Benefits, introduces the option of an alternative
recognition approach for actuarial gains and losses. It may impose additional
recognition requirements for multi-employer plans where insufficient information
is available to apply defined benefit accounting. It also adds new disclosure
requirements. As the Company does not intend to change the accounting policy
adopted for recognition of actuarial gains and losses and does not participate
in any multi-employer plans, adoption of this amendment only impacts the format
and extent of disclosures presented in the accounts.

IFRIC 8 requires consideration of transactions involving the issuance of equity
instruments - where the identifiable consideration received is less than the
fair value of the equity instruments issued - to establish whether or not they
fall within the scope of IFRS 2. The Company will apply IFRIC 8 from January 1,
2007, but it is not expected to have any impact on the Company's accounts;

Management assessed the relevance of the other amended standards and
interpretations with respect to the Company's operations and concluded that they
are not relevant to the Company.

New financial reporting standards not yet adopted

The IASB issued further standards and amendments to standards and
interpretations, which are not yet mandatory in the financial year 2006. The
following standards had been endorsed by the EU and published in the official
journal by the time these consolidated financial statements were prepared.

-    IAS 1  (amended  2006),  Presentation  of  Financial  Statements  - Capital
     Disclosures
-    IFRS 7, Financial Instruments - Disclosures

IFRS 7 introduces new disclosures to improve the information about financial
instruments. It requires the disclosure of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk and also including sensitivity analysis


                                     F-7
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


to market risk. It replaces IAS 30, Disclosures in the Financial Statements of
Banks and Similar Financial Institutions, and disclosure requirements in IAS 32,
Financial Instruments: Disclosure and Presentation. It is applicable to all
entities that report under IFRS.

The amendment to IAS 1 introduces disclosures about the level of an entity's
capital and how it manages capital.

The Company assessed the impact of IFRS 7 and the amendment to IAS 1 and
concluded that the main additional disclosures will be the sensitivity analysis
to market risk and the capital disclosures required by the amendment, of IAS 1.
The Company will apply IFRS 7 and the amendment to IAS 1 from annual periods
beginning January 1, 2007.

The IASB has issued additional financial reporting regulations, which, however,
at the time the consolidated financial statements were prepared, had not yet
been endorsed by the EU.

-     IFRS 8, Operating Segments
-     IFRIC 10, Interim Financial Reporting and Impairment
-     IFRIC 11, IFRS 2 Group and Treasury Share Transactions
-     IFRIC 12, Service Concession Arrangements

IFRIC 10, Interim Financial Reporting and Impairment (effective for annual
periods beginning on or after November 1, 2006). IFRIC 10 prohibits the
impairment losses recognized in an interim period on goodwill, investments in
equity instruments and investments in financial assets carried at cost to be
reversed at a subsequent balance sheet date. The Company will apply IFRIC 10
from January 1, 2007 but it is not expected to have any impact on the Company's
accounts.

The Company will evaluate the effect of the first time adoption of the new
standards and interpretations.

The preparation of financial statements in conformity with IFRS as adopted
requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Company's
accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 4.

The Company presents percentages and some amounts contained in its financial
statements rounded for ease of presentation, and sometimes amounts may not add
due to this rounding.

As of January 1, 2006, the Company changed its reporting currency from U.S.
dollar to euro for the 20-F reporting and as of January 1, 2004, for the IFRS
reporting. In prior years, due to the first issued senior notes in U.S. dollar,
more than one third of revenues were U.S. dollar denominated the Company's most
significant currency was the U.S. dollar. Due to the implementation of the euro,
the fact that the Company's newly issued senior notes are denominated in euro
and its listing on an Europe Stock Exchange, the Company decided to change its
reporting currency to euro.

Consolidation

a) Subsidiaries
The consolidated financial statements of Head include the financial statements
of all majority-owned subsidiaries and entities over which the Company has
financial and operating control and special purpose entities in which the
Company has determined it is the main beneficiary. Subsidiaries are fully
consolidated from the date on which control is transferred to the Company. They
are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Company. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and

                                     F-8
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective of
the extent of any minority interest. The excess of the cost of acquisition over
the fair value of the Company's share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognized directly
in the income statement.

Intercompany transactions, balances and unrealized gains on transactions between
group companies are eliminated. Unrealized losses are also eliminated but
considered an impairment indicator of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Company.

b) Transactions and minority interests
The Company applies a policy of treating transactions with minority interests as
transactions with parties external to the Company. Disposals to minority
interests result in gains and losses for the Company that are recorded in the
income statement. Purchases from minority interests result in goodwill, being
the difference between any consideration paid and the relevant share acquired of
the carrying value of net assets of the subsidiary.

Segment Reporting

A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and returns that are different from those of segments operating
in other economic environments.

Foreign Currency Translation

a) Functional and presentation currency
Items included in the financial statements of each of the Company's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The consolidated financial
statements are presented in euros, which is the Company's functional and
presentation currency.

b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing on the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the income statement, except
when deferred in cumulative translation adjustment ("CTA") (equity: "Fair value
and other reserves including cumulative translation adjustments") as qualifying
cash flow hedges. The effect of exchange rate changes on intercompany
transactions of a long-term investment nature is also included in CTA. For the
year ended December 31, 2006, a foreign exchange loss of European Union 0.5
million has been recorded in other operating (income) expense, net.

c) Group companies
The results and financial position of all the group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
-    Assets and liabilities for each balance sheet presented are translated at
     the closing exchange rate at the date of that balance sheet.
-    Income and expenses for each income statement are translated at average
     exchange rates prevailing during the year.
-    All resulting exchange differences on equity items are recognized as a
     separate component of shareholders' equity.


                                      F-9
<PAGE>
                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation
and impairment loss. Additions and improvements that extend the useful lives of
the plant and equipment and replacements, major renewals, and betterments are
capitalized. The cost of maintenance, repair and minor renewals are expensed as
incurred. When plant and equipment is retired or otherwise disposed, the cost
and related accumulated depreciation and impairment losses are removed from the
related accounts, and any gain or loss on disposition is recognized in earnings.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. The Company's buildings are depreciated over a
period of 30-50 years, building improvements are depreciated over a period of
10-25 years and machinery and equipment is depreciated over a period of 2-20
years.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value
of the Company's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.

Other intangible assets comprise of trademarks with an indefinite useful life
which are carried at cost less accumulated impairment losses and land use rights
with a useful life of 50 years, which are carried at cost less accumulated
amortization and impairment losses.

Goodwill and other intangible assets with an indefinite useful life are
allocated to cash generating units for the purpose of impairment testing. The
allocation is made to those cash generating units or groups of cash generating
units that are expected to benefit from the business combination in which
trademarks and goodwill arose.

Impairment of Non-Financial Assets

Assets that have an indefinite useful life are not subject to amortization and
are tested annually for impairment. Impairment losses on goodwill and intangible
assets with indefinite life are not reversed. Assets that are subject to
amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment is recognized for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an
asset's fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash generating units). Non financial
assets other than goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date.

Financial Assets

The Company classifies its financial assets in the following categories:
financial assets at fair value through profit or loss, loans and receivables,
and available-for-sale. The classification depends on the purpose for which the
financial assets were acquired. Management determines the classification of its
financial assets at initial recognition and re-evaluates this designation at
every reporting date.

a) Financial assets at fair value through profit or loss
Derivatives are categorized as held for trading unless they are designated as
hedges. Assets in this category are classified as current assets if they are
either held for trading or are expected to be realized within 12 months of the
balance sheet date.

b) Loans and receivables


                                      F-10
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included
in current assets, except for those with maturities greater than 12 months after
the balance sheet date. These are classified as non-current assets. Loans and
receivables are classified as 'trade and other receivables' in the balance sheet
(see Note 9).

c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories.
They are included in non-current assets unless management intends to dispose of
the investment within 12 months of the balance sheet date.

Financial assets carried at fair value through profit or loss are initially
recognized at fair value and transaction costs are expensed in the income
statement. Available-for-sale financial assets and financial assets at fair
value through profit or loss are subsequently carried at fair value. Loans and
receivables are carried at amortized cost using the effective interest method.
Changes in the fair value of available-for-sale financial assets are recognized
in equity.

The Company assesses at each balance sheet date whether there is objective
evidence that a financial asset or a group of financial assets is impaired. If
any such evidence exists for available-for-sale financial assets, the cumulative
loss, measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset previously
recognized in profit or loss, is removed from equity and recognized in the
income statement.

Derivative Financial Instruments and Hedging Activities

The Company records all derivatives on the balance sheet at fair value. The
Company uses derivative instruments, specifically foreign exchange forward and
option contracts, to hedge the foreign exchange risk related to its forecasted
and firmly committed foreign currency denominated cash flows. On the date on
which a derivative contract is transacted, the Company designates the derivative
as a hedging instrument (cash flow hedge). Changes in derivative fair values
that are designated effective and qualify as cash flow hedges will be deferred
and recorded as a component of fair value and other reserves/CTA until the
hedged transactions affect earnings; at which time the deferred gains and losses
on the derivative designated as cash flow hedges are recognized in earnings and
classified in accordance with the classification of the hedged item. The Company
excludes the time value component of the derivatives' change in fair value from
the assessment of hedge effectiveness. The Company enters into hedging
relationships to limit the foreign exchange rate risk for periods generally not
to exceed one year. For those financial instruments that do not qualify for
hedge accounting, the Company recognizes the changes in the fair value of the
instruments in the income statement. The Company does not utilize financial
instruments for trading or speculative purposes.

The Company documents at the inception of the transaction, the relationship
between hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedge transactions. The Company
also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes and
movements on the hedging reserve in equity are disclosed in Note 20. The full
fair value of a hedging derivative is classified as a non-current asset or
liability if the remaining hedge item is more than 12 months, and as a current
asset or liability, if the remaining maturity of the hedged item is less than 12
months.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost being
determined on a first-in first-out basis ("FIFO"). The cost of finished goods
and work in progress comprises raw materials, direct labour, other direct costs
and related production overheads (based on normal operating capacity). It
excludes borrowing costs. Net realizable value is the estimated selling price in
the ordinary course of business, less applicable variable selling expenses.


                                      F-11
<PAGE>
                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Trade Receivables

Trade receivables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less any
provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Company will not be able
to collect all amounts due according to the original terms of receivables.
Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganization, and default or delinquency in
payments are considered indicators that the trade receivable is impaired. The
amount of the provision is the difference between the asset's carrying amount
and the present value of estimated future cash flows, discounted at the
effective interest rate. The carrying amount of the asset is reduced through the
use of a provision account, and the amount of the loss is recognized in the
income statement within selling and marketing costs. When a trade receivable is
uncollectible, it is written off against the provision account for trade
receivables. Subsequent recoveries of amounts previously written off are
credited against selling and marketing costs in the income statement.

Payment terms differ depending on the customer (large distributors, small
shops), product line (winter sports is a very seasonal business, as are racquet
sports and diving, though to a lesser extent), country (payment terms vary in
accordance with local practices throughout the world) and past experiences with
customers. It is the Company's normal procedure to agree terms of transactions,
including payment terms (60 to 180 days), with customers in advance. In the
rental business the Company agrees to payment terms over one year and classifies
those long-term trade receivables as non-current assets in the consolidated
balance sheet.

Cash and Cash Equivalents

Cash and cash equivalents comprise of cash and short-term, highly liquid
investments with an original maturity of three months or less.

Restricted Cash

Restricted cash comprises of deposits pledged as collateral on outstanding lines
of credit. The amounts are collateralized with one financial institution and
earn interest while in deposit.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortized cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognized in the income statement over the period of the borrowings using the
effective interest method. Borrowings are classified as current liabilities
unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.

Borrowing Costs

Borrowing costs are not capitalized but expensed when incurred.


                                      F-12
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Deferred Income Tax

The Company utilizes the liability method of accounting for deferred income
taxes whereby deferred tax assets and liabilities are recognized to reflect the
future tax consequences attributable to temporary differences between the
financial reporting bases of existing assets and liabilities and their
respective tax bases. With the exception of Head Holding Unternehmensbeteiligung
GmbH, all of the Company's Austrian subsidiaries are included in a consolidated
Austrian federal income tax return. Separate provisions for income taxes have
been prepared for the Company's other subsidiaries. Deferred taxes are
calculated by using the prevailing tax rates.

Employee Benefits

(a) Retirement benefit obligations

The Company operates various pension and other employee benefits schemes. The
schemes are partly funded through payments to insurance companies or
trustee-administered funds, determined by periodic actuarial calculations. The
Company has both defined benefit and defined contribution plans. A defined
contribution plan is plan under which the Company pays fixed contributions into
a separate entity. The Company has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay all
employees benefits relating to employee service in the current and prior
periods. A defined benefit plan is a plan that is not a defined contribution
plan. Typically, defined benefit plans define an amount of benefit that an
employee will receive on retirement, usually dependent on one or more factors
such as age, years of service and compensation.

The liability recognized in the balance sheet in respect of defined benefit
pension plans is the present value of the defined benefit obligation at the
balance sheet date less the fair value of plan assets, together with adjustments
for unrecognized actuarial gains or losses and past service costs. The defined
benefit obligation is calculated annually by independent actuaries using the
projected unit credit method. The present value of the defined benefit
obligation is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the
currency in which the benefits will be paid and that have terms to maturity
approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions in excess of the greater of 10% of the value of plan
assets or 10% of the defined benefit obligation are charged or credited to
income over the employees' expected average remaining working lives.

For defined contribution plans, the Company pays contributions to publicly or
privately administered insurance plans on a mandatory, contractual or voluntary
basis. The Company has no further payment obligations once the contributions
have been paid. The contributions are recognized as employee benefit expense
when they are due.

(b) Share-based compensation

The Company operates a number of share-based compensation plans. The plans are
treated either as equity-settled or cash-settled. The fair value of the employee
services received in exchange for the grant of the options is recognized in
general and administrative expense with a corresponding entry to equity for the
equity-settled plan and to other long-term liabilities for cash-settled plans.
The total amount to be expensed over the vesting period is determined by
reference to the fair value of the options granted. Non-market vesting
conditions are included in assumptions about the number of options that are
expected to become exercisable.

(c) Termination benefits

Termination benefits are payable when employment is terminated by the Company
before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The Company recognises termination
benefits when it is demonstrably committed to either: terminating the employment
of current


                                      F-13
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than 12 months after the balance
sheet date are discounted to present value.

Provisions

Provision for restructuring costs and legal claims are recognized when the
Company has a present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources will be required to settle
the obligation and the amount has been reliably estimated. Restructuring
provisions consist of employee termination payments. Provisions are not
recognized for future operating losses.

The Company provides for the estimated cost of product warranties and product
returns at the time revenue is recognized and the Company has a constructive
obligation. Warranty provision is established based on the Company's best
estimates of the amounts necessary to settle future and existing claims on
products sold as of the balance sheet date. Product return provisions are based
on our historical experiences.

Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the
obligation.

Revenue Recognition

The Company recognizes revenue when significant risks and rewards of ownership
of the goods are transferred to the buyer. These criteria are generally met when
finished products are shipped to the customers and both title and the risks and
rewards of ownership are transferred.

Revenues from licensing agreements are recognized over the license term for the
fixed license revenue portion and based on underlying customer sales once
minimum contractual sales volumes are met for the variable license revenue
portion. Prepayments received on long-term licensing agreements are recognized
in other long-term liabilities.

Provisions are recorded for estimated product returns at the time revenues are
recognized.

Sales deductions

The Company accrues for customer discounts based upon estimated refund
obligations and classifies all sales incentives, which are earned by the
Company's customers subsequent to delivery of its product, including cash
discounts for volume rebates other than cash consideration, such as credits that
the Company's customer can apply against trade amounts owed as sales deductions.

Leases

Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.

Research and Development Costs

Research costs are recognized as incurred. Development costs for changes in
design are short term and recognized as cost when they are incurred. Development
cost for new products are capitalized if they meet the criteria for recognition
as an intangible asset. The Company incurred research and development costs
amounting to EUR 10.1 million for each year ended December 31, 2006 and 2005
and , EUR 12.5 million for the year ended December 31, 2004. In 2006 and 2005,
the Company did not capitalize any development costs.


                                      F-14
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Earnings per share

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year, excluding ordinary shares purchased by the Company and
held as treasury shares (see Note 12).

(b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has one category of dilutive potential
ordinary shares: share options, equity-settled under the Plan 1998 (see Note
23). For the share options, a calculation is done to determine the number of
shares that could have been acquired at fair value (determined as the average
annual market share price of the Company's shares) based on the monetary value
of the subscription rights attached to outstanding share options. The number of
shares calculated as above is compared with the number of shares that would have
been issued assuming the exercise of the share options.

Restatement

The Company operates a number of share-based compensation plans which were
originally accounted for as equity-settled. In the process of preparing the
consolidated financial statements for the year ended December 31, 2006, the
Company determined that certain share-based compensation plans should have been
accounted for as cash-settled (liability awards) under IFRS 2, "Share-based
Payment".

As a result of the matters described above, the Company has restated its fiscal
years 2005 and 2004 financial statements to (in thousands):
-    Increase other reserve balance at December 31, 2005 by EUR 897
-    Reduce retained earnings balance at December 31, 2005 by EUR 6,254
-    Increase other long-term liabilities balance at December 31, 2005 by
     EUR 5,358
-    Decrease general and administrative expense for the year ended December 31,
     2005 by EUR 1.580, increase general and administrative expense for the
     year ended December 31, 2004 by EUR 2.660,
-    Increase other operating expense for the year ended December 31, 2005 by
     EUR 838, increase other operating income for the year ended December 31,
     2004 by EUR 275,

As of December 31, 2005, the restatement had an impact of EUR 5.4 million on
the Company's net assets as a result of additional other long-term liabilities.
Additionally, the restatement had an impact on net profit (loss) for the years
ended December 31, 2005 and 2004 of EUR 0.7 million and EUR 2.4 million,
respectively as a result of changes in fair value of the liabilities.

The following items in the consolidated income statement and the consolidated
balance sheet have been restated as follows:

                                      F-15
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                For the Years Ended December 31,
                                                   ------------------------------------------------------------
                                                              2005                            2004
                                                   ---------------------------     ----------------------------

                                                                  (in thousands, except per share data)
<S>                                                    <C>             <C>              <C>             <C>
                                                 (Previously          (As         (Previously         (As
                                                   Reported)        Restated)       Reported)       Restated)
Consolidated Income Statement:
General and administrative expense......        EUR    31,175     EUR  29,595    EUR    33,740     EUR  36,400
Other operating (income) expense, net...                  695           1,533              452             176
Operating profit........................               14,910          15,652           13,566          11,181
Profit (loss) before income taxes.......                6,333           7,075           (5,823)         (8,207)
Profit (loss) for the year..............                5,986           6,728          (28,681)        (31,066)
Earnings per share-basic
      Profit (loss) for the year........                 0.17            0.19            (0.79)          (0.86)
Earnings per share-diluted
      Profit (loss) for the year........                 0.16            0.18            (0.79)          (0.86)

Consolidated Balance Sheet:
Other reserves..........................        EUR   124,351     EUR 125,247    EUR  123,670      EUR 125,247
Retained earnings.......................               53,693          47,438           47,707          40,711
Total equity............................              171,817         166,459          158,765         153,346
Other long-term liabilities.............                8,145          13,503            3,948           9,367
Total liabilities.......................              260,524         265,881          271,590         277,009

</TABLE>

In relation to the consolidated cash flow statement the restatement had no
effect on the net cash provided by operating activities.

Note 3 - Financial Risk Management

Financial Risk Factors

Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents,
restricted cash, marketable securities and accounts receivable. The Company
places cash with high quality financial institutions. The Company's customers
are concentrated in the retail industry. However, concentrations of credit risk
with respect to trade accounts receivable are limited due to the large number of
customers and their dispersion across many geographic areas. The Company
generally performs credit reviews and sometimes obtains credit insurance before
extending credit.

Currency Risk Factors

The Company operates in a multi-currency environment in which a portion of its
revenues and expenses are denominated in currencies other than the euro. The
Company is, as a result, subject to currency translation risk and, to a lesser
extent, currency transaction risk. Currency translation risk arises because the
Company measures and records the financial condition and results of operations
of each of its subsidiaries in their functional currency and then translates
these amounts into the reporting currency, the euro. The Company incurs
transaction risk when one of its subsidiaries enters into a transaction using a
currency other than its functional currency, although the Company reduces this
risk by seeking, when possible, to match its revenues and costs in each
currency. The Company also hedges part of its firm commitments for sales to
Japan, Switzerland, United Kingdom and Canada through forward contracts and
options with Austrian and Italian banks. Accordingly, shifts in currency
exchange rates, particularly between the euro and the U.S. dollar, may adversely
affect our results of operations.


                                      F-16
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The table below shows the Europe Central Bank exchange rates for euro for
those currencies that mainly influence the Company's results:

                                             December 31
                        -------------------------------------------------------
1 EUR =                      2006               2005                2004
                        ---------------    ----------------    ----------------
USD..................          1.31700             1.17970             1.36210
CHF..................          1.60690             1.55510             1.54290
GBP..................          0.67150             0.68530             0.70505
JPY..................        156.93000           138.90000           139.65000
CAD..................          1.52810             1.37250             1.64160
CSK..................         27.48500            29.00000            30.46400



Liquidity Risk Factors

The Company's liquidity needs arise principally from working capital
requirements, capital expenditures, asset acquisitions and the semi-annual
interest payment on its 8.5% Senior Notes. Given the nature of winter sports,
and to a lesser extent racquet sports, the Company's operating cash flow and
working capital needs are highly seasonal. The Company's need for cash is
greater in the third and fourth quarters when cash generated from operating
activities, together with draw downs from the Company's bank lines, are invested
in inventories and receivables. Historically, the Company's primary sources of
liquidity have been cash provided from operating activities, proceeds from the
issuance of debt and equity securities and borrowings under various credit
facilities available to the Company's subsidiaries.

Expected interest expense on contractual obligations for the periods indicated
are as follows as of December 31, 2006 (in thousands):

<TABLE>
<CAPTION>

                                                                                                     There-
Expected Interest Expenses                         2007      2008       2009      2010      2011     after          Total
--------------------------------------------     --------- ---------- --------- --------- --------- ---------    -----------
<S>                                                <C>       <C>        <C>       <C>       <C>       <C>       <C>
Long-Term Debt Obligations
      8.50% Senior Notes due 2014 ..........    EUR 9,675      9,675     9,675     9,675     9,675    20,157     EUR  68,532
      Mortgage..............................          217        203       189       173       156       413           1,352
      Other Long-Term Debt..................          367        298       232       172       148       368           1,585
Capital (Finance) Lease Obligations
      Sale-Leaseback........................          670        661       651       640       629     3,220           6,470

</TABLE>

Based upon current operations and the Company's historical results, the Company
believes that its cash flow from operations will be adequate to meet the
anticipated requirements for working capital, capital expenditures and scheduled
interest payments.

Fair value estimation

The fair value of financial instruments traded in active markets
(available-for-sale securities) is based on quoted market prices at the balance
sheet date. The quoted market price used for financial assets held by the Group
is the current bid price. The fair value of forward foreign exchange contracts
is determined using quoted forward exchange rates at the balance sheet date
provided by the bank.

The carrying value less impairment provision of trade receivables and payables
are assumed to approximate their fair values. The fair value of financial
liabilities for disclosure purposes is estimated by discounting the future
contractual cash flows at the current market interest rate that is available to
the Group for similar financial instruments.


                                      F-17
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Critical Accounting Estimates and Judgments

The preparation of financial statements in conformity with IFRS as adopted,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The most significant of these
estimates are impairments, impairments of trade receivables, product warranties
and returns, inventory obsolescence and impairment on deferred tax assets. On an
ongoing basis, management reviews its estimates based upon currently available
information. Actual results could differ from those estimates.

Estimated impairment of trademark and goodwill

The Company tests annually whether trademarks, with an indefinite useful life
and goodwill amounting to EUR 14.3 million have suffered any impairment, in
accordance with the accounting policy stated in Note 2. The recoverable amounts
of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of estimates (Note 7).

If the estimated pre-tax discount rate applied to the discounted cash flows had
been 10% higher than management's estimates, the Company would have not
recognized an impairment on trademarks and goodwill.

Impairment of trade receivables

The Company records impairment of trade receivables for estimated losses
amounting to EUR 2.5 million resulting from the inability of its customers to
make required payments. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional provisions may be required. The Company specifically
analyzes accounts receivables and evaluates historical bad debt, customer
concentrations, customer creditworthiness, current economic trends and changes
in our customer payment terms when evaluating the adequacy of the impairment of
trade receivables. These estimations are continually reviewed. Recoveries
related to changes in reserves did not occur in 2006.

If estimations relating to the percentage of uncollected accounts receivable
were increased by 10%, the Company would recognize an additional provision of
EUR 0.1 million.

Impairment of Long Lived Assets

Property, plant and equipment are initially stated at cost. Depreciation on
property, plant and equipment is computed using the straight-line method over
their estimated useful lives. The Company has determined useful lives of
property, plant and equipment after consideration of historical results and
anticipated results based on the Company's current plans. The estimated useful
lives represent the period the asset remains in service assuming normal routine
maintenance. The Company reviews the estimated useful lives assigned to
property, plant and equipment when the business experience suggests that they do
not properly reflect the consumption of the economic benefits embodied in the
property, plant or equipment nor result in the appropriate matching of cost
against revenue. Factors that lead to such a conclusion may include physical
observation of asset usage, examination of realized gains and losses on asset
disposals and consideration of market trends such as technological obsolescence
or change in market demand.

When events or changes in circumstances indicate that the carrying amount may
not be recoverable, property, plant and equipment are reviewed for impairment.
When such assets' carrying value is greater than the recoverable amount, an
impairment loss is recognized if the asset's carrying amount is greater than its
estimated recoverable amount. The recoverable amount is the higher of an asset's
fair value less costs to sell and the value in use.

Provision for Product Warranties

                                      F-18
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company provides for the estimated cost of product warranties and product
returns at the time revenue is recognized. The warranty provision amounting to
EUR 2.1 million is established based on the Company's best estimates of the
amounts necessary to settle future and existing claims on products sold as of
the balance sheet date. Product return provisions are based on historical
experiences. While the Company believes that its warranty and product return
provisions are adequate and that the judgment applied is appropriate, such
amounts estimated to be due and payable could differ materially from what will
actually transpire in the future. The Company updates these estimated charges
periodically. The actual product performance and/or field expense profiles may
differ, and in those cases the Company adjusts its warranty reserves
accordingly. Future warranty expenses may exceed the Company's estimates, which
could lead to an increase in cost of sales. Significant differences from
estimates did not occur in the past.

If revenues and claims were to increase by 10%, the Company would have to
recognise an additional provision of EUR 0.2 million.

Inventory Obsolescence

The Company's chosen markets are competitive and subject to fluctuations in
demand and technological obsolescence. The Company periodically reviews its
inventory for obsolescence and declines in market value below cost. Estimated
obsolescence or unmarketable inventory led to write-downs amounting to EUR 4.2
million of the Company's inventory to the estimated market value based upon
assumptions about future demand and market conditions. If actual future demand
or market conditions were less favourable than those projected by the Company,
additional inventory write-downs may be required. No significant write downs
were recognized in 2006.

Tax Loss Carry Forwards

The Company recognises deferred tax assets on tax loss carry forwards amounting
to EUR 66.1 million for which it is probable that they will be realized. The
Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies. In the event that the Company was to determine that
itwould not be able to realize all or part of its net deferred tax assets in the
future, an adjustment to the deferred tax assets would be charged to income in
the period such determination was made. Changes in local income tax rates may
also affect deferred tax assets.

If management's estimation with respect to the probability of tax losses carry
forwards to be realized were to differ by 10% the Company would have to increase
income tax expense by EUR 7.9 million.

Note 5 - Segment Information

Primary reporting format - geographical segments

The Company operates in the following main geographical areas, even though they
are managed on a worldwide basis. The table below shows net revenues from
external customers based upon where the sale originated by geographic region
based on the location of the Company's subsidiaries (in thousands):

<TABLE>
<CAPTION>

                                                                  For the Years Ended December 31,
                                                          --------------------------------------------
                                                              2006              2005             2004
                                                          --------------    -----------      ---------
Revenues from External Customers:
<S>                                                             <C>            <C>           <C>
Austria                                                   EUR   160,897    EUR 162,156   EUR 163,124
Italy                                                            36,381         32,885        40,095
Other (Europe)                                                   54,064         53,645        56,855
Asia                                                             17,257         17,406        17,129
North America                                                    98,162         93,474        97,794
                                                              ----------     ----------     ---------
               Total Net Revenues                         EUR   366,762    EUR 359,566   EUR 374,996
                                                              ==========     ==========     =========

</TABLE>


                                      F-19
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

The Segment results are as follows (in thousands)

                                                                 For the Years Ended December 31,
                                                              ---------------------------------------
                                                                2006           2005           2004
                                                              ----------     ----------     ---------
Operating Profit:                                                            Restated       Restated
<S>                                                              <C>            <C>           <C>
Austria..........................................          EUR   23,931    EUR  17,540   EUR  20,017
Italy............................................                 3,406           (234)          288
Other (Europe)...................................                (3,140)         2,104          (175)
Asia.............................................                  (394)           970         1,185
North America ...................................                (2,371)        (1,689)       (5,053)
Unallocated......................................                (1,455)        (3,039)       (5,082)
                                                              ----------     ----------     ---------
               Operating Profit                            EUR   19,978    EUR  15,652   EUR  11,181
                                                              ==========     ==========     =========

<CAPTION>

The Segment results are as follows (in thousands)
                                                                    December 31,
                                                              -------------------------
                                                                2006           2005
                                                              ----------     ----------
<S>                                                             <C>            <C>
Segment Assets:
Austria..........................................         EUR   122,938   EUR  118,071
Italy  ..........................................                34,943         33,247
Other (Europe)...................................                53,675         54,616
Asia   ..........................................                19,878         17,751
North America....................................                68,146         80,880
                                                              ----------     ----------
               Total segment assets..............         EUR   299,581   EUR  304,565
                                                              ==========     ==========

<CAPTION>

                                                                    December 31,
                                                              -------------------------
                                                                2006           2005
                                                              ----------     ----------
<S>                                                             <C>            <C>
Segment assets.....................................       EUR   299,581   EUR  304,565
Cash and cash equivalents..........................              43,628         49,460
Available-for-sale marketable securities, current..              17,828         14,834
Deferred income tax assets.........................              59,552         61,507
Available-for-sale marketable securities, non-current             1,971          1,973
                                                              ----------     ----------
               Total assets........................       EUR   422,560   EUR  432,340
                                                              ==========     ==========

</TABLE>

Assets are allocated in relation to their location. The locations of the assets
differ from those of the Company's customers.

The segment liabilities are as follows (in thousands):

                                      F-20
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                    December 31,
                                                              -------------------------
                                                                2006           2005
                                                              ----------     ----------
                                                                             Restated
<S>                                                             <C>            <C>
Segment Liabilities:
Austria..........................................          EUR   56,797   EUR   50,849
Italy............................................                23,578         23,158
Other (Europe)...................................                16,251         18,456
Asia.............................................                 2,170          2,613
North America....................................                10,937          8,785
                                                              ----------     ----------
               Total segment liabilities                   EUR  109,733   EUR  103,861
                                                              ==========     ==========

<CAPTION>

                                                                    December 31,
                                                              -------------------------
                                                                2006           2005
                                                              ----------     ----------
                                                                             Restated
<S>                                                             <C>            <C>
Segment liabilities..............................          EUR  109,733  EUR   103,861
Borrowings, current..............................                22,010         29,856
Income tax liabilities...........................                 1,094            600
Borrowings, non-current..........................               133,835        131,565
                                                              ----------     ----------
               Total liabilities.................          EUR  266,672  EUR   265,881
                                                              ==========     ==========

<CAPTION>

The segement capital expenditures and amortization are as follows (in thousands):

                                                                 For the Years Ended December 31,
                                                              ---------------------------------------
                                                                2006           2005           2004
                                                              ----------     ----------     ---------
                                                                       Capital Expenditures
<S>                                                               <C>            <C>           <C>
Austria.........................................           EUR    5.824    EUR   6.822   EUR   9.667
Italy...........................................                  1.998          2.605         2.999
Other (Europe)..................................                  1.816          3.263         4.683
Asia............................................                  3.636          1.434            53
North America...................................                  1.788          1.138         1.709
                                                              ----------     ----------     ---------
               Total Capital Expenditures.......           EUR   15.062    EUR  15.262   EUR  19.112
                                                              ==========     ==========     =========

<CAPTION>

                                                                 For the Years Ended December 31,
                                                              ---------------------------------------
                                                                2006           2005           2004
                                                              ----------     ----------     ---------
                                                                  Depreciation and Amortisation
<S>                                                               <C>            <C>           <C>
Austria.........................................            EUR   6.206     EUR  7.778    EUR  7.773
Italy...........................................                  2.499          3.319         3.223
Other (Europe)..................................                  3.477          3.861         2.597
Asia............................................                     86             40            26
North America...................................                  1.977          1.978         2.055
                                                              ----------     ----------     ---------
               Total Capital Expenditures.......            EUR  14.245     EUR 16.977    EUR 15.674
                                                              ==========     ==========     =========

</TABLE>


                                      F-21
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Secondary reporting format - business segments

The Company operates in one business segment, Sporting Goods. Revenues by
product category consist of the following (in thousands):

<TABLE>
<CAPTION>


                                                      For the Years Ended December 31,
                                                2006                2005               2004
                                            --------------      --------------     --------------
<S>                                               <C>                 <C>                <C>
Revenues by Product Category:
Winter Sports........................       EUR   188,070        EUR  177,311       EUR  178,787
Racquet Sports.......................             132,683             132,935            136,106
Diving...............................              48,623              48,937             61,348
Licensing............................               8,078               9,309              8,455
Sales Deductions.....................             (10,692)             (8,926)            (9,700)
                                            --------------      --------------     --------------
      Total Net Revenues.............       EUR   366,762        EUR  359,566       EUR  374,996
                                            ==============      ==============     ==============

</TABLE>

Note 6 - Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):


<TABLE>
<CAPTION>

                                                                                     Fixtures                            Total
                                                                       Machinery     furnitures                        property,
                                                                        & plant      & office      Construction in      plant &
                                             Land       Buildings      equipment     equipment         progress        equipment
<S>                                           <C>          <C>           <C>             <C>                 <C>           <C>
As of January 1, 2004
     Cost...........................      EUR 3,592    EUR 23,872    EUR  93,610     EUR 41,015      EUR      --      EUR  162,089
     Accumulated depreciation.......             --        (6,260)       (63,548)       (31,557)              --          (101,365)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Net book value.................      EUR 3,592    EUR 17,612    EUR  30,062     EUR  9,458      EUR      --      EUR   60,724
                                         ===========    ==========    ===========    ===========    =============    ==============

Year ended December 31,2004
     Opening net book value.........      EUR 3,592    EUR 17,612    EUR  30,062     EUR  9,458      EUR      --      EUR   60,724
     Additions......................             --         1,651         14,743          2,717               --            19,112
     Disposals......................           (277)         (218)        (1,396)          (287)              --            (2,178)
     Transfers......................            163           (55)           764           (171)              --               701
     Exchange difference............           (119)          321           (383)          (150)              --              (332)
     Depreciation and
     impairment.....................             --          (728)       (10,654)        (4,194)              --           (15,576)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Closing net book value.........      EUR 3,359    EUR 18,583    EUR  33,136     EUR  7,374      EUR      --      EUR   62,451
                                         ===========    ==========    ===========    ===========    =============    ==============

</TABLE>


                                      F-22
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                                     Fixtures                            Total
                                                                       Machinery    furnitures                         property,
                                                                        & plant      & office       Construction in     plant &
                                             Land       Buildings      equipment     equipment         progress        equipment
<S>                                           <C>          <C>           <C>             <C>                 <C>           <C>
As of December 31, 2004
     Cost..........................       EUR 3,359    EUR 24,243    EUR  97,369     EUR 38,888      EUR      --      EUR  163,859
     Accumulated depreciation......              --        (5,660)       (64,233)       (31,514)              --          (101,407)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Net book value................       EUR 3,359    EUR 18,583    EUR  33,136     EUR  7,374      EUR      --      EUR   62,451
                                         ===========    ==========    ===========    ===========    =============    ==============

Year ended December 31, 2005
     Opening net book value........       EUR 3,359    EUR 18,583    EUR  33,136     EUR  7,374      EUR      --      EUR   62,451
     Additions.....................              --         1,942          9,282          2,606              770            14,600
     Disposals.....................            (195)       (1,642)          (147)           (40)              --            (2,024)
     Transfers.....................              --         1,757        (1,689)          1,717                -             1,785
     Exchange difference...........             143           341          1,107            175               --             1,766
     Depreciation and
     impairment....................              --        (1,550)       (11,312)        (4,101)              --           (16,962)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Closing net book value........       EUR 3,307    EUR 19,430    EUR  30,377     EUR  7,732      EUR     770      EUR   61,617
                                         ===========    ==========    ===========    ===========    =============    ==============

As of December 31, 2005
     Cost..........................       EUR 3,307    EUR 26,905    EUR 100,461     EUR 39,830      EUR     770      EUR  171,273
     Accumulated depreciation and
     impairment....................              --        (7,475)       (70,085)       (32,098)              --          (109,657)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Net book value................       EUR 3,307    EUR 19,430    EUR  30,377     EUR  7,732      EUR     770      EUR   61,617
                                         ===========    ==========    ===========    ===========    =============    ==============

Year ended December 31, 2006
     Opening net book value........       EUR 3,307    EUR 19,430    EUR  30,377     EUR  7,732      EUR     770      EUR   61,617
     Additions.....................              --         2,289          9,381          3,348               --            15,018
     Disposals.....................              --            (2)          (667)           457               --              (212)
     Transfers.....................             (41)       (1,117)         3,566         (1,450)            (770)              188
     Exchange difference...........            (165)           56           (552)          (105)              --              (766)
     Depreciation..................              --        (1,075)        (9,876)        (3,072)              --           (14,023)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Closing net book value........       EUR 3,102    EUR 19,581    EUR  32,229     EUR  6,910      EUR      --      EUR   61,821
                                         ===========    ==========    ===========    ===========    =============    ==============

As of December 31, 2006
     Cost..........................       EUR 3,102    EUR 29,952    EUR 106,681     EUR 39,578      EUR      --     EUR  179,313
     Accumulated depreciation and
     impairment....................              --       (10,371)       (74,453)       (32,669)              --          (117,492)
                                         -----------    ----------    -----------    -----------    -------------    --------------
     Net book value................       EUR 3,102    EUR 19,581    EUR  32,229     EUR  6,910      EUR      --     EUR   61,821
                                         ===========    ==========    ===========    ===========    =============    ==============

In 2005 and 2004, the Company recognized an impairment of EUR 1.4 million (see Note 15).and EUR 0.6 million

</TABLE>

The Company's total proceeds on the sale of property and equipment were
EUR 0.1 million, EUR 8.8 million and EUR 6.7 million resulting in a gain
of EUR 0.1 million, EUR 6.0 million and EUR 4.5 million for the years
ended December 31, 2006, 2005 and 2004 respectively. As of December 31, 2005 and
2004, EUR 5.9 million and EUR 4.7 million of these gains pertain to a sale
of land and building and are reflected as gain on sale of property on the
consolidated statements of operations as these gains represent gains on the sale
of operating activities. All other gains (losses) are included in other
operating income (expense), net in the accompanying consolidated income
statements.


                                      F-23
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Depreciation expense of EUR 12.0 million has been charged in cost of goods
sold (2005: EUR 14.8 million, 2004: EUR 12.9 million), EUR 0.5 million in
selling and marketing expense (2005: EUR 0.6 million, 2004: EUR 0.7 million)
and EUR 1.5 million in general and administrative expense (2005: EUR 1.6
million, 2004: EUR 2.0 million).

Land and building with a carrying value of EUR 2.1 million and EUR 2.5
million as of December 31, 2006 and 2005 respectively are used to secure a loan
(see Note 16).

Note 7 - Goodwill and Intangible Assets


<TABLE>
<CAPTION>
                                                       Goodwill          Trademarks           Other

<S>                                                <C>                <C>                  <C>
As of January 1, 2004
     Gross............................                 EUR 3,196       EUR 11,756       EUR   560
     Accumulated amortization.........                        --               --            (167)
                                                      -----------      -----------      ----------
     Net book value...................                 EUR 3,196       EUR 11,756       EUR   393
                                                      ===========      ===========      ==========

Year ended December 31, 2004
     Opening net book value...........                 EUR 3,196       EUR 11,756       EUR   393
     Exchange difference..............                       (75)            (855)             --
     Amortisation.....................                        --               --             (98)
                                                      -----------      -----------      ----------
     Closing net book value...........                 EUR 3,121       EUR 10,901       EUR   294
                                                      ===========      ===========      ==========

As of December 31, 2004
     Gross............................                 EUR 3,121       EUR 10,901       EUR   529
     Accumulated amortization.........                        --               --            (235)
                                                      -----------      -----------      ----------
     Net book value...................                 EUR 3,121       EUR 10,901       EUR   294
                                                      ===========      ===========      ==========

Year ended December 31, 2005
     Opening net book value...........                 EUR 3,121       EUR 10,901       EUR   294
     Additions........................                        --               --             662
     Transfers........................                        --               --             (86)
     Exchange difference..............                        40            1,685              --
     Amortisation.....................                        --               --             (14)
                                                      -----------      -----------      ----------
     Closing net book value...........                 EUR 3,161       EUR 12,586       EUR   856
                                                      ===========      ===========      ==========

As of December 31, 2005
     Gross............................                 EUR 3,161       EUR 12,586       EUR 1,192
     Accumulated amortization.........                        --               --            (336)
                                                      -----------      -----------      ----------
     Net book value...................                 EUR 3,161       EUR 12,586       EUR   856
                                                      ===========      ===========      ==========

Year ended December 31, 2006
     Opening net book value...........                 EUR 3,161       EUR 12,586       EUR   856
     Additions........................                        --               --              44
     Transfers........................                        --               --            (198)
     Exchange difference..............                       (19)           1,294)            (35)
     Amortisation and impairment......                        --             (184)            (37)
                                                      -----------      ----------      -----------
     Closing net book value...........                 EUR 3,142       EUR 11,109       EUR   630
                                                      ===========      ==========      ===========

As of December 31, 2006
     Gross............................                 EUR 3,142       EUR 11,293       EUR   652
     Accumulated amortization and
     impairment.......................                        --             (184)            (22)
                                                      -----------      ----------      -----------
     Net book value...................                 EUR 3,142       EUR 11,109       EUR   630
                                                      ===========      ==========      ===========
</TABLE>


                                      F-24
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company has determined an indefinite useful life for trademarks as the
economic benefit is not limited to a certain period of time.

As of December 31, 2006, the Company has recognized an impairment loss against
trademark of EUR 0.2 million in general and administrative expense, as a
result of the annual impairment test.

Impairment test for trademarks and goodwill

The Company completed the annual impairment test, in the fourth quarter of 2006
and 2005. Trademarks and goodwill are allocated to the Company's cash-generating
units ("CGUs") identified according to country of operation and product
category.

A segment-level summary of the trademark and goodwill allocation is presented
below (in thousands):

                                         December 31,
               -----------------------------------------------------------------
                           2006                               2005
               ------------------------------     ------------------------------
                 Racquet                            Racquet
                  Sports           Diving            Sports           Diving
               -------------     ------------     -------------     ------------
Trademark.....   EUR 11,109        EUR    --        EUR 12,401        EUR   185
Goodwill......        1,459            1,683             1,429            1,732

In the impairment test on the trademarks and goodwill, the difference was
calculated between the carrying value of the CGU which benefits from the
business combination in which trademarks and goodwill arose and its recoverable
amount. The recoverable amount of a CGU is determined based on value-in-use
calculation. These calculations use pre-tax cash flow projections based on
financial budgets approved by management covering a three-year period. Cash
flows beyond the three-year period are extrapolated based on the result of the
third year budgeted.

Management determined budgeted gross margin based on past performance and
expected market development. The discount rate used (7.9%) is pretax and
reflects specific risks relating to the Company's business.

Note 8 - Inventories

Inventories consist of the following (in thousands):

                                                         December 31,
                                               ---------------------------------
                                                   2006               2005
                                               --------------    --------------

Raw materials and supplies............         EUR    15,483     EUR     15,648
Work in process.......................                 7,783              8,557
Finished goods........................                55,176             57,477
Provisions............................               (13,447)           (13,132)
                                               --------------     --------------
Total inventories, net................         EUR    64,996      EUR    68,551
                                               ==============     ==============

The Company recognized a provision of EUR 4.2 million, EUR 5.7 million and
EUR 4.6 million for impairment of inventories during the year ended December
31, 2006, 2005 and 2004, respectively. The Company released a provision for
impaired inventories of EUR 1.0 million, EUR 2.6 million and EUR 2.1
million for the year ended December 31, 2006, 2005 and 2004, respectively.


                                      F-25
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 9 - Trade and Other Receivables
Accounts receivable consist of the following (in thousands):

                                                       December 31,
                                             ----------------------------------
                                                 2006                2005
                                             --------------      --------------

Trade debtors.........................       EUR   157,234       EUR   154,303
Other receivables.....................               6,551               7,370
Allowance for doubtful accounts.......             (12,162)            (13,148)
                                             --------------      --------------
      Total accounts receivable, net..       EUR   151,623       EUR   148,525
      Less: long-term portion.........              (2,082)             (1,854)
                                             --------------      --------------
      Short-term portion..............       EUR   149,541       EUR   146,670
                                             ==============      ==============

The Company recognized a provision of EUR 2.5 million, EUR 4.0 million and
EUR 4.1 million for impairment of trade receivables during the year ended
December 31, 2006, 2005 and 2004, respectively. The Company released a provision
for impaired receivables of EUR 1.0 million, EUR 1.3 million and EUR 1.8
million for the year ended December 31, 2006, 2005 and 2004, respectively.

As of December 31, 2006 and 2005, the fair value of long-term trade receivables
was EUR 2.2 million and EUR 2.0 million, respectively. The average interest
rate used was 4.6% and 5.4% for the year ended December 31, 2006 and 2005,
respectively. The amount of short-term accounts receivable recognized in the
consolidated balance sheet approximates the fair value.

There is no concentration of credit risk with respect to trade receivables, as
the Company has a large number of customers, internationally dispersed.

Note 10 - Available-for-Sale Financial Assets

Available-for-sale financial assets consist of the following (in thousands):

                                                        December 31,
                                               -----------------------------
                                                  2006               2005
                                               -----------        ----------
Available-for-Sale
------------------
Debt security funds........................   EUR  1,314         EUR   1,294
Cash bonds.................................       17,828              14,718
Other securities...........................          657                 795
                                               -----------        ----------
      Total Marketable securities
      available-for-sale...................   EUR 19,799         EUR  16,807

      Less: Short-term portion.............      (17,828)            (14,834)
                                               -----------        ----------
      Total Long-term marketable securities   EUR  1,971         EUR   1,973
                                               ===========        ==========

The following table is a summary of the Company's investments' gross unrealized
losses and fair value, aggregated by investment category and length of time that
individual securities have been in a unrealized loss position, at December 31,
2006 (in thousands):


                                      F-26
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                        Less Than 12 Months              12 Months or More                    Total
                                     ---------------------------     --------------------------     --------------------------
                                       Fair         Unrealized        Fair          Unrealized       Fair          Unrealized
                                      Value           Losses          Value          Losses          Value          Losses
                                     ---------     -------------     ---------     ------------     ---------     ------------
<S>                                  <C>           <C>                <C>           <C>              <C>         <C>
Other securities...............      EUR  --       EUR      --       EUR  631      EUR   (23)        EUR 631      EUR   (23)
                                     ---------     -------------     ---------     ------------     ---------     ------------
          Total temporarily....
          impaired securities..      EUR  --       EUR      --       EUR  631      EUR   (23)        EUR 631      EUR   (23)
                                     =========     =============     =========     ============     =========     ============
</TABLE>

Available-for-sale financial assets developed as follows during the years ended
December 31, 2006 and 2005 (in thousands):

                                                  Available-for-sale
                                                ---------------------
                                                                     Non-
                                                 Current           Current
                                                ---------         -------
Balance as of January 1, 2004..........      EUR     256      EUR  2,238
Additions..............................           10,323              --
Disposals..............................               --            (123)
Change in fair value...................              108              51
                                                ---------         -------
Balance as of December 31, 2004........      EUR  10,686      EUR 2,166
Additions..............................            4,112               1
Disposals..............................             (128)           (316)
Change in fair value...................              156             123
Translation adjustment.................                7              --
                                                ---------         -------
Balance as of December 31, 2005........      EUR  14,834      EUR  1,973
Additions..............................            5,017              --
Disposals..............................           (2,154)             --
Change in fair value...................              133              (2)
Translation adjustment.................               (1)             --
                                                ---------         -------
Balance as of December 31, 2006........      EUR  17,828      EUR  1,971
                                                =========         =======

In 2006, the Company recorded a EUR 0.1 million realized gain on
available-for-sale financial assets to income.

Note 11 - Derivative Financial Instruments

The Company uses derivative instruments, specifically foreign exchange forward
and option contracts, to hedge the foreign exchange risk related to its
forecasted and firmly committed foreign currency denominated cash flows.

The Company recorded the change in fair market value of derivatives related to
cash flow hedges to fair value reserve of EUR 0.3 million, EUR 0.5 million
and EUR 0.3 million (net of tax) for the year ended December 31, 2006, 2005
and 2004 respectively, all of which is expected to be reclassified to earnings
during the next twelve months. The time value component excluded from
effectiveness testing was not material for the periods presented.

For the year ended December 31, 2006, 2005 and 2004, the Company reclassified a
gain from fair value and other reserves/CTA to earnings of EUR 0.3 million,
EUR 0.1 million and EUR 0.4 million (net of tax) respectively.

The following table provides information regarding the Company's foreign
exchange forward and option contracts as of December 31, 2006 and 2005. The fair
value of the foreign currency contracts represent the amount the Company would
receive or pay to terminate the contracts, considering first, quoted market
prices of comparable


                                      F-27
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


agreements, or in the absence of quoted market prices, such
factors as interest rates, currency exchange rates and remaining maturity.

                                                   December 31, 2006
                                       ----------------------------------------
                                         Contract       Carrying          Fair
                                          amount          value          value
                                       ----------   --------------    ---------
                                                     (in thousands)
Foreign exchange forward contracts..   EUR 11,047      EUR     1      EUR   1
Foreign exchange option contracts...   EUR  1,604      EUR     6      EUR   6

                                                   December 31, 2006
                                       ----------------------------------------
                                         Contract         Carrying        Fair
                                          amount           value          value
                                         --------     --------------     ------
                                                       (in thousands)
Foreign exchange forward contracts..   EUR 17,890      EUR  (161)     EUR (161)
Foreign exchange option contracts...   EUR  1,872      EUR    13      EUR   13

The counterparties to the foreign currency contracts are major international
banks. Such contracts are generally for one year or less. Foreign exchange
contracts are recorded in trade and other receivables or trade and other
payables according to their fair value.

Note 12 -Equity

The Company is a Naamloze Vennootschap ("N.V."), a Dutch public Company with
limited liability. The registered capital of a N.V. is in the form of shares
which represent negotiable securities. The minimum registered and authorized
capital requirement is EUR 225,000 and the minimum paid in capital requirement
for a N.V. is EUR 45,000.

Other reserves include additional paid-in capital and share-based compensation
expense for the stock option plan 1998, reduced by a capital repayment.

As at December 31, 2006, 2005 and 2004, 39,820,677 shares with a nominal value
of EUR 0.20 were issued and fully paid.

<TABLE>
<CAPTION>

                                                                           December 31,
                                                      -------------------------------------------------------
                                                           2006               2005                2004
                                                      ---------------    ----------------    ----------------
                                                                          (in thousands)
<S>                                                           <C>                 <C>                 <C>
Shares issued.....................................            39,821              39,821              39,821
      Less: Treasury shares owned by the Company..            (2,184)             (2,421)             (2,421)
      Less: Shares held by the Stichting..........            (1,417)             (1,180)             (1,180)
                                                      ---------------    ----------------    ----------------
Shares outstanding................................            36,220              36,220              36,220
                                                      ===============    ================    ================

</TABLE>

Dividends

In 2006 and 2005, the Company did not pay a dividend.

Capital Repayment

At the last Annual General Meeting of the shareholders held on May 24, 2006, the
Company's shareholders approved the resolution to amend the Articles of
Association to firstly increase the nominal value of the shares from EUR 0.20
to EUR 0.45 out of other reserves and to subsequently reduce the nominal value
of the shares from EUR 0.45 to EUR 0.20.

As a consequence of the adoption of the resolution, the Company made a capital
repayment of EUR 0.25 per share to its shareholders in September 2006.


                                      F-28
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Stichting

The Stichting Head Option Plan (the "Stichting") is a Dutch foundation, the
Board of which is Head Sports Holdings N.V., an entity that is ultimately
controlled by Johan Eliasch and his family members. The Stichting holds, votes,
and receives dividends on certain of the Company's ordinary shares. In
conjunction with the Company's option plans (see Note 23), the Stichting also
issues depository receipts to option holders, upon exercise of the option.
Holders of depositary receipts are entitled to dividends paid on the Company's
shares and to proceeds on the sales of their shares upon request to the
Stichting. However, such holders have no voting rights.

On May 25, 2001, Head N.V. transferred 2,041,300 shares, with an original cost
of EUR 11.9 million, to the Stichting. The Stichting will use these shares to
fulfil the Company's obligations under the Head Tyrolia Mares Group Executive
Stock Option Plan 1998 ("Plan 1998") (see Note 23).

As of January 1, 2004, in accordance with SIC 12 "Consolidation - Special
Purpose Entity" the Company consolidated the Stichting, as the Company was
considered the main beneficiary of the Stichting. As a result of consolidating
the Stichting shares held by the Stichting are presented as treasury shares in
the consolidated balance sheets.

Treasury Shares

Pursuant to resolutions which were approved on May 24, 2006 the Board of
Management is authorized to buy back a maximum of 30% of the Company's issued
share capital during a period of 18 months, although the Company will not hold
more than 10% of its issued shares at any time.

In August 2006, the Company transferred 237,094 shares with an original cost of
EUR 0.5 million, to the Stichting.

As of December 31, 2006 and 2005, the Company owned 3,600,775 shares of treasury
shares, of which 1,416,634 was held by the Stichting at December 31, 2006 and
1,179,540 at December 31, 2005.

Minority Interest

As a consequence of the retirement of the director of HTM Sports Japan K.K. in
2005, his minority interest of 0.4% of HTM Sports Japan K.K was transferred to
the Company.


                                      F-29
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 13 - Trade and Other Payable

Accounts payable consist of the following (in thousands):

                                                        December 31,
                                               ---------------------------------
                                                   2006               2005
                                               --------------     --------------

Accounts payables, Trade............           EUR    18,963       EUR   13,908
Allowances..........................                   5,548              5,401
Commissions.........................                   3,062              3,067
Personnel expenses..................                  10,469             10,586
Deferred Income.....................                   3,139              1,744
Interest............................                   4,925              4,870
Legal, Audit, Consulting............                   2,334              3,361
Fiscal Authorities..................                   2,562              2,934
Advertising.........................                   6,733              4,866
Social Institution..................                   1,710              1,336
Freight & duties....................                   1,217                989
Other...............................                   6,483              8,918
                                               --------------     --------------
Total...............................            EUR   67,144        EUR  61,980
                                               ==============     ==============

The amount of trade and other payables recognized in the consolidated balance
sheet approximates the fair value.

Note 14 - Borrowings, current

Borrowings consist of the following (in thousands):


                                                         December 31,
                                               ---------------------------------
                                                   2006               2005
                                               -------------      --------------

Lines of credit........................        EUR   19,467       EUR    27,748
Current maturities of long term debts..               2,554               2,108
                                               -------------      --------------
      Total borrowings.................        EUR   22,010       EUR    29,856
                                               =============      ==============

In the second quarter of 2001, the Company's subsidiaries entered into a new
financing agreement providing multiple revolving credit lines with the
"Osterreichische Kontrollbank" ("OEKB") which were renegotiated in 2003, in the
total amount of EUR 15.0 million secured by all Austrian trade receivables. As
of December 31, 2006, the fair value of trade receivables that serve as
collateral for the Company's revolving credit lines was EUR 60.7 million
(2005: EUR 61.6 million). In addition, the Company used lines of credit with
several banks in Japan and USA of EUR 4.5 million and had EUR 2.9 million
unused credit lines. In 2005, the Company used lines of credit with several
banks in Canada and Japan of EUR 12.7 million and had EUR 0.8 million in
unused lines of credit. The weighted average interest rate on outstanding
short-term borrowings was 3.3% and 2.9% as of December 31, 2006 and 2005
respectively.

The amount of current borrowings recognized in the consolidated balance sheet
approximates the fair value.


                                      F-30
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 15 - Provisions


Provisions consist of the following (in thousands):

                                                 December 31,
                                           -------------------------
                                               2006           2005
                                           ----------     ----------

Warranty.......................          EUR   3,910     EUR  3,523
Product Liability..............                1,656            984
Litigation.....................                3,532          3,300
Restructuring..................                  103          1,364
Other..........................                2,550          2,758
                                           ----------      --------
Total..........................          EUR  11,750     EUR 11,929
                                           ==========      ========

<TABLE>
<CAPTION>
                                                              Product
                                                Warranty     Liability    Litigation    Restructuring   Other        Total
                                                ---------    ---------     ----------   -------------  --------    ---------
<S>                                             <C>           <C>             <C>         <C>         <C>         <C>
Net book value as of December 31, 2005....    EUR   3,523    EUR   984     EUR  3,300    EUR 1,364   EUR 2,758     EUR 11,929
Current year provision
         booked to expense................          2,122          799          1,456           --       1,236          5,614
Amount paid...............................         (1,712)         (26)          (213)      (1,261)       (323)        (3,535)
Reversal booked to income or
         expense..........................            (24)        (100)          (990)          --        (994)        (2,108)
Exchange difference.......................             --           --            (22)          --        (128)          (150)
                                                ---------     --------     ----------     --------    ---------     ---------
Net book value as of December 31, 2006....    EUR   3,910    EUR 1,656     EUR  3,532    EUR   103   EUR 2,550     EUR 11,750
                                                =========     ========     ==========     ========    =========     =========
</TABLE>

Warranty
The Company sells certain of its products to customers with a product warranty
that provides free of cost repairs at or the issuance of credit notes to the
customer. The length of the warranty term varies from one to two years and
depends on the product being sold. The Company accrues its estimated exposure to
warranty claims based upon historical warranty claim costs as a percentage of
sales multiplied by prior sales still under warranty at the end of any period.

Product Liability
Some of the Company's products are used in relatively high-risk recreational
settings, and from time to time the Company is named as a defendant in lawsuits
asserting product liability claims relating to our sporting goods products. The
Company maintains product liability based on past experiences and taking into
account the coverage of our product liability insurance. Management regularly
reviews any cases and adjusts its estimations.

Litigation
From time to time the Company and its subsidiaries are involved in legal
proceedings, claims and litigation arising in the ordinary course of business.
There is no legal or constructive obligation until the outcome of current legal
proceedings, claims and litigation is known. However, management believes that
the resolution of these matters will not materially affect the Company's
financial position.

The Company accrued EUR 3.5 million and EUR 3.3 million for suits with
several parties including competitors, customers for past receipts, former
employees, suppliers and licensees at December 31, 2006 and 2005 respectively.

Restructuring


                                      F-31
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Throughout 2006, 2005 and 2004 the Company performed various restructuring
programs. These programs consisted of the following:

Kennelbach and Budweis facility closure
In April 2005, the Company decided to outsource its tennis racquet production
from its European sites in Kennelbach, Austria and Ceske Budejovice, Czech
Republic to China. As of December 31, 2005, the Company recognized EUR 3.2
million relating to this program mainly consisting of an impairment of EUR 1.4
million pertaining to machinery and equipment, additional cost due to production
inefficiency of EUR 0.9 million (mainly personnel cost) and EUR 0.8 million
employee severance costs for 250 workers. The fair value of the impaired assets
was determined using the discounted cash flow method for cash flows expected to
be generated in the future. The Company largely completed the program during
2005.

Reorganization of ski binding production
In July 2005, the Company started to restructure the ski binding production and
recognized EUR 0.6 million employee severance costs for 44 workers. This
restructuring process was largely finalized at the end of 2005.

Italy reorganization
In November 2005, the Company decided to move the remaining ski boots production
from the Maser plant, Italy to the plant in Litovel, Czech Republic. In December
2005, the Company recognized EUR 0.3 million of severance costs which were
paid in 2006. The program was largely completed in 2006.

In November 2005, the Company approved a restructuring program to reduce
production capacity as a consequence of sales reductions and the transfer of
production to Eastern Europe and Far East starting in January 2006. 60 people
were included in the restructuring program (Cassa Integrazione Straordinaria)
agreed with unions and local institutions. During a period of 12 months the
employees could voluntarily adhere to a dismissal plan (voluntary Mobilita)
benefiting from incentives from the Company and Government. Those employees who
have not agreed will be involuntarily terminated as part of a dismissal plan
(obligatory Mobilita) in 2007. In 2005, the total costs for the restructuring
program were EUR 1.0 million and represented personnel costs. As of December
31, 2005 those costs have been fully accrued and EUR 0.9 million have been
paid in 2006. This restructuring process will be finalized in 2007.

Ireland facility closure
To improve utilization of the Company's production capabilities, in 2003 the
Company announced the closing of its tennis ball production facility in
Mullingar, Ireland and the transfer of these operations to its existing,
under-utilized plant in Phoenix, Arizona. In March 2004, the Company closed its
tennis ball production facility in Mullingar, Ireland and used EUR 1.3 million
relating to this program mainly consisting of cost for decommissioning and
clearance of the plant and released the remaining accrual of EUR 0.4 million.

Estonia facility closure
Starting in 2003, the Company has transferred all of its manufacturing
operations in Tallinn, Estonia, which manufactured ski boots and certain diving
products, to its plant in Litovel, Czech Republic and expensed EUR 0.5 million
as of December 31, 2004.

Note 16 - Borrowings, non-current

Long-term debt consists of the following (in thousands):


                                      F-32
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                                       December 31,
                                             ----------------------------------
                                                 2006                2005
                                             --------------      --------------

Senior notes......................           EUR   111,353       EUR   111,111
Other long-term debt..............                  25,026              22,562
                                             --------------      --------------
      Total long term debt........           EUR   136,379       EUR   133,673
      Less current portion........                  (2,544)             (2,108)
                                             --------------      --------------
      Long term portion...........           EUR   133,835       EUR   131,565
                                             ==============      ==============

The carrying value of the Company's non-current borrowings approximates fair
value based on current rates offered and quoted market price of debt with
similar terms.

Senior Notes

In January 2004, one of the Company's subsidiaries issued EUR 135.0 million of
8.5% unsecured senior notes due 2014, guaranteed by the Company and certain of
its subsidiaries. The notes are listed on the Luxembourg Stock Exchange. With
the proceeds from the sale, all of the Company's outstanding 10.75% senior notes
due 2006 were redeemed. The total redemption payment was EUR 70.1 million of
which EUR 3.5 million represents the redemption premium. In addition, the
Company used a portion of the remaining proceeds to repay EUR 25.8 million of
other outstanding debt.

In June 2004, the Company repurchased the equivalent of EUR 5.5 million of its
8.5% senior notes for EUR 5.0 million and realized a gain of EUR 0.3
million. As a result of this transaction, the Company wrote-off EUR 0.1
million of debt issue costs. In 2005, the Company repurchased the equivalent of
EUR 15.7 million of its 8.5% senior notes for EUR 14.3 million and realized
a gain of EUR 0.9 million. As a result of this transaction, the Company
wrote-off EUR 0.1 million of debt issue costs.

At December 31, 2006 and 2005, the Company had EUR 111.4 million and
EUR 111.1 million, respectively of senior notes outstanding.

Sale-Leaseback Transaction

One of the Company's subsidiaries entered into an agreement on June 28, 2002,
whereby it sold land and building to an unrelated bank and leased it back over a
15 year term. The proceeds of this sale were EUR 10.6 million. The Company has
the obligation to purchase the property back after 15 years for EUR 8.2
million. The Company may also repurchase the property at its option from the
first until the tenth year of the arrangement for the present value of the
future lease payments and the remaining residual value.

The Company is also required to pay the bank a monthly deposit of EUR 0.01
million, which will be repaid to the Company, plus interest of 6.7%, at the time
of repurchase.

Because of the Company's continuing involvement, this transaction has been
accounted for as a financing such that the Company has recorded EUR 10.6
million of cash and long-term borrowings at the inception date of this
agreement. At December 31, 2006 and 2005, the remaining obligation under the
financing agreement is EUR 10.1 and EUR 10.2 million respectively.


                                      F-33
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The Company's future minimum lease payments as of December 31, 2006, are as
follows:

2007......................................          EUR    803
2008......................................                 803
2009......................................                 803
2010......................................                 803
2011......................................                 803
Thereafter                                              12,578
                                                    -----------
Total minimum payments                                  16,594
Amount representing interest                            (6,470)
                                                    -----------
Obligation under financing activity                     10,124
Obligations due within one year                           (133)
                                                    -----------
Long-term obligations under financing
activities                                          EUR  9,990
                                                    ===========

As of December 31, 2006, the net book value of land and building under the
sale-leaseback arrangement consists of the following (in thousands):

                                           Land        Building
---------------------------------------------------------------
Cost.............................   EUR   1,020     EUR   8,386
Less: Accumulated depreciation...            --          (7,231)
                                       --------        --------
Net book value...................   EUR   1,020     EUR   1,156
                                       ========        ========

Mortgage Agreement

In 2002, one of the Company's subsidiaries entered into a mortgage agreement
secured by the Penn Phoenix property with an unrelated financial institution of
EUR 4.9 million ($4.8 million) over a 15 year term at an interest rate of
7.33%. At December 31, 2006 and 2005, the outstanding balance of the mortgage is
EUR 3.0 million ($3.9 million) and EUR 3.5 million ($4.1 million)
respectively and the carrying value of the property was EUR 2.1 million and
EUR 2.5 million as of December 31, 2006 and 2005 respectively.

Other long-term debt

In August 2006, the Company renegotiated the terms of its outstanding credit
lines of Japanese Yen ("JPY") 1,382.9 million (EUR 8.8 million) with a
Japanese bank and agreed a semi-annual prepayment of JPY 24.5 million (EUR 0.2
million) for five years. As a consequence the Company reclassified EUR 4.5
million from bank overdraft to long-term debt and EUR 0.2 million to current
maturities of long-term debt. Other long-term debt comprises secured loans in
Italy and the Czech Republic outstanding with several banks.

The weighted average interest rate on other long-term debt was 3.1% and 2.4% as
of December 31, 2006 and 2005, respectively. Borrowings mature at various dates
through 2011. At December 31, 2006 and 2005, the remaining outstanding long-term
debt is EUR 11.9 million and EUR 8.8 million respectively.


                                      F-34
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Maturities of long-term debt

Aggregate maturities of long-term debt are as follows (in thousands):

                                           December
                                              31,
                                             2006
                                         ----------

2007.............................     EUR    2,544
2008.............................            2,496
2009.............................            2,314
2010.............................            1,189
2011.............................              965
Thereafter.......................          126,871
                                         ----------
                                      EUR  136,379
                                         ==========

Note 17 - Other Long-Term Liabilities


                                                        December 31,
                                                  ---------------------------
                                                     2006            2005
                                                  -----------      ----------
                                                                   Restated
Deferred income, non-current..............     EUR     6,156     EUR   7,729
Liability against venture partner.........             2,171             295
Liability on share-based payments.........             6,677           5,358
Other                                                     91             121
                                                  -----------      ----------
     Total other long-term liabilities....     EUR    15,094     EUR  13,503
                                                  ===========      ==========

In July 2005, the Company signed an agreement for the establishment of a company
in the British Virgin Islands. The business venture was established to found a
Chinese company which will manufacture tennis balls for exclusive sale to the
Company. The Company and its venture partner have a 70% and 30% interest in the
newly formed company. In accordance with IAS 27 in connection with SIC 12 this
venture qualifies as a special purpose entity due to the fact that the Chinese
company was formed to manufacture tennis balls solely on behalf of the Company.
As a result the Company consolidated this entity. In accordance with IAS 32, the
Company recorded other long-term liabilities of EUR 2.2 million and EUR 0.3
million, as of December 31, 2006 and 2005, respectively, for the contribution of
its partner.

The Company's partner in this venture has the right to receive a guaranteed
yearly dividend on its investment balance starting in the month after the
operation has started. Operations started in January 2007.

Other long-term liabilities also include the long-term portion of deferred
income from a long-term licensing agreement. In July 2005, the Company agreed to
extend an existing long-term licensing agreement started on April 1, 2005 for a
further 10 years until 2019 and has received a prepayment in the amount of
EUR 4.9 million for the extended period. Additionally, the payment terms of
the original agreement have been amended and it was agreed that the prepayment
of EUR 4.1 million received in November 2004 represents a one time fee with no
future royalty payments. The prepayments were recorded as deferred income in the
consolidated balance sheet and are recognized over the contract period. At
December 31, 2006 and 2005, the deferred income balance associated with this
licensing agreement was EUR 7.2 million and EUR 8.5 million, respectively.
As of December 31, 2006 and 2005, the Company recognised the short-term portion
of EUR 0.9 million and 0.8 million, respectively in trade and other payables.

The Company records liabilities on share-based payments in relation to its stock
option plans (see Note 23).


                                      F-35
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 18 - Retirement benefit obligations

The Company funds pension and other postretirement benefit plans paid to
employees at some Austrian, other European and Japanese locations. The
indemnities are based upon years of service and compensation levels and are
generally payable upon retirement or dismissal in some circumstances, after a
predetermined number of years of service. For the years ended December 31, 2006
and 2005, the only pension plans that includes plan assets is the Japanese
pension plan. All other plans do not include plan assets. The Company maintains
sufficient assets to meet the minimum funding requirements set forth by the
regulations in each country. The discount rate is based on the expected return
of long-term securities in the secondary market.

Pension benefits and other postretirement benefit plans have developed as
follows (in thousands):

<TABLE>
<CAPTION>

                                                               December 31,
                                           -------------------------------------------------------
                                                2006                2005                2004
                                           ---------------     ---------------     ---------------

<S>                                                <C>                 <C>                 <C>
Beginning of the year...........            EUR    16,449       EUR    15,822       EUR    15,568
Charge to income................                    2,199               2,959               2,753
Payments........................                   (2,946)             (2,276)             (2,482)
Reclassifications...............                       37                  --                   3
Exchange differencies...........                        5                 (56)                (20)
                                           ---------------     ---------------     ---------------
End of the year.................            EUR    15,744       EUR    16,449       EUR    15,822
                                           ===============     ===============     ===============

</TABLE>

The table below shows the obligations and funded status (in thousands):

<TABLE>
<CAPTION>
                                                                  Pension Benefits                        Other Benefits
                                                           ----------------------------------     ---------------------------------
                                                             2006           2005       2004        2006        2005         2004
                                                           ---------      ---------   -------     --------    --------    ---------
<S>                                                      <C>            <C>         <C>         <C>         <C>         <C>
Change in benefit obligation
Benefit obligation at beginning of year.........         EUR  4,887     EUR  4,570 EUR 8,228  EUR  14,521 EUR  14,396  EUR  13,640
Service cost....................................                296            297       320        1,230       1,369        1,880
Interest cost...................................                210            204       195          536         547          553
Plan amendments.................................                 --              5        --           (5)          4           --
Actuarial loss (gain)...........................               (294)            56       (17)         215         777          432
Settlement......................................                 --             --        --           --        (564)          --
Benefit payments................................               (180)          (249)   (4,128)      (2,727)     (2,025)      (2,046)
Translation adjustment..........................                (89)             4       (28)         (11)         16          (63)
                                                           ---------      ---------  --------    ---------   ---------    ---------
Benefit obligation at end of year...............              4,830          4,887     4,570       13,758      14,521        4,396
                                                           ---------      ---------  --------    ---------   ---------    ---------
Change in plan assets
Fair value of plan assets at beginning of year..                405            400     4,537           --          --           --
Employer contribution...........................                 47             53        51           --          --           --
Benefit payments................................                 (8)           (51)   (4,169)          --          --           --
Plan participants' contributions................                 --             --         5           --          --           --
Translation adjustment..........................                (49)             2       (24)          --          --           --
                                                           ---------      ---------  --------    ---------   ---------    ---------
Fair value of plan assets at end of year........                394            405       400           --          --           --
                                                           ---------      ---------  --------    ---------   ---------    ---------
Funded status...................................              4,435          4,482     4,170       13,758      14,521       14,396
Unrecognized net actuarial loss.................               (485)          (641)     (606)      (1,977)     (1,917)      (2,149)
Translation adjustment..........................                 13              5        10           --          --           --
                                                           ---------      ---------  --------    ---------   ---------    ---------
Net amount recognized...........................         EUR  3,963     EUR  3,845 EUR 3,574  EUR  11,781 EUR  12,604  EUR  12,248
                                                           =========      =========  ========    =========   =========    =========
</TABLE>

                                      F-36
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

Amounts recognized in the consolidated balance sheet consiste of (in thousands):

                                                                   Pension Benefits                        Other Benefits
                                                           ----------------------------------    ----------------------------------
                                                             2006          2005       2004        2006        2005         2004
                                                           ---------     ---------   --------    ---------   ---------    ---------
<S>                                                      <C>           <C>          <C>         <C>         <C>         <C>
Accrued benefit cost............................         EUR 3,963    EUR 3,845  EUR 3,574  EUR 11,781 EUR 12,604  EUR 12,248

</TABLE>


Accrued benefit costs are included in the balance sheet line
item "Retirement benefit obligation" on the consolidated balance sheets. The
Company expects to make insignificant amounts of employer contributions during
the years 2007 to 2011.

The contribution for defined contribution plans for the year ended December 31,
2006, 2005 and 2004 amounted to EUR 0.1 million respectively.



<TABLE>
<CAPTION>

The components of net periodic benefit costs consist of the following (in thousands):

                                                                   Pension Benefits                        Other Benefits
                                                           ----------------------------------    ----------------------------------
                                                             2006           2005       2004        2006        2005          2004
                                                           ---------      ---------  --------    ---------   ---------    ---------
<S>                                                      <C>            <C>         <C>         <C>         <C>         <C>
Service cost.............................                 EUR   296       EUR  297  EUR  320   EUR  1,230  EUR  1,369   EUR  1,880
Interest cost............................                       210            204       195          536         547          553
Expected return on plan assets...........                        (9)            (9)        9           --          --           --
Settlement actuarial loss................                        --             --        --           --         151           --
Recognized actuarial loss................                      (143)            16         3           79          86           81
                                                           ---------      ---------  --------    ---------   ---------    ---------
Net periodic benefit cost................                 EUR   354       EUR  507  EUR  526   EUR  1,845  EUR  2,152   EUR  2,514
                                                           =========      =========  ========    =========   =========    =========

<CAPTION>

The weighted average assumptions used to determine benefit obligations are as follows:

                                                                   Pension Benefits                        Other Benefits
                                                           ----------------------------------    ----------------------------------
                                                             2006           2005       2004        2006        2005          2004
                                                           ---------      ---------  --------    ---------    --------      -------
<S>                                                      <C>            <C>         <C>         <C>         <C>         <C>
Discount rate                                                  4.4%           4.2%      4.2%         4.6%        4.8%         4.8%
Rate of compensation increase............                      2.4%           2.3%      2.3%         2.7%        3.0%         3.0%
Expected return on plan assets...........                      2.2%           2.2%      0.0%           --          --           --

</TABLE>

The plan assets of the Japanese pension plan consist of equity funds at December
31, 2006 and 2005. The Company invests in equity funds with an expected stable
growth rate. The actual return on plan assets was 0. The expected rate of return
on plan assets is based upon the present rate of return and is expected to be
stable.

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                           -------------------------------------------------
                                                             2006           2005        2004        2003
                                                           ---------      ---------   ---------    --------
<S>                                                      <C>            <C>          <C>         <C>
Present value of defined benefit obligations........    EUR  18,588     EUR 19,408  EUR 18,028  EUR 21,367
Fair Value of plan assets...........................            405            400         400       4,537
                                                           ---------      ---------   ---------   ---------
Deficit.............................................    EUR  18,183     EUR 19,008  EUR 17,628  EUR 16,830
                                                           =========      =========   =========   =========

Experience adjustments on plan liabilities..........    EUR     (80)    EUR    833  EUR    147  EUR     --
Experience adjustments on plan assets...............              0              0           0

</TABLE>

Note 19 - Commitments and Contingencies

Operating Leases

The Company leases certain office space, warehouse facilities, transportation
and office equipment under operating leases which expire at various dates
through 2012. Rent expense was approximately EUR 3.7 million, EUR 3.8
million and EUR 3.3 million for the years ended December 31, 2006, 2005 and
2004, respectively.

Future minimum payments under non-cancelable operating leases with initial or
remaining lease terms in excess of one year are as follows as of December 31,
2006 (in thousands):


                                      F-37
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                                       December 31,
                                                           2006
                                                       --------------

    2007...................................             EUR    3,746
    2008...................................                    3,050
    2009...................................                    2,632
    2010...................................                    1,729
    2011...................................                    1,607
Thereafter.................................                    1,407
                                                       --------------
                                                        EUR   14,172
                                                       ==============

In July 2004, Head signed a new long-term supplier contract for tennis, squash
and racquetball racquets effective April 1, 2005 to renew business relations
with an existing supplier. The agreement will automatically extend after the
agreed expiration date, December 31, 2009, if neither of the two parties
cancels. This agreement contains an operating lease for warehouse facilities and
machinery and equipment. The future minimum payments are included within above
table.

Note 20 - Fair Value and Other Reserves Including Cumulative Translation
Adjustment

The following table shows the components of fair value and other reserves/CTA:

<TABLE>
<CAPTION>

                                                      Foreign
                                                     exchange
                                      Foreign         loss on         Unrealized       Unrealized
                                     Currency         invested         Gains on           Gain           Fair Value
                                    Translation     intercompany      Derivative       (Loss) on         and Other
                                    Adjustment      receivables       Instruments      Securities      Reserves/CTA
                                    ------------    -------------     ------------     -----------     --------------
                                                                     (in thousands)
<S>                                         <C>          <C>                  <C>           <C>              <C>
Balance at January 1, 2004......    EUR     114          ( 5,258)      EUR    533      EUR  (132)       EUR   (4,743)
Current period changes..........             --                              (166)            72                 (94)
Translation Adjustments.........         (3,209)            (232)              --             --              (3,441)
                                    ------------    -------------     ------------     -----------     --------------
Balance at December 31, 2004....    EUR  (3,095)          (5,490)      EUR   367       EUR   (60)       EUR   (8,277)
Current period changes..........             --               --             (362)            74                (288)
Translation Adjustments.........          4,481            2,200               --             --               6,682
                                    ------------    -------------     ------------     -----------     --------------
Balance at December 31, 2005....    EUR   1,386           (3,289)      EUR     5       EUR    14        EUR   (1,884)

Current period changes..........             --               --               (4)           104                 100
Translation Adjustments.........         (4,134)          (1,544)               --            --              (5,678)
                                    ------------    -------------     ------------     -----------     --------------
Balance at December 31, 2006....    EUR  (2,748)          (4,833)      EUR      1      EUR   118       EUR    (7,462)
                                    ============    =============     ============     ===========     ==============

</TABLE>

As of January 1, 2004, one of the Company's euro-based subsidiaries recognized
non-euro denominated permanently invested intercompany accounts receivable. As
of December 31, 2006 and 2005 the foreign exchange losses recorded in CTA were
EUR 6.0 million and EUR 4.1 million respectively.


                                      F-38
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21 - Income Taxes

The following table summarizes the significant differences between the Dutch
federal statutory tax rate and the Company's effective tax rate for financial
statement purposes.

<TABLE>
<CAPTION>

                                                                December 31,
                                                ----------------------------------------------
                                                    2006            2005             2004
                                                -------------    ------------     ------------
                                                                  Restated         Restated
<S>                                                    <C>             <C>              <C>
Dutch statutory tax rate...................            29.1%           31.5%            34.5%
Tax rate differential......................             7.8            12.4              2.4
Non-taxable gain on sale of property.......              --           (29.2)              --
Other taxes................................             9.3            10.4            (13.5)
Prior year adjustments.....................            25.2           (28.8)           (87.4)
Changes in tax rates.......................            (0.4)            0.3           (233.1)
Provision..................................           (21.3)            8.3             18.7
                                                -------------    ------------     ------------
Effective tax rate.........................            49.6%            4.9%          (278.5)%
                                                =============    ============     ============

</TABLE>

In 2006, the Company's effective tax rate differed from the statutory tax rate
in the Netherlands primarily due to an adjustment of tax losses carry forwards
in Austria which led to a decrease of EUR 4.3 million. Other effects that lead
to differences to the Dutch federal statutory rate are caused by withholding
taxes, other local taxes and prior year adjustments mainly in Italy, Austria and
Canada. The provision for additional tax losses which will not be used also
effects the effective tax rate.

In 2005, the Company's effective tax rate differed from the statutory tax rate
in the Netherlands primarily due to the non-taxable gain on sale of the property
in Estonia of EUR 5.9 million partially offset by higher tax rates applicable
to the Company in other countries, mainly in Germany and Japan and by
withholding taxes and other local taxes mainly in Italy, Austria and Canada.

In 2004, the Company's effective tax rate differed from the statutory tax rate
in the Netherlands primarily due to a reduction of the Austrian income tax rate
from 34% to 25% as of January 1, 2005, which was resolved in May 2004 and led to
a reduction of long-term deferred tax assets, mainly on tax loss carried forward
of EUR 20.2 million, and increased income tax expense. Other effects that lead
to differences to the Dutch federal statutory rate are caused by withholding
taxes, other local taxes and prior year adjustments mainly in Italy, Austria and
Canada.


                                      F-39
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The movements in deferred tax assets and liabilities during the year ended
December 31, 2006 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                  (Charged)/       (Charged)/
                                                 December 31,      credited         credited      Exchange          December 31,
                                                    2006          to income        to equity      differences          2005
                                                -------------    -------------    ------------    -------------    -------------
Short-term:

Deferred tax asset:
<S>                                             <C>             <C>               <C>             <C>             <C>
Tax loss carried forward.................        EUR   2,563     EUR     581      EUR      --      EUR     --      EUR    1,982
Impairment of inventory..................              4,097            (103)              43             (18)            4,175
Impairment of accounts receivable........              1,215            (911)              --             (59)            2,186
Other....................................              3,294            (318)               1             (62)            3,672
                                                -------------    -------------    ------------    -------------    -------------
     Total Short-term deferred tax assets             11,169            (751)              44            (139)           12,015

Deferred tax liabilities:

Deferred expenses........................        EUR      (8)    EUR     198      EUR      --     EUR       --      EUR    (206)
Trade and other payables.................               (469)           (165)              --               --             (305)
Other....................................               (777)            650              (33)               5           (1,400)
                                                -------------    -------------    ------------    -------------    -------------
     Total Short-term deferred tax
     liability...........................             (1,255)            683              (33)               5           (1,911)

                                                -------------    -------------    ------------    -------------    -------------
     Total Short-term deferred tax asset, net    EUR   9,914     EUR     (68)     EUR      11     EUR    (133)     EUR   10,105
                                                =============    =============    ============    =============    =============

Long-term:

Deferred tax asset:

Tax loss carried forward.................       EUR   63,581     EUR  ( 1,684)    EUR      --     EUR        6     EUR   65,259
Intangible assets........................                101              101              --               --                1
Fixed assets.............................                796              188              56               24              529
Lease obligations........................                640                5              --               --              635
Other....................................              2,533             (498)            483              (14)           2,562
                                                -------------    -------------    ------------    -------------    -------------
     Total Long-term deferred tax assets.       EUR   67,652     EUR  ( 1,888)    EUR     538     EUR       16     EUR   68,985

Deferred tax liabilities:

Investments..............................       EUR  (16,998)    EUR     (626)     EUR     --     EUR       29     EUR  (16,402)
Fixed assets.............................             (1,016)            166               --               (1)          (1,181)
                                                -------------    -------------    ------------    -------------    -------------
     Total Long-term deferred tax
     liability...........................            (18,014)            (459)              --               28         (17,583)
                                                -------------    -------------    ------------    -------------    -------------
     Total Long-term deferred tax asset, net    EUR  49,638     EUR (2,347)     EUR    538     EUR      44         EUR   51,403
                                                =============    =============    ============    =============    =============

                                                -------------    -------------    ------------    -------------    -------------
     Total deferred tax asset, net.......       EUR  59,552     EUR (2,415)     EUR    549     EUR     (89)        EUR   61,507
                                                =============    =============    ============    =============    =============

</TABLE>


                                      F-40
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The movements in deferred tax assets and liabilities during the year ended
December 31, 2005 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                   (Charged)/        (Charged)/
                                                  December 31,      credited          credited         Exchange        December 31,
                                                     2005           to income        to equity        differences         2004
                                                  ------------     ------------     -------------     ------------     ------------
Short-term:

Deferred tax asset:

<S>                                                     <C>                <C>               <C>              <C>            <C>
Tax loss carried forward...................       EUR   1,982      EUR     395      EUR       --      EUR      --      EUR   1,587
Impairment of inventory....................             4,175            1,832                --                2            2,341
Impairment of accounts receivable..........             2,186            1,790                --                3              393
Other                                                   3,672            1,617               121                6            1,928
                                                  ------------     ------------     -------------     ------------     ------------
     Total Short-term deferred tax assets..            12,015            5,633               121               11            6,250

Deferred tax liabilities:

Deferred expenses..........................       EUR    (206)     EUR      (4)      EUR      --      EUR      (1)      EUR   (201)
Trade and other payables...................              (305)            (298)               --               --               (7)
Other                                                  (1,400)           1,660               (46)            (113)          (2,901)
                                                  ------------     ------------     -------------     ------------     ------------
     Total Short-term deferred tax
     liability.............................            (1,911)           1,358               (46)            (113)          (3,109)

                                                  ------------     ------------     -------------     ------------     ------------
     Total Short-term deferred tax asset, net     EUR  10,105      EUR   6,991      EUR       75      EUR    (102)      EUR  3,141
                                                  ============     ============     =============     ============     ============

Long-term:

Deferred tax asset:

Tax loss carried forward...................       EUR  65,259      EUR  (3,311)     EUR       --      EUR      17      EUR  68,553
Intangible assets..........................                 1               --                --               --                1
Fixed assets...............................               529             (447)               --               33              943
Lease obligations..........................               635              (40)               --               --              675
Other......................................             2,562              (31)               --                2            2,591
                                                                                    -------------
                                                  ------------     ------------                       ------------     ------------
     Total Long-term deferred tax assets...       EUR  68,985      EUR  (3,828)     EUR       --      EUR      52      EUR  72,762

Deferred tax liabilities:

Investments................................       EUR (16,402)     EUR  (3,144)     EUR       --      EUR      --      EUR(13,258)
Fixed assets...............................            (1,181)            (224)               --               --            (957)
Other......................................                --            1,326              (688)              --            (639)
                                                                                    -------------     ------------
                                                  ------------     ------------                                        ------------
     Total Long-term deferred tax liability           (17,583)          (2,042)             (688)              --          (14,854)

                                                  ------------     ------------     -------------     ------------     ------------
     Total Long-term deferred tax asset, net      EUR  51,403      EUR  (5,870)     EUR     (688)     EUR      52      EUR  57,908
                                                  ============     ============     =============     ============     ============

                                                  ------------     ------------     -------------     ------------     ------------
     Total deferred tax asset, net.........       EUR  61,507      EUR   1,121      EUR    (613)      EUR    (50)      EUR  61,049
                                                  ============     ============     =============     ============     ============

</TABLE>

Deferred income tax assets are recognized for tax loss carry-forwards to the
extent that the realization of the related tax benefits through the future
taxable profits is probable. These tax losses have an unlimited carryover
period. As of December 31, 2006 and 2005, the Company did not recognize deferred
income tax assets of EUR 13.1 million and EUR 16.8 million, respectively in
respect of losses amounting to EUR 42.1 million and EUR 51.1 million
respectively, for which it is not probable to be used. All unutilized tax losses
will expire by 2026, at the very latest.

                                      F-41
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Net operating losses were experienced in the following jurisdictions (in
thousands):

<TABLE>
<CAPTION>

                                                                           December 31,
                                                           ----------------------------------------------
                                                               2006            2005             2004
                                                           -------------    ------------     ------------

<S>                                                             <C>             <C>              <C>
Austria.................................................   EUR  268.199    EUR  278.094     EUR  282.587
Germany.................................................         14.195          11.119           14.712
Other (Europe)..........................................            953             455            1.813
North America...........................................         15.896          24.945           21.975
                                                           -------------   ------------     ------------
                                                           EUR  299.243    EUR  314.613     EUR  321.087
                                                           =============   ============     ============

</TABLE>

The table below shows income (loss) before income taxes by geographic region (in
thousands):

<TABLE>
<CAPTION>

                                                                 For the Years Ended December 31,
                                                           ----------------------------------------------
                                                               2006            2005             2004
                                                           -------------    ------------     ------------
                                                                             Restated         Restated
<S>                                                              <C>              <C>              <C>
Austria.................................................   EUR   12,309     EUR   4,933            1,541
Non-Austria.............................................         (3,395)          2,142           (9,749)
                                                           -------------    ------------     ------------
      Total income (loss) before income taxes...........   EUR    8,914     EUR   7,075           (8,208)
                                                           =============    ============     ============

</TABLE>

Austria and Germany allow an unlimited carry forward of net operating losses,
whereas the United States allow 20 years carry forwards. The Company recorded a
provision to reduce the deferred tax assets to the amount the Company believes
is probable to be realized considering future taxable income and feasible tax
planning strategies.

Note 22 - Related Party Transactions

Head Sports Holdings N.V, controlled 18,987,344 shares, or approximately 47.7%
of the Company's issued shares, as of December 31, 2006. Head Sports Holdings
N.V., a Netherlands Antilles corporation, is controlled by Johan Eliasch and his
family members resulting in the ability to significantly influence and control
the Company's operations.

The Company receives administrative services from corporations which are
ultimately owned by the principal shareholder of the Company. Administrative
expenses amounted to approximately EUR 4.6 million, EUR 4.2 million and
EUR 4.5 million for the years ended December 31, 2006, 2005 and 2004,
respectively. The related party provides investor relations, corporate finance,
legal and consulting services and since 2004 internal audit and other services
in relation to compliance with the Sarbanes-Oxley Act of 2002.

One of the Company's subsidiaries leased its office building from its general
manager. Rental expenses amounted to approximately EUR 0.04 million for the
years ended December 31, 2006, 2005 and 2004 respectively.

                                      F-42
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The table below shows key managements' compensation (in thousands):

<TABLE>
<CAPTION>

                                                                       For the Years Ended December 31,
                                                         -------------        --------------        ---------------
                                                               2006              2005                   2004
                                                         -------------        --------------        ---------------
                                                                               Restated               Restated
<S>                                                             <C>                   <C>                    <C>
Salaries and other short-term employee benefits......... EUR    4,023         EUR     3,814         EUR      3,438
Post-employment benefit.................................          270                   356                    286
Other long-term benefits................................           50                   175                    154
Share-based benefits....................................        1,436                 (606)                  1,208
                                                         -------------        --------------        ---------------
Total................................................... EUR    5,779         EUR     3,739         EUR      5,086
                                                         =============        ==============        ===============

</TABLE>


Note 23 - Stock Option Plans

The Company accounts for its stock options in accordance with IFRS 2.
Share-based compensation expense is recognized over the vesting term of the
options, is included in general and administrative expense and amounted to
EUR 1.8 million expense, EUR 0.9 million reversal of expense and EUR 3.0
million expense for the years ended December 31, 2006, 2005 and 2004
respectively. The fair value of the liability for the cash-settled stock option
plans amounted to EUR 6.7 million (2005: EUR 5.4 million). The total
intrinsic value of the liability is EUR 4.0 million (2005: EUR 4.0 million).

Plan 1998

In November 1998, the Company adopted the Head Tyrolia Mares Group Executive
Stock Option Plan 1998 ("Plan 1998"). The Plan 1998 provided for grants of stock
options to officers and key employees of the Company and its subsidiaries. One
part of the Plan 1998 is treated as cash-settled share-based plan, as
participants have no right to receive shares. The Company therefore records a
liability for the plan. The other part of the Plan 1998 for the Chairman and
Chief Executive Officer is treated as equity-settled share-based plan, as the
Company has no legal or constructive obligation to repurchase or settle the
options in cash. The Chairman and Chief Executive Officer is eligible to receive
all options issued under the Plan 1998 that do not vest to current participants.
So far he received 838,622 options (2005: 838,622 options).

A total of 2,424,242 options were reserved to be granted under the terms of the
Plan 1998. 2,278,394 options have been granted and 861,760 options (2005:
861,760 options) were exercised as at December 31, 2006 and all other are
exercisable. No further options will be granted under the 1998 Plan. The
exercise price for all stock options granted under the Plan 1998 was fixed at
inception of the Plan 1998 and increases at the rate of 10% per annum until the
options are exercised. Options generally vested over a period of 4 years and
were subject to the Company meeting certain earnings performance targets during
this period. The Company used a forfeiture rate of 37% as that many employees
have left during the vesting period. Options vested under the Plan 1998 were not
exercisable prior to the end of the two year lock-up period following the
initial public offering. Options have a maximum term of 10 years.

The Company records share-based compensation expense on each balance sheet date
fair values of the stock options for cash-settled plans computed using the Black
and Scholes option pricing model. As at December 31, 2006, the weighted-average
fair value of the grant was $3.31 (2005: $2.81, 2004: $3.39), which was
estimated using the following assumptions: no dividends, expected volatility of
34.10% (2005: 44.19%, 2004: 45.00%), expected term of 2.1 years (2005: 3.1
years, 2004: 4.1 years), and risk-free interest rate of 4.29% (2005: 3.82%,
2004: 4.93%). The volatility is based on statistical analysis of daily share
prices over the last three years.

For the equity-settled Plan 1998 the Company records share-based compensation
expense on the grant-date fair values of the stock options computed using the
Black and Scholes option pricing model. The weighted-average fair value of the
grant was $3.04, which was estimated using the following assumptions: no
dividends, expected volatility of 0%, expected term of 9.3 years, and risk-free
interest rate of 5.76%.


As of December 31, 2006, the weighted average remaining contractual life of the
outstanding stock options is 2.6 years.


                                      F-43
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                            Number of        Weighted average
                                           of options         exercise price
                                         --------------       --------------
Balance, December 31, 2004.............         554,874       $         0.32
Balance, December 31, 2005.............         554,874       $         0.38
Balance, December 31, 2006.............         554,874       $         0.42
                                         ==============       ==============

Grant dates ranging from November 1998 to January 2000.

Plan 2001

In September 2001, the Company adopted the Head N.V. Executive Stock Option Plan
2001 ("Plan 2001"). The Plan 2001 provides for grants of stock options to
officers and employees of the Company and its subsidiaries. In accordance with
IFRS 2 the Plan 2001 is treated as cash-settled share-based plan, as
participants have no right to receive shares. On September 28, 2001, a total of
3,982,068 options were granted under the terms of the Plan 2001. The Company
records share-based compensation expense on each balance sheet date fair values
of the stock options computed using the Black and Scholes option pricing model.
As at December 31, 2006, the weighted-average fair value of the grant was $1.13
(2005: $1.18, 2004: $1.76), which was estimated using the following assumptions:
no dividends, expected volatility of 34.10% (2005: 44.19%, 2004: 45.00%),
expected term of 4.7 years (2005: 5.7 years, 2004: 6.7 years), and risk-free
interest rate of 4.29% (2005: 3.82%, 2004: 4.39%). The volatility is based on
statistical analysis of daily share prices over the last three years.

The exercise price for all stock options granted under the Plan was fixed at
inception of the Plan 2001. The vesting period varies from 0 to 6 years. The
Chairman and Chief Executive Officer received 1,426,470 options under this
grant, which vested immediately. In addition, he will receive further options up
to an amount of 564,564, which will not vest to other participants. The Company
assumes that no further options will forfeit. Options have a maximum term of 10
years.

                                                   Number of   Weighted average
                                                  of options    exercise price
                                                ------------    --------------

Balance, December 31, 2006, 2005 and 2004.....     3,982,068       $  4.31
                                                ============    ==============

As at December 31, 2006, the weighted average remaining contractual life of the
outstanding stock options is 4.7 years, and 1,866,482 options are vested and
exercisable at a price of $4.31 per share, under the Plan 2001.

Plan 2005

In May 2005, at the annual general meeting the shareholders approved the Head
N.V. Executive Stock Option Plan 2005 ("Plan 2005"). The Plan 2005 provides for
grants of 3,874,691 stock options to certain officers and key employees of the
Company and its subsidiaries. In accordance with IFRS 2 the Plan 2005 is treated
as cash-settled share-based plan, as participants have no right to receive
shares. As of December 31, 2006, a total of 3,669,346 options were granted under
the terms of the Plan 2005. The Company records share-based compensation expense
on each balance sheet date fair values of the stock options computed using the
Black and Scholes option pricing model. As at December 31, 2006, the
weighted-average fair value of the grant was EUR 1.66 and EUR 1.9
respectively, which was estimated using the following assumptions: no dividends,
expected volatility of 34.10% (2005: 44.19%), expected term of 8.7 years (2005:
9.7 years), and risk-free interest rate of 4.29% (2005: 3.82%). The volatility
is based on statistical analysis of daily share prices over the last three
years.

The exercise price for all stock options granted under the Plan 2005 was fixed
at inception of the Plan 2005 at EUR 2.168. Options generally vest over a
period of 4 years. The Company assumes that about 1% of the options will forfeit
during the four year period. Options have a maximum term of 10 years. As at
December 31, 2006, 205,345 (2005: 203,345 options) options were available for
grant under the Plan 2005 and no options are currently exercisable.


                                      F-44
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                            Number of        Weighted average
                                           of options         exercise price
                                         --------------       --------------
Balance, December 31, 2005...........         3,661,346       EUR      2.168
Granted..............................             8,000                2.168
                                         --------------       --------------
Balance, December 31, 2006...........         3,669,346       EUR      2.168
                                         ==============       ==============

Note 24 - Average Number of Employees

                                     For the Years Ended December 31,
                         -------------------------------------------------------
                              2006                2005               2004
                         ----------------    ----------------   ----------------

Salaried employees......             714                 722                731
Hourly paid employees...           1,253               1,575              1,757
                         ----------------    ----------------   ----------------
Total...................           1,966               2,297              2,488
                         ================    ================   ================



Note 25 - Expenses by Nature

<TABLE>
<CAPTION>

                                                                                   For the Years Ended December 31,
                                                                         ---------------------------------------------------
                                                                           2006                   2005               2004
                                                                         ---------------    ---------------    -------------
                                                                                         (in thousands)
                                                                                               Restated           Restated
<S>                                                                              <C>                <C>              <C>
Depreciation, amortization and impairment charges......................   EUR    14,245      EUR     16,977      EUR  15,674
Employee benefit expenses..............................................          77,913              86,190           95,175
Changes in inventory...................................................            (312)               (899)          (1,841)
Raw material and merchandise...........................................         138,161             129,172          131,128
Commission.............................................................          10,531              10,321           11,366
Shipment cost..........................................................           8,104               7,924            8,837
Advertising expenses...................................................          38,274              37,370           30,459
Legal, audit, consulting and other outside services....................          26,043              24,832           27,016
Other expenses.........................................................          33,824              32,027           46,001
                                                                         ---------------    ----------------   --------------
       Total cost of sales, selling and marketing, general and
       administrative and other operating (income) expense.............    EUR  346,784      EUR    343,913     EUR  363,816
                                                                         ===============    ================   ==============

</TABLE>


                                      F-45
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 26 - Personnel Costs

<TABLE>
<CAPTION>

                                                                      For the Years ended December 31,
                                                         ------------------------------------------------------------
                                                             2006                   2005                  2004
                                                         --------------        ---------------       ----------------
                                                                               (in thousands)
                                                                                  Restated              Restated
<S>                                                                <C>                 <C>                    <C>
Salaries and wages.....................................   EUR      55,957       EUR    63,007          EUR    67,852
Social security and other benefit......................            17,939              21,424                 21,287
Share options granted to directors and employees.......             1,818                (899)                 2,996
Pension costs - defined benefit plans..................               354                 507                    526
Post-employment benefits...............................             1,845               2,152                  2,514
                                                         -----------------     ---------------       ----------------
Total..................................................   EUR      77,913       EUR    86,190          EUR    95,175
                                                         =================     ===============       ================

</TABLE>


Note 27 - List of (direct and indirect) Participations as of December 31, 2006


                                                                 Proportion of
                                            Domicile        Issued capital held

Head Holding Unternehmensbeteiligung GmbH   Austria                     100.0%
HTM Sport- und Freizeitgerate AG            Austria                     100.0%
Head Sport AG                               Austria                     100.0%
Head International GmbH                     Austria                     100.0%
Head Technology GmbH                        Austria                     100.0%
Tyrolia Technology GmbH                     Austria                     100.0%
Head Austria GmbH                           Austria                     100.0%
Head Canada Inc.                            Canada                      100.0%
Head Sport s.r.o.                           Czech Republic              100.0%
HTM s.r.o.                                  Czech Republic              100.0%
OU HTM Sport Eesti                          Estonia                     100.0%
Head France S.A.S.                          France                      100.0%
Head Germany GmbH                           Germany                     100.0%
Head UK Ltd                                 England                     100.0%
Mares S.p.A.                                Italy                       100.0%
HTM Sports Japan KK                         Japan                       100.0%
Head Spain S.L.                             Spain                       100.0%
Head Switzerland AG                         Switzerland                 100.0%
HTM USA Holdings Inc.                       USA                         100.0%
Head USA Inc.                               USA                         100.0%
Head Sports Inc.                            USA                         100.0%
Penn Racquet Sports Inc.                    USA                         100.0%
Mares Asia Pacific Ltd.                     Hong Kong                   100.0%
Power Ahead Holding Ltd.                    British Virgin Islands       70.0%
Head Sports (Hui Zhou)Corp.                 China                        70.0%



                                      F-46
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 28 - Cash and cash equivalents

As at December 31, 2006 and 2005, cash and cash equivalents contains cash of
EUR 40.5 million and EUR 45.5 million respectively and restricted cash of
EUR 3.2 million and EUR 4.0 million respectively representing deposits
pledged as collateral on outstanding lines of credit.

Note 29 - Earnings per Share

a) Basic
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year, excluding ordinary shares purchased by the Company and
held as treasury shares (see Note 12).

<TABLE>
<CAPTION>


                                                                       For the Years Ended December 31,
                                                              -----------------------------------------------------
                                                                   2006                2005              2004
                                                              --------------       -------------       ------------
                                                                      (in thousands, except per share data)
                                                                                     Restated          Restated
<S>                                                                    <C>                 <C>            <C>
Profit for the year...........................................  EUR    4,415         EUR   6,728      EUR  (31,066)
Weighted average number of ordinary shares in issue...........        36,220              36,220            36,198
Basic earnings per share......................................          0.12                0.19             (0.86)

</TABLE>



b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. Potential ordinary shares are composed of incremental
shares issuable upon the exercise of share options of the equity settled Plan
1998, and are included in diluted earnings per share to the extent such shares
are dilutive. For the share options, a calculation is made in order to determine
the number of shares that could have been acquired at fair value (determined as
the average annual market share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding share options.

<TABLE>
<CAPTION>

                                                                          For the Years Ended December 31,
                                                              -----------------------------------------------------
                                                                   2006                2005              2004
                                                              --------------       -------------       ------------
                                                                      (in thousands, except per share data)
                                                                                     Restated          Restated
<S>                                                                    <C>                 <C>            <C>
Profit for the year...........................................  EUR    4,415         EUR   6,728      EUR  (31,066)
Weighted average number of ordinary shares in issue...........        36,220              36,220            36,198
      Share options...........................................           748                 733                --
                                                              --------------       -------------       ------------
Weighted average number of ordinary shares for diluted
      earnings per share......................................        36,968              36,953            36,198
Diluted earnings per share....................................          0.12                0.18             (0.86)

</TABLE>

Note 30 - Reconciliation from Dutch-GAAP to IFRS as adopted

In 2004, the Company for the first time based its financial reporting on
International Financial Reporting Standards as adopted by the EU ("IFRS as
adopted"). In prior years, the Company had reported under Dutch GAAP. In
connection with the preparation of the first-time adoption of IFRS as adopted
for the periods ended December 31, 2005 the Company identified certain
adjustments to the balance sheet as of January 1, 2004 and certain other
financial information relating to the period ended December 31, 2004.

The reconciliation of net loss from Dutch GAAP to IFRS as adopted for the year
ended December 31, 2004 and the reconciliation of shareholders' equity as of
January 1 and December 31, 2004 are presented below:


                                      F-47
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                           For the year
                                                                              ended
                                                                           December 31,
                                                                         ----------------
                                                                               2004
                                                                         ----------------
                                                                         (in thousands)
<S>                                                                <C>   <C>
Net Loss under Dutch GAAP.....................................           EUR     (27,173)
Effect on the restatement of share-based compensation plans...      a)                (7)
                                                                         ----------------
Net Loss under Dutch GAAP (Restated)..........................           EUR     (27,180)
Effect on the restatement of IFRS as adopted (see Note 2).....                    (2,274)
       Adoption of IAS 19 (Employee Benefits).................      c)              (124)
       Release of provision for restructuring costs...........      d)              (384)
       Restructuring costs incurred in 2004...................      d)            (1,287)
       Deferred taxes on differences..........................      f)               183
                                                                         ----------------
Loss for the year under IFRS as adopted.......................           EUR     (31,066)
                                                                         =================
<CAPTION>

                                                                           December 31,      January 1,
                                                                         ----------------   -----------
                                                                               2004             2004
                                                                         ----------------   -----------
                                                                                 (in thousands)
<S>                                                                <C>    <C>                 <C>
Shareholders' Equity under Dutch GAAP.........................           EUR   157,678    EUR   187,674
Effect on the restatement of share-based compensation plans...      a)          (1,414)          (1,341)
                                                                         ----------------   -----------
Shareholders' Equity under Dutch GAAP, restated...............           EUR   156,264    EUR   186,333
Effect on the restatement of IFRS as adopted (see Note 2).....                  (4,005)          (2,444)
       Adoption of IAS 39 (Financial Instruments).............      b)             490              710
       Adoption of IAS 19 (Employee Benefits).................      c)             371              495
       Minimum pension liability..............................      c)              96               83
       Restructuring Reserve..................................      d)              --            1,671
       Minority interest......................................      e)               8                8
       Deferred taxes on differences..........................      f)             123              (60)
                                                                         -------------    --------------
Shareholders' Equity under IFRS...............................           EUR   153,346    EUR   186,796
                                                                         =============    ==============
</TABLE>

a) Restatement: The Company operates a number of share-based compensation plans
which were originally accounted for as equity-settled. In the process of
preparing the consolidated financial statements for the year ended December 31,
2006, the Company determined that certain share-based compensation awards should
have been accounted for as cash-settled (liability awards). Additionally, the
Company did not account for share-based awards received by the CEO that were
forfeit by other employees as a new grant but continued to recognize expense
relating to these options defined at the original grant date. As a result, the
Company did not reverse compensation expense for these awards at the date of
forfeit and re-measure compensation expense for the new grant.

b) IAS 39. Under Dutch GAAP derivatives were not allowed to be recognized at
fair value. In adopting IAS 39 the Company recognized those derivatives at fair
value of EUR 0.5 million and EUR 0.7 million, respectively, as of January 1
and December 31, 2004.

c) IAS 19. Due to the difference in method of valuation of post retirement
benefits between Dutch GAAP and IAS 19, the Company recorded an aggregated
adjustment of EUR 0.4 million and EUR 0.5 million, respectively, as of
January 1 and December 31, 2004 as a reduction in retirement benefit
obligations. Under Dutch GAAP a minimum pension liability was recorded in equity
in the amount of EUR 0.1 million as of January 1 and December 31, 2004 which
under IAS 19 has to be reclassified to retirement benefit obligations.

d) IAS 37. Dutch GAAP requires to accrue for all cost estimated at the time of
announcement of the restructuring program. Under IAS 37 only restructuring cost
for which the Company has a legal or constructive obligation have to be
recognized. As of January 1, 2004, in accordance with Dutch GAAP the Company
recognized an additional


                                      F-48
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


accrual of EUR 1.7 million which was partially used in 2004. The remaining
portion (EUR 0.4 million) was released in 2004. As a consequence under IFRS
those cost have been recognized in 2004, when incurred.

e) Dutch GAAP qualifies minority interest not to be shareholders' equity
compared to IAS 1.

f) IAS 12. Deferred taxes have been calculated on the differences.

Note 31 - Reconciliation from IFRS as adopted to US-GAAP

The consolidated financial statements of the Company have been prepared in
accordance with IFRS as adopted, which differs in certain significant respects
from US-GAAP. The reconciliation from IFRS as adopted to US-GAAP of profit
(loss) for the years ended December 31, 2006, 2005 and 2004, and the
reconciliation of shareholders' equity as of December 31, 2006 and 2005 are
presented below:


<TABLE>
<CAPTION>
                                                           For the years ended December 31,
                                                         -------------------------------------
                                                            2006         2005         2004
                                                         -----------  ----------  ------------
                                                              (in thousands, except per
                                                                      share data)
                                                                       Restated    Restated
<S>                                                <C>     <C>        <C>          <C>
Profit (loss) for the period under IFRS.........         EUR  4,415   EUR  6,728  EUR (31,066)
    Adoption of IAS 19 (Employee Benefits)......    b)          (57)         381         (124)
    Share-based compensation....................    e)       (3,799)        (221)       2,170
    Deferred taxes..............................    f)           17          405         (290)
                                                         -----------  ----------  ------------
Net income (loss) under US-GAAP.................         EUR    576   EUR  7,293  EUR (29,310)
                                                         ===========  ==========  ============

Earnings per share-basic
    Net income (loss) under US-GAAP.............               0.02         0.20        (0.81)
Earnings per share-diluted
    Net income (loss) under US-GAAP.............               0.02         0.20        (0.81)
Weighted average shares outstanding
    Basic.......................................             36,220       36,220       36,198
    Diluted.....................................             36,963       36,959       36,198


<CAPTION>


                                                                            December 31,
                                                             2006                2005
                                                           ---------       ------------
                                                                   (in thousands)
                                                                                Restated
<S>                                               <C>      <C>                 <C>
Shareholders' Equity under IFRS................        EUR   155,888      EUR   166,459
    Amortization of goodwill and trademarks....    a)          1,606              1,714
    Adoption of IAS 19 (Employee Benefits).....    b)            (48)                 9
    Minimum Pension Liabilities................    c)             --                (85)
    Adoption of SFAS 158.......................    d)         (2,450)                --
    Share-based compensation...................    e)            (15)             3,784
    Deferred taxes on differences..............    f)            659               (100)
                                                       --------------     --------------
Shareholders' Equity under US-GAAP.............        EUR   155,640      EUR   171,781
                                                       ==============     ==============

</TABLE>


a) As allowed under IFRS 1, First-time Adoption of International Financial
Reporting Standards, the Company elected not to apply IFRS 3, Business
Combinations, to business combinations that occurred prior to the date of its


                                      F-49

<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


transition to IFRS as adopted (January 1, 2004). As a result the carrying amount
of goodwill under IFRS as adopted on January 1, 2004 is equal to the carrying
amount under Dutch GAAP.

Under Dutch GAAP the Company continued to amortize goodwill and trademarks until
the adoption of IFRS as adopted at January 1, 2004. Under U.S. GAAP, Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangibles,
goodwill and other intangibles with an indefinite useful life are no longer
amortized. This resulted in an additional two years of amortization of EUR 1.6
million on goodwill and trademarks compared to U.S. GAAP. Subsequent changes in
this difference result from foreign exchange rate fluctuations of the U.S.
dollar against the euro.

b) Under U.S. GAAP the Company applied Approach 1 of the Emerging Issues Task
Force ("EITF") Abstract 88-1, Determination of Vested Benefit Obligation for a
Defined Benefit Pension Plan, in calculating the accumulated benefit obligation
of its Italian severance pay statute ("Trattamento di Fine Rapporto").
Accordingly, the Company recorded the actuarial present value of the vested
benefits to which the employee is entitled as if the employee separated
immediately. Under IFRS as adopted the Company accounted for these severance
obligations at the present value of the vested benefits based on the employee's
expected date of retirement.

c) Under U.S. GAAP the Company recorded an additional minimum liability at
December 31, 2005 as required by Statement of Financial Accounting Standards No.
87, Employer's Accounting for Pensions. The additional minimum liability is
required when the accumulated benefit obligation exceeds the fair value of plan
assets. The recognition of the additional minimum liability was recorded in
other comprehensive income within shareholders' equity. Under IFRS as adopted,
the recognition of an additional minimum liability is not required for pension
obligations.

d) Under U.S. GAAP, Statement of Financial Accounting Standards No. 158,
Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans
("SFAS 158"), requires the recognition of the overfunded or underfunded status
of a defined benefit postretirement plan as an asset or liability and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income. The Company adopted SFAS 158 in fiscal 2006
resulting in a reduction of shareholders' equity of EUR 2.5 million due to the
underfunded status of the Company's retirement plans for the year ended December
31, 2006. Under IFRS there is no similar requirement to record the overfunded or
underfunded amount on the balance sheet.

e) Under US-GAAP, prior to the adoption of Statement of Financial Accounting
Standards No. 123 revised, "Share-Based Payment", ("SFAS 123R"), on January 1,
2006, the Company accounted for share-based compensation plans in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123"). Under FAS 123, compensation expense for
cash-settled awards is measured based on intrinsic value (representing the
difference between the exercise price and share price) at each reporting date
and adjusted for forfeitures as they occur. FAS 123R, requires cash-settled
awards to be measured at fair value at each reporting date and also requires a
company to estimate forfeitures. At the adoption date of FAS 123R, the Company
elected the modified prospective application which resulted in a cumulative
effect of a change in accounting principle adjustment of EUR 3.8 million from
the effect of recording the liability of cash-settled awards at fair value and
estimating forfeitures over the remaining vesting period.

Under IFRS as adopted, cash-settled awards are measured at fair value at each
reporting date and also require a company to estimate forfeitures.

Additionally, under IFRS the date of grant criteria for certain awards were met
earlier than under US GAAP, which results in a different measurement date.

f) The differences relating to income taxes include the deferred tax effects
calculated on those differences that meet the definition of a temporary
difference.

Classification Differences and Other

                                      F-50
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Under US-GAAP, EITF 00-10, Accounting for Shipping and Handling Fees and Costs,
all amounts billed to a customer in a sale transaction related to shipping and
handling should be classified as revenue. Under IFRS as adopted those amounts
are classified as cost of sales. For the years ended December 31, 2005 and 2004,
EUR 1.2 and EUR 1.1 million, respectively, representing all amounts billed
to customers for shipping and handling should be reclassified as other revenues
in the consolidated income statement.

Recent Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes--an Interpretation of FASB Statement No. 109," (FIN 48). FIN 48
prescribes a comprehensive model for how a company should recognize, measure,
present, and disclose in its financial statements uncertain tax positions that
it has taken or expects to take on a tax return. FIN 48 is effective for us as
of January 1, 2007. The Company is currently evaluating the impact of adopting
FIN 48 and is unable to estimate the impact at this time, if any, on the
consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. The
provisions of SFAS 157 are effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the potential impact, if any, that
the adoption of SFAS 157 will have on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements ("SAB 108"), which provides interpretive
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality
assessment. SAB 108 is effective for fiscal years ending after November 15,
2006.

Restatement

The Company operates a number of share-based compensation plans which were
originally accounted for as equity-settled. In the process of preparing the
consolidated financial statements for the year ended December 31, 2006, the
Company determined that certain share-based compensation awards should have been
accounted for as cash-settled (liability awards) under FAS 123.

Additionally, the Company did not account for share-based awards received by the
CEO that were forfeit by other employees as a new grant but continued to
recognize expense relating to these options defined at the original grant date.
As a result, the Company did not reverse compensation expense for these awards
at the date of forfeit and re-measure compensation expense for the new grant.

As a result of the matters described above, the Company restated its previously
reported US-GAAP shareholders' equity at January 1, 2004 of EUR 191.4 million
to EUR 190.0 million for the cumulative effect of prior periods. Additionally,
the Company has restated its previous reported US-GAAP net income (loss) and
shareholders' equity for the years ended December 31, 2004 and 2005 as follows:


                                      F-51
<PAGE>

                                    HEAD N.V.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                        For the years ended December 31,
                                 -----------------------------------------------
                                          2005                  2004
                                 -----------------------------------------------
                                      (in thousands, except per share data)
                                (Previously    (As      (Previously      (As
                                 Reported)   Restated)   Reported)    Restated)

Shareholders' Equity.......  EUR 173,354  EUR 171,781  EUR 159,270  EUR 157,856
Net income (loss)..........        6,772        7,293      (29,303)     (29,310)
Earnings per share-basic
    Net income (loss)......         0.19         0.20        (0.81)       (0.81)
Earnings per share-diluted
    Net income (loss)......         0.18         0.20        (0.81)       (0.81)










                                     F-52

<Page>
                                   SIGNATURES



The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.



Date:     April 2, 2007

                               Head N.V.
                               Registrant


                                By:     /s/ Johan Eliasch
                                        ---------------------------------------

                                        Name:  Johan Eliasch
                                        Title: Chief Executive Officer,
                                               Chairman of the Management Board



<PAGE>


                                   HEAD N.V.:

                 Schedule II - Valuation and Qualifying Accounts




<TABLE>
<CAPTION>



                                                  Balance at                                                Balance at
                                                  beginning                     Deductions   Translation        end
                                                  of  period         Additions     (1)         effects       of period
----------------------------------------------------------------------------------------------------------------------
                                                                             (in millions)
<S>                                              <C>                <C>         <C>            <C>          <C>
Description:
Year ended
December 31, 2006:
Provision for doubtful receivables..........     EUR 13.1           EUR 2.5    EUR (2.9)      EUR(0.5)    EUR 12.2
Provision for inventories...................         13.1               4.2        (3.6)         (0.3)        13.4
Year ended
Year ended
December 31, 2005:
Provision for doubtful receivables..........     EUR 12.2           EUR 4.0    EUR (3.3)      EUR 0.2     EUR 13.1
Provision for inventories...................         13.2               5.7        (4.3)         (1.5)        13.1
Year ended
December 31, 2004:
Provision for doubtful receivables..........     EUR 12.5           EUR 4.1    EUR (3.9)      EUR(0.5)    EUR 12.2
Provision for inventories...................         12.8               4.6        (3.8)         (0.4)        13.2

</TABLE>

-------------
(1) Represents amounts used for the purposes for which the accounts were created
    and reversal of amounts no longer required


                                       2
<PAGE>





                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Description                                                                         Sequentially
                                                                                        numbered
                                                                                            page

<S>     <C>
1.1     Memorandum and Articles of Association of the Company (incorporated by
        reference to the Registration Statement on Form F-1 filed with the SEC
        on September 27, 2000)..................................................

2.1     Indenture between HTM Sport- und Freitzeigerate AG, Head N.V., Head
        Holding Unternehmensbeteiligung GmbH, Head Sport AG, Head International
        GmbH, HTM Sport S.p.A., Head USA Inc., Penn Racquet Sports Inc.,
        Head/Tyrolia Sports Canada Inc., The Bank of New York, As Trustee,
        Registrar, Transfer Agent And Principal Paying Agent and The Bank of New
        York (Luxembourg) S.A., As Paying Agent And Transfer Agent dated January
        29, 2004 (incorporated by reference to the Annual Report on Form 20-F
        filed with the SEC on April 13, 2004)..................................

4.1     Loan Agreement between Head USA, Inc., Mares America Corporation, Penn
        Racquet Sport, Inc. and Fleet Capital Corporation as Agent dated April
        5, 2000 (incorporated by reference to the Registration Statement on Form
        F-1 filed with the SEC on September 27, 2000)...........................

6.      A statement explaining in reasonable detail how earnings per share
        information were calculated (included in Note 2 to the Financial
        Statements)...........................................................

8.      See "Item 4.C Organizational Structure"...............................

12.1    Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002............................................................

12.2    Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002............................................................

13.     Certification of the CEO and CFO pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002..............................................
</TABLE>