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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Fiscal Year Ended December 31,
2006

Commission file number 0-4538

Cybex International, Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|New York                                                       |  | 11-1731581                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|10 Trotter Drive, Medway, Massachusetts                        |  | 02053                               
|(Address of principal executive office)                        |  | (Zip Code)                          
|                                                               | 
|Registrants telephone number, including area code             |  | (508) 533-4300                      

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



|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of Each Class          |  | Name of each exchange on which registered
|Common Stock, $.10 Par Value |  | NASDAQ Global Market                     

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  [    ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes [    ]  No [X]

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

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

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
[    ]                    Non-accelerated filer [X]

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



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The aggregate market value of the common stock held by non-affiliates of the registrant as of July 1, 2006 was $71,649,669.



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The number of shares outstanding
of the registrants classes of common stock, as of March 30, 2007

Common Stock, $.10 Par Value  17,245,902 shares



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DOCUMENTS
INCORPORATED BY REFERENCE

The information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference from the
registrants definitive proxy statement for its Annual Meeting of Stockholders, to be filed with the Commission pursuant to Regulation 14A, or if such proxy statement is not filed with the Commission on or before 120 days after the end of the
fiscal year covered by this Report, such information will be included in an amendment to this Report filed no later than the end of such 120-day period.



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PART I



|ITEM 1. | BUSINESS
|------- | --------

General

Cybex International, Inc. (the Company or Cybex), a New York corporation, is a manufacturer of exercise equipment and develops,
manufactures and markets strength and cardiovascular fitness equipment products for the commercial and, to a lesser extent, consumer markets. The Company operates in one business segment.

Products

The Company develops, manufactures and
markets high performance, professional quality exercise equipment products for the commercial market and, to a lesser extent, the premium segment of the consumer market. These products can generally be grouped into two major categories:
cardiovascular products and strength systems.

The Companys products are of professional quality and are believed to be among the
best in the category in which they compete, featuring high performance and durability suitable for utilization in health clubs or by professional athletes. Accordingly, the majority of the Companys products are premium priced.

The contribution to net sales of the Companys product lines over the past three years is as follows (dollars in millions):



|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  
|--------------------------- |  | --------- | ----- | ------- | ---- | - | --------- | ---- | ------- |  | --- | --------- |  | ------- | ----- |  | --- | -
|                            |  | 2006      |       |         | 2005 |   |           | 2004 |        
|                            |  | Net Sales |       | Percent |      |   | Net Sales |      | Percent |  |     | Net Sales |  | Percent |      
|Cardiovascular products     |  | $         | 68.7  |         | 54   | % |           | $    | 62.3    |  | 54  | %         |  | $       | 48.7  |  | 47  | %
|Strength systems            |  |           | 47.0  |         | 37   |   |           |      | 41.1    |  | 36  |           |  |         | 43.6  |  | 42  |  
|Parts                       |  |           | 5.9   |         | 5    |   |           |      | 5.7     |  | 5   |           |  |         | 6.3   |  | 6   |  
|Freight and other sales (1) |  |           | 5.3   |         | 4    |   |           |      | 5.5     |  | 5   |           |  |         | 4.8   |  | 5   |  
|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  
|                            |  | $         | 126.9 |         | 100  | % |           | $    | 114.6   |  | 100 | %         |  | $       | 103.4 |  | 100 | %
|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  

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|(1) | Reflects shipping and handling fees and costs included on customer invoices.
|--- | ----------------------------------------------------------------------------

Eagle, Stableflex and VR2 are registered trademarks of Cybex, and Arc Trainer, Cybex Arc Trainer, Cyclone, Cyclone-S,
FT360, Home Arc, LCX-425T, MG500, Pro+, Safety Sentry, Sport +, Total Body Arc Trainer, Trotter Elite, VR and VR3 are
trademarks of Cybex. Trazer is a registered trademark of Trazer Technologies, Inc., used by Cybex under license.

Cardiovascular Products.

The Companys cardiovascular equipment is designed to provide aerobic conditioning by
elevating the heart rate, increasing lung capacity, endurance and circulation, and burning body fat. The Companys cardiovascular products include cross trainers, treadmills, bikes and steppers. The Company also offers a three-dimensional
optical tracking and measurement system under the name Trazer. All of the Companys cardiovascular products incorporate computerized electronics which control the unit and provide feedback to the user.

Cross Trainers. Cybex Arc Trainer is a commercial product designed to provide the user with more and varied training potential. It provides
motions that vary from gliding to climbing. Its brake design provides resistance from 0  900 Watts to meet the demands ranging from the casual user to the athlete. The control console is based on the Pro+ treadmill console, facilitating
cross-use of these products. The Total Body Arc Trainer retains all of the functionality of the original Arc Trainer and adds upper body motion to provide for total body training. In 2006, the Company introduced four new versions of the Arc Trainer:
the 350A Home Arc for



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the consumer market, the 425A for the light commercial and high-end consumer markets, and self-powered (cordless) versions of lower body and total body units
for commercial use. The Arc Trainers list price ranges from $3,495 to $6,795.

Treadmills. The Company has four treadmill models, the Pro+, Sport+, CX-445T, and LCX-425T. The LCX-425T is a high-end consumer and light commercial product while the other models are for the commercial market. Each treadmill
model is motorized and incorporates computerized electronics controlling speed, incline, display functions and preset exercise programs. The electronics also provide displays to indicate speed, elevation, distance, time, pace and a variety of other
data. All of the treadmills include a complete diagnostic suite that can be accessed through the display, which is useful in the maintenance of the product. The CX-445T, Sport+ and Pro+ also include an innovative safety feature known as Safety
Sentry which causes the treadmill to stop once it detects inactivity with the user. All treadmills are equipped with contact heart rate monitoring and deck suspension system. The LCX-425T, CX-445T and Pro+ also include Polar heart rate monitoring
capabilities. The Companys treadmills have list prices ranging from $4,495 to $6,995.

Bikes. The Companys Cyclone
bike is available in both upright and recumbent models. These bikes feature improved ergonomics and ease of use as well as broad resistance capabilities and multiple resistance modes. The capabilities of these products are designed to allow any
users to receive the maximum benefit in minimum time. The console design is based on that of the Arc Trainer and Pro+ treadmill to provide a common method of operation. The list price of the upright bike is $2,995 and the recumbent bike is $3,395.

Steppers. The Company has one model of steppers targeting the commercial marketplace. The Cyclone-S Stepper features the
family display common to the bikes and Total Body Arc Trainer as well as an advanced ergonomic handrail design, contact and Polar heart rate monitoring and patented drive system. The list price of the Cyclone-S is $3,595.

Trazer. The Company introduced during 2005 a three-dimensional optical tracking and measurement system. The system is sold under the trademark
Trazer and provides a three-dimensional virtual world simulation that provides exercise and objective measurement in both game-like and real world simulations. The list price of Trazer is $6,495.

Strength Training Products.

Strength
training equipment provides a physical workout by exercising the musculo-skeletal system. The Companys strength training equipment uses weights for resistance. This product line includes selectorized single station equipment, modular
multi-station units, MG500 multi-gym, the FT360(s), plate-loaded equipment and free-weight equipment.

Selectorized
Equipment. Selectorized single station equipment incorporates stacked weights, permitting the user to select different weight levels for a given exercise by inserting a pin at the appropriate weight level. Each selectorized product is
designed for a specific muscle group with each product line utilizing a different technology targeted to facility and user type.

The
Companys selectorized equipment is sold under the trademarks VR, VR3 and Eagle. The VR line represents a value-engineered line suitable for smaller general-purpose facilities and as an entry line in larger
facilities. In 2005, the line received updates for improved ease of use in express-type facilities. During 2006, the medium price point VR2 line was phased out and replaced with the VR3 line. VR3 is designed for exceptional ease of use
in fitness facilities and was introduced as a 14 piece line in late 2005 and completed as a 23 piece line in late 2006. Eagle represents the Companys premier line and features a complete scope of use; it features ease-of-use as well as
patented and patent pending technologies to meet the needs of performance oriented individuals and facilities. In 2006, Eagle received a cosmetic update for a more contemporary appearance and to facilitate blending with VR3. The Company currently
sells 95 selectorized equipment products under the above lines with list prices between $2,495 and $6,095.



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Modular Multi-Station Units. This product line has the advanced design and high performance
features of the VR selectorized equipment line while being able to be configured into a multiple station design. Pricing for the multi-station units depends on configuration. The list price of a typical configuration is $8,090.

MG500 Multi-gym. The Companys MG500 multi-gym features over 30 biomechanically correct exercises. The multi-gym uses considerably less
space than multiple selectorized single station equipment. It contains three weight stacks to meet the needs of the commercial market, especially hotels, corporate fitness centers and other small-scale locations. This product has a list price
ranging from $6,820 to $7,030.

FT360s. The FT360s is a functional trainer that delivers an unlimited range of movements and
exercises using arms that are capable of multiple positioning. This unit targets the personal training and rehabilitation markets and has a $4,395 list price.

Plate Loaded Equipment. The Company manufactures and distributes a wide range of strength equipment which mimics many of the movements found on its selectorized machines but are manually loaded with
weights. These are simple products which allow varying levels of weight to be manually loaded. There are 21 plate-loaded products, ranging in price from $1,050 to $3,230.

Free-Weight Equipment. The Company also sells free-weight benches and racks and compliments them with OEM supplied dumbbells, barbells and plates. The Company offers 25 items of free-weight equipment with
list prices ranging from $300 to $1,630.

Customers and Distribution

The Company markets its products to commercial customers and to individuals interested in purchasing premium quality equipment for use in the home. A commercial customer is defined as any purchaser who does not intend
the product for home use. Management estimates that consumer sales represent less than 10% of 2006 net sales. Typical commercial customers are health clubs, corporate fitness centers, hotels, resorts, spas, educational institutions, sports teams,
sports medicine clinics, military installations and community centers. Sales to one customer, Cutler-Owens International Ltd., an independent authorized dealer, represented 15.2%, 15.4% and 15.9% of the Companys net sales for 2006, 2005 and
2004, respectively. No other customer accounted for more than 10% of the Companys net sales for 2006, 2005 or 2004.

The Company
distributes its products through independent authorized dealers, its own sales force, international distributors and its e-commerce web site (www.cybexinternational.com). The Company services its products through independent authorized dealers,
international distributors, a network of independent service providers and its own service personnel.

Independent authorized dealers
operate independent stores specializing in fitness-related products and promote home and commercial sales of the Companys products. The operations of the independent dealers are primarily local or regional in nature. In North America, the
Company publishes dealer performance standards which are designed to assure that the Company brand is properly positioned in the marketplace. In order to qualify as an authorized dealer, the dealer must, among other things, market and sell Cybex
products in a defined territory, achieve sales objectives, have qualified sales personnel, and receive on-going product and sales training. As of March 30, 2007, the Company has approximately 75 active dealers with 352 locations in North
America. The Companys domestic sales force services this dealer network and sells direct in regions not covered by a dealer. The domestic sales team includes 19 territory managers or reps, 12 regional or national account managers, three sales
associates and one Senior Vice President.

The national account team focuses on major market segments such as health clubs and gyms,
hotels, resorts, the U.S. government and organizations such as YMCAs, as well as third party consultants which purchase on behalf of such national accounts. The Company has approximately 25 national accounts.



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Sales outside of North America accounted for approximately 27%, 29% and 29% of the Companys net
sales for 2006, 2005 and 2004, respectively. The international sales force consists of one Senior Vice President, five regional sales managers and one operations manager. The Company, through its wholly-owned subsidiary, Cybex UK, directly markets
and sells Cybex products in the United Kingdom. Cybex UK has 20 employees. The Company utilizes independent distributors for the balance of its international sales. There are 65 independent distributors in 68 countries currently representing Cybex.
The Company enters into international distributor agreements with these distributors which define territories, performance standards and volume requirements.

Additional information concerning the Companys international sales and assets located in foreign countries is located in Note 2 to the Companys consolidated financial statements.

The Company markets certain products by advertising in publications which appeal to individuals within its targeted demographic profiles. In addition,
the Company advertises in trade publications and participates in industry trade shows.

The Company offers leasing and other financing
options for its commercial customers. The Company arranges financing for its dealers and direct sale customers through various third party lenders for which it may receive a fee. Management believes that these activities produce incremental sales of
the Companys products.

Warranties

All products are warranted for up to three years for labor and up to ten years for structural frames. Warranty periods for parts range from one to ten years depending on the part and type of equipment. Warranty expense for the years ended
December 31, 2006, 2005 and 2004 was $3,323,000, $3,048,000 and $2,512,000, respectively.

Competition

The market in which the Company operates is highly competitive. Numerous companies manufacture, sell or distribute exercise equipment. The Company
currently competes primarily in the premium-performance, professional quality equipment segment of the market. The Companys competitors vary according to product line and include companies with greater name recognition and more extensive
financial and other resources than the Company.

Important competitive factors include price, product quality and performance, diversity of
features, warranties and customer service. The Company follows a policy of premium quality and differentiated features which results in products having suggested retail prices at or above those of its competitors in most cases. The Company currently
focuses on the segment of the market which values quality and is willing to pay a premium for products with performance advantages over the competition. Management believes that its reputation for producing products of high quality and dependability
with differentiated features constitutes a competitive advantage.

Product Development

Research and development expense for the years ended December 31, 2006, 2005 and 2004 was $4,812,000, $3,982,000 and $3,172,000, respectively. At
December 31, 2006, the Company had the equivalent of 37 employees engaged in ongoing research and development programs. The Companys development efforts focus on improving existing products and developing new products, with the goal of
producing user-friendly, ergonomically and biomechanically correct, durable exercise equipment with competitive features. Product development is a cross functional effort of sales, marketing, product management, engineering and manufacturing, led by
the Companys Senior Vice President of Research and Development.



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Manufacturing and Supply

The Company maintains two facilities which are vertically integrated manufacturing facilities equipped to perform fabrication, machining, welding, grinding, assembly and finishing of its products. A new manufacturing
facility, with added capacity, is being constructed to the Companys specifications in Owatonna, Minnesota to replace the existing Owatonna facility. Management believes that its facilities provide the Company with proper control over product
quality, cost and delivery time.

The Company manufactures treadmill, bike and Trazer cardiovascular products in its facility located in
Medway, Massachusetts and manufactures the cross trainers and strength equipment in its facility located in Owatonna, Minnesota. Raw materials and purchased components are comprised primarily of steel, aluminum, wooden decks, electric motors, molded
or extruded plastics, milled products, circuit boards for computerized controls and upholstery. These materials are assembled, fabricated, machined, welded, powder coated and upholstered to create finished products.

The Companys stepper and Home Arc products are manufactured for the Company in Taiwan.

The Company single sources its stepper and Home Arc products and certain raw materials and component parts, including drive motors, belts, running decks,
molded plastic components and electronics, where it believes that sole sourcing is beneficial for reasons such as quality control and reliability of the vendor or cost. The Company attempts to reduce the risk of sole source suppliers by maintaining
varying levels of inventory. However, the loss of a significant supplier, or delays or disruptions in the delivery of components or materials, or increases in material costs, could have a material adverse effect on the Companys operations.

The Company manufacturers most of its strength training equipment on a build-to-order basis which responds to specific sales
orders. The Company manufactures its other products generally based upon projected sales.

Backlog

Backlog historically has not been a significant factor in the Companys business.

Patents and Trademarks

The Company owns, licenses or has applied for various patents with respect to
its products and has also registered or applied for a number of trademarks. While these patents and trademarks are of value, management does not believe that it is dependent, to any material extent, upon patent or trademark protection.

Insurance

The Companys product liability
insurance is written on a claims made basis and provides an aggregate of $5,000,000 of coverage, with a deductible of up to $250,000 per occurrence with an annual aggregate deductible of $750,000. Reserves for self insured retention are included in
accrued expenses on the consolidated balance sheet.

Governmental Regulation

The Companys products are not subject to material governmental regulation.

The Companys operations are subject to federal, state and local laws and regulations relating to the environment. The Company regularly monitors
and reviews its operations and practices for compliance with these laws and regulations, and management believes that it is in material compliance with such environmental laws and regulations. Despite these compliance efforts, some risk of liability
is inherent in the operation of the business of the Company, as it is with other companies engaged in similar businesses, and there can be no assurance that the Company will not incur material costs in the future for environmental compliance.



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Employees

On March 30, 2007, the Company employed 547 persons on a full-time basis. None of the Companys employees are represented by a union. The Company considers its relations with its employees to be good.

Available Information

The Company files reports
electronically with the Securities and Exchange Commission. Forms 8-K, 10-Q, 10-K, Proxy Statements and other information can be viewed at http://www.sec.gov. This information can also be viewed without charge at the Companys own website at
http://www.cybexinternational.com. The internet website address for Cybex is included in this report for identification purposes. The information contained therein or connected thereto are not intended to be incorporated into this Annual
Report on Form 10-K.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

The risk factors
identified in the cautionary statements below could cause our actual results to differ materially from those suggested in the forward-looking statements appearing elsewhere in this Annual Report on Form 10-K. However, these risk factors are not
exhaustive and new risks may also emerge from time to time. It is not possible for management to predict all risk factors or to assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.

We depend upon our ability to successfully develop, market and sell new or improved products. Our continued growth and ability to remain
competitive will substantially depend upon our development of new or improved products. A failure to develop new or improved products on a timely basis, or which are accepted in the marketplace, or which produce appropriate sales or margins, could
adversely affect our ability to generate future revenues and earnings and have a negative impact on our business prospects, liquidity and financial condition.

A number of risks are associated with the construction and our planned relocation to a new manufacturing facility. An approximate 340,000 square feet manufacturing, office and warehouse facility is being
constructed to our specifications in Owatonna, Minnesota, which is intended to replace our existing Owatonna manufacturing facility. We will purchase the facility upon substantial completion, scheduled for June 2007, and we intend to move to the new
facility during the third quarter of 2007, which is traditionally the slowest period of the year for our manufacturing requirements. As with any new construction and move, a number of unexpected occurrences could adversely affect our business,
financial condition and results of operations. While the move is planned for what is normally the slowest manufacturing period of the year, any move results in expense and temporary inefficiencies. While we expect the new facility to result in both
added capacity and more efficient operations, we may experience significant manufacturing and operational inefficiencies, especially in the early stages of the transition, and the cost of the move could exceed budgeted levels. Unanticipated delays
or difficulties in completion of construction or otherwise effectuating the relocation and in transitioning production to the new facility could adversely affect our capacity to meet our manufacturing requirements and result in interruptions to our
business. In addition, construction costs overruns for which we are responsible could be material.

Increases in raw material costs, or
the unavailability of raw materials or components, could adversely affect us.Increases in our cost of raw materials could have a material effect on our profitability. We currently source our consumer version of the Arc Trainer, stepper products
and certain raw materials and component parts (e.g., drive motors, belts, running decks, molded plastic components and electronics) from single suppliers. The loss of a significant supplier, or delays or disruptions in the delivery of raw materials
or components, could adversely affect our ability to generate future revenues and earnings and have a material adverse effect on our business and financial results.



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We have been involved in a number of litigation matters and expect legal claims in the future.In
recent years we have been involved in a number of litigation matters, including with respect to product liability, intellectual property rights, disputes with dealers and a dispute involving a person from whom we acquired a business. During the
fourth quarter of 2006 and the first quarter of 2007, we paid a total of approximately $3.3 million in satisfaction of a judgment entered against us in the Kirila et al v. Cybex International, Inc., et al litigation matter. We are currently
appealing a judgment of approximately $2.8 million entered against us in 2005 in the Colassi v. Cybex International, Inc. matter. If we are not successful in this appeal we will have to pay the judgment plus post-judgment interest. We expect
that we will continue to be involved in litigation in the ordinary course of business. While we maintain reserves for estimated litigation losses, one or more adverse determinations in litigation affecting us could have a material adverse effect on
our business prospects, liquidity, financial condition and cash flows.

Our failure or inability to protect our intellectual property
from misappropriation or competition could adversely affect our business prospects.Our intellectual property aids us in competing in the exercise equipment industry. Despite our efforts to protect our intellectual property rights, such as
through patent, trade secret and trademark protection, unauthorized parties may try to copy our products, or obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries may not protect our rights to as
great an extent as U.S. law. Furthermore, the patents and trademarks which we have obtained or may seek in the future may not be of a sufficient scope or strength to provide meaningful economic or competitive value. Our rights and the additional
steps we have taken to protect our intellectual property may not be adequate to deter misappropriation, and we also remain subject to the risk that our competitors or others will independently develop non-infringing products substantially equivalent
or superior to our products. We also may not be able to prevent others from claiming that our products violate their proprietary rights. If we are unable to protect our intellectual property, or if we are sued for infringing another partys
intellectual property, our business, financial condition, results of operation or cash flows could be materially adversely affected.

We
principally use two facilities to produce our products and a material business disruption at either facility could significantly impact our business. Substantially all of our products are manufactured or assembled in two vertically integrated
facilities located in Massachusetts and Minnesota. These facilities house all our manufacturing operations and our executive offices. We take precautions to safeguard our facilities, including obtaining insurance, maintaining safety protocols and
using off-site storage of computer data. However, a natural disaster, such as an earthquake, fire or flood, or an act of terrorism or vandalism, could cause substantial disruption to our operations, damage or destroy our manufacturing equipment,
information systems or inventory and cause us to incur substantial additional expenses. The insurance we maintain against disasters may not cover or otherwise be adequate to meet our losses in any particular case. Any disaster which prevents
operations in either of our facilities for any extended period may result in decreased revenues and increased costs and could significantly harm our operating results, financial condition, cash flows and prospects.

We rely on third party dealers and distributors to sell and service a significant portion of our products. In 2006, more than half of our total
net sales were to our independent authorized dealers in North America and to independent distributors internationally. These third party dealers and distributors may terminate their relationships with us, or fail to commit the necessary resources to
sell or service our products to the level of our expectations. If current or future third party dealers or distributors do not perform adequately, or if we fail to maintain our existing relationships with them or fail to recruit and retain dealers
or distributors in particular markets or geographic areas, our revenues may be adversely affected and our operating results could suffer.

We have a history of losses in fiscal years prior to 2004. Although we have been profitable since fiscal year 2004, we incurred losses in each fiscal year from 2001 through 2003. If we are unable to maintain our profitability and we
incur losses in the future, any such losses could have a material adverse effect on our business prospects, liquidity, financial condition and cash flows.

Our major stockholders may exercise control over us.John Aglialoro, Joan Carter and UM Holdings Ltd., who are related parties, collectively own approximately 34% of our outstanding common stock. Such



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stockholders may have the ability to significantly influence (i) the election of our Board of Directors, and thus our future direction and (ii) the
outcome of all other matters submitted to our stockholders, including mergers, consolidations and the sale of all or substantially all of our assets.

We face strong competition.The fitness equipment industry is highly competitive. Numerous companies manufacture, sell or distribute exercise equipment. Our competitors include companies with strong name
recognition and more extensive financial and other resources than us.

We carry debt.We are indebted to several lenders, and will
incur additional debt in connection with our planned new manufacturing facility. This leverage may have several important consequences, including the need to meet debt service requirements and vulnerability to changes in interest rates. This
leverage may also limit our ability to raise additional capital, withstand adverse economic or business conditions and competitive pressures, and take advantage of significant business opportunities that may arise. In particular, the incurrence of
losses in the future could result in the inability to meet the financial covenants pertaining to our indebtedness or to service our debt.

Warranty claims may exceed the related reserves.We warrant our products for varying periods of up to ten years. While we maintain reserves for warranty claims, it could have a material adverse effect on our business prospects,
liquidity, financial condition and cash flows if warranty claims were to materially exceed anticipated levels.

We may have a contingent
liability related to the arrangement of third party financing.We offer to our customers leasing and other financing of products by third party providers, for which we may receive a fee. While most of these financings are without recourse, in
certain cases we may offer a guaranty or other recourse provisions. At December 31, 2006, our maximum contingent liability under all recourse provisions was approximately $4,638,000. While we maintain a reserve for estimated losses under these
recourse provisions, it could have a material adverse effect on our business prospects, liquidity, financial condition and cash flows if actual losses were to materially exceed the related reserve.

Unfavorable international political or economic changes and/or currency fluctuations could negatively impact us.Approximately 27% and 29% of our
sales in 2006 and 2005, respectively, were derived from outside North America. Political or economic changes and/or currency fluctuations in countries in which we do business could negatively impact our business and financial results, including
decreases in our revenues and profitability.

We may not be able to attract and retain key employees and the loss of any member of our
senior management could negatively affect our business.We compete for the services of qualified personnel. Our future success will depend upon, to a significant degree, the performance and contribution of the members of senior management and
upon our ability to attract, motivate and retain other highly qualified employees with technical, management, marketing, sales, product development, creative and other skills. Although we do have employment agreements with our executive officers,
there can be no assurance that such officers will continue to perform under those contracts. Our business, financial condition and results of operations could be materially and adversely affected if we lost the services of members of our senior
management team or key technical or creative employees or if we failed to attract additional highly qualified employees.

Future
issuances of preferred stock may adversely affect the holders of our common stock.Our Board has the ability to issue, without approval by the common stockholders, shares of one or more series of preferred stock, with the new series having such
rights and preferences as the Board may determine in its sole discretion. Any series of preferred stock may have rights, including cumulative dividend, liquidation and conversion rights, senior to our common stock, which could adversely affect the
holders of the common stock, as well as the economic value of the common stock.

A variety of factors may discourage potential take-over
attempts.John Aglialoro, Joan Carter and UM Holdings Ltd., who are related parties, collectively own approximately 34% of our outstanding common stock. In addition, our Certificate of Incorporation requires an affirmative super-majority
stockholder vote before we can



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enter into certain defined business combinations, except for combinations that meet certain specified conditions; provides for staggered three-year terms for
members of the Board of Directors; and authorizes the Board of Directors to issue preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of such preferred stock without any further vote or action by our
stockholders. Each of these factors could have the effect of discouraging potential take-over attempts and may make attempts by stockholders to change our management more difficult.

In the event we are unable to satisfy regulatory requirements relating to internal control over financial reporting, or if these internal controls are
not effective, our business and financial results may suffer.The Sarbanes-Oxley Act of 2002 and related rules and regulations of the Securities and Exchange Commission and the NASDAQ impose new duties on us and our executives, directors,
attorneys and independent registered public accounting firm. In order to comply with the Sarbanes-Oxley Act and such rules and regulations, we are evaluating our internal control over financial reporting to allow management to report on, and our
independent registered public accounting firm to attest to, our internal control over financial reporting. Managements report will be required as of December 31, 2007, and the report of our independent registered public accounting firm
will be initially required either as of December 31, 2007 or December 31, 2008 depending upon our market capitalization as of June 30, 2007. We are currently performing the system and process evaluation and testing (and any necessary
remediation) required in an effort to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, we expect to incur additional expenses and diversion of managements
time, which could materially increase our operating expenses and accordingly reduce our net income. While we anticipate being able to fully implement the requirements relating to internal control over financial reporting and all other aspects of
Section 404 in a timely fashion, we cannot be certain as to the outcome of our testing and resulting remediation. If our independent registered public accounting firm does not agree with our conclusion regarding our evaluation of internal
control over financial reporting or the level at which these controls are documented, designed, operated or reviewed, or if the independent registered public accounting firms interpretation of the requirements, rules or regulations are
different than ours, then they may decline to attest to managements assessment or issue an adverse opinion on managements assessment and/or our internal control over financial reporting. This could result in an adverse reaction in the
financial marketplace due to a loss of investor confidence in the reliability of our consolidated financial statements, which ultimately could negatively impact the market price of our common stock.



|ITEM 2. | PROPERTIES
|------- | ----------

The Company occupies
approximately 120,000 square feet of space in Medway, Massachusetts and approximately 210,000 square feet of space in Owatonna, Minnesota for administrative offices, manufacturing, assembly and warehousing. The Medway facility is owned by the
Company. The Owatonna facility is leased. The Company also utilizes outside warehousing.

Cybex UK, the Companys wholly-owned United
Kingdom subsidiary, leases approximately 728 square feet of space in Measham, England. This space is utilized for the subsidiarys direct sales and service efforts in the United Kingdom, which serves Cybexs operations throughout Europe.

The Companys manufacturing facilities are equipped to perform fabrication, machining, welding, grinding, assembly and powder coating
of its products. These facilities are well maintained and kept in good repair.

While management believes that the Companys
facilities are adequate for current operations, it anticipates increased capacity needs. To meet these requirements, the Company is having constructed to its specifications an approximate 340,000 square feet manufacturing, office and warehouse
facility located in Owatonna, Minnesota which is intended to replace the existing Owatonna manufacturing facility. The purchase of this facility will occur upon substantial completion of the improvements, scheduled for June 2007, subject to
extension. The Company anticipates terminating the lease of its existing Owatonna facility in connection with the move to the new facility. Management believes that, upon acquisition of the new facility, the Company will have adequate capacity for
its operations for the foreseeable future.



10



---

Additional information concerning the financing of the Companys owned and leased facilities are
described in Notes 7 and 12 to the Companys consolidated financial statements.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

As a
manufacturer of fitness products, the Company is inherently subject to the hazards of product liability litigation; however, the Company has maintained, and expects to continue to maintain, insurance coverage which management believes is adequate to
protect against these risks. Reserves for self insured retention are included in accrued expenses in the consolidated balance sheet.

The
Company is also involved in certain legal actions and claims arising in the ordinary course of business. At December 31, 2006, an aggregate reserve of $3,736,000 is included in accrued expenses for estimated costs related to those matters for
which it is probable that a loss has been incurred. The ultimate resolution of these matters could be material to the Companys financial position, results of operations and cash flows; however, management believes that the recorded reserve is
adequate.

Kirila et al v. Cybex International, Inc., et al

This action was commenced in the Court of Common Pleas of Mercer County, Pennsylvania in May 1997 against the Company, the Company's wholly-owned subsidiary, Trotter, and certain officers, directors and affiliates of
the Company. The plaintiffs include companies that sold to Trotter a strength equipment company in 1993, a principal of the corporate plaintiffs who was employed by Trotter following the acquisition, and a company that leased to Trotter a plant
located in Sharpsville, Pennsylvania. The complaint made numerous allegations, including wrongful closure of the Sharpsville facility, wrongful termination of the individual plaintiffs employment and nonpayment of compensation, fraud and
breach of the asset purchase agreement. A jury verdict was rendered in this litigation in February 2002. While the jury found in favor of the Company with respect to the majority of the plaintiffs claims, it also found that the Company owed
certain incentive compensation payments and rent, plus interest. In December 2002, plaintiff Kirila Realty and the Company agreed to enter judgment in favor of Kirila Realty for $48,750 on the claims related to lease issues. Such amount represented
the approximate $38,000 jury verdict together with an agreed amount of interest due and was paid by the Company in 2002. In March 2004,a $2,452,783 judgment was entered with respect to the incentive compensation portion of the jury verdict.
Cybex filed an appeal of this judgment. In January 2006, the Superior Court of Pennsylvania affirmed the judgment, and both Cybex and the plaintiffs filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court. On June 7, 2006,
the Pennsylvania Supreme Court denied the respective Petitions for Allowance of Appeal of the Company and the plaintiffs. The Company determined not to further pursue its appeals, and in November 2006, it satisfied a portion of the judgment, which,
with interest and costs, amounted to approximately $2,800,000. The plaintiffs asserted that additional attorneys fees were payable by the Company and the Court, on December 29, 2006, ordered that $523,000 be added to the judgment
representing additional fees and costs. The amended judgment was paid in January 2007 and the matter is now concluded.

Colassi v. Cybex
International, Inc.

This action was filed in the United States District Court for the District of Massachusetts. The plaintiff
alleged that certain of the Company's treadmill products infringed a patent allegedly owned by the plaintiff. The plaintiff sought injunctive relief and monetary damages. The Company filed an answer to the complaint denying the material allegations
of the complaint and asserting counterclaims. A jury verdict was rendered in this litigation in August 2005. The jury determined that the deck system of certain of the Companys treadmill products infringes plaintiffs patent and awarded
damages, which with interest, equaled approximately $2,800,000 as of December 31, 2006. A six-month stay of a permanent injunction against sale of these treadmill products was entered in September 2005, and the Company has implemented a redesign of
its deck system. The Company filed an appeal of the judgment entered by the trial court on the jury verdict, which required that Cybex post a letter of credit for $2,888,025 (see Notes 7 and 12 to the Companys consolidated financial
statements). The



11



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Court of Appeals in February 2007, denied the Companys appeal and the Company has moved for a rehearing.In November 2006, the plaintiff filed
with the trial court a motion to enter a substitute judgment in an attempt to substitute plaintiffs reissued patent for the patent that was at issue at trial. In December 2006, the trial court denied this motion and in January 2007, the
plaintiff appealed this decision. The Companys and the plaintiffs respective appeals remain pending.

Free Motion Fitness v. Cybex
International, Inc.

In December 2001, Free Motion Fitness (f.k.a. Ground Zero Design Corporation) filed in the United States
District Court for the District of Utah an action for patent infringement against the Company alleging that the Companys FT360 Functional Trainer infringed the plaintiffs patent. The Company filed an answer denying the material
allegations of the complaint and including claims which management believes could invalidate the Free Motion Fitness patent; the Company also filed a counterclaim against Free Motion Fitness seeking damages. In September 2003, this case was combined
with a separate matter also in the United States District Court, District of Utah in which Free Motion Fitness had sued the Nautilus Group for infringement of the same patent at issue in the Cybex case. In May 2004, the Court ruled in favor of the
Companys motion for summary judgment, dismissing all of the claims of the plaintiff against the Company and Nautilus and also dismissing the Companys counterclaims against the plaintiff. The plaintiff appealed the grant of summary
judgment and in September 2005, the Court of Appeals for the Federal Circuit reversed the lower court ruling, with the result that this case was returned to the trial court level. In January 2007, the parties entered into a settlement agreement
pursuant to which, among other things, Cybex received a license of certain Free Motion patents and paid an upfront license fee and the litigation was dismissed with prejudice.

Other Litigation and Contingencies

The Company is involved in certain other legal actions,
contingencies and claims arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or
cash flows. Legal fees related to those matters are charged to expense as incurred.



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

No matters were submitted to a vote of the Companys security holders during the fourth quarter of 2006.

SPECIAL
ITEM.EXECUTIVE OFFICERS OF REGISTRANT

Officers are elected by the Board of Directors and serve at the
pleasure of the Board. The executive officers of the Company as of March 30, 2007 were as follows:



|                     |  |     |  |                                                                               
|-------------------- |  | --- |  | ------------------------------------------------------------------------------
|Name                 |  | Age |  | Position                                                                      
|John Aglialoro       |  | 63  |  | Chairman and Chief Executive Officer                                          
|Arthur W. Hicks, Jr. |  | 48  |  | Executive Vice President  Chief Operating Officer and Chief Financial Officer
|Edward Kurzontkowski |  | 43  |  | Senior Vice President of Manufacturing and Engineering                        
|Raymond Giannelli    |  | 53  |  | Senior Vice President of Research and Development                             
|Edward J. Pryts      |  | 46  |  | Senior Vice President of Sales  North America                                
|John P. Young        |  | 44  |  | Senior Vice President of Sales  International                                

Mr. Aglialoro has served as Cybexs Chief Executive Officer since 2000.
Mr. Aglialoro is also the Chairman of UM Holdings Ltd., which he co-founded in 1973. UM Holdings Ltd. is the Companys principal stockholder. He served as a Director and Chairman of Trotter Inc. from 1983 until Trotters merger with
Cybex in 1997, from which time he has served as the Chairman of the Companys Board of Directors.



12



---

Mr. Hicks has served as the Companys Executive Vice President  Chief Operating Officer since
January 1, 2006 and its Chief Financial Officer since 2002. Prior to 2006, he served Cybex through a service agreement between the Company and UM Holdings Ltd., where he was employed as Chief Financial Officer since 1988. Mr. Hicks is a
certified public accountant. He was a director of Trotter from 1994 to 1997 and has served as a director of Cybex since 1997.

Mr. Kurzontkowski has served as the Companys Senior Vice President of Manufacturing and Engineering since 2003. He joined Trotter in 1981 and has served the Company in a variety of capacities, including Senior Vice President of
Manufacturing from 2001 to 2002 and Executive Vice President of Operations from 2002 to 2003.

Mr. Giannelli has served as the
Companys Senior Vice President of Research and Development since 2003. He first joined Cybex in 1975 and served in various positions including Vice President of Research and Development. In 1991, Mr. Giannelli left Cybex and joined
Trotter as the Vice President of Research and Development and continued to maintain that position after the merger of Trotter with Cybex in 1997. In 1999, Mr. Giannelli left Cybex to act as the Executive Vice President of Values.com, a cause
related marketing firm. He returned to assist in Cybexs research and development effort in February 2001 as the Chairman of the Cybex Institute.

Mr. Pryts has served as the Companys Senior Vice President of Sales  North America since January 2007. Mr. Pryts first joined Cybex in 1993 and has served in a variety of capacities, including
Vice President of Sales  North America from 2002 to 2006 and Vice President of Domestic Sales from 2000 to 2002.

Mr. Young has
served as the Companys Senior Vice President of Sales  International since January 2007. He first joined Cybex in 1999 and has served in several capacities, including Vice President of International Sales from 2001 to 2006.



13



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PART II



|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ----------------------------------------------------------------------------------------------------------------

The Companys common shares have been traded on the NASDAQ Global Market since November 2006, prior to which time the shares were traded on the
American Stock Exchange (AMEX). The Companys NASDAQ symbol is CYBI.

The following table shows the high and low market prices as
reported by NASDAQ or the AMEX, as applicable:



|               |  |      |      |      |   |      |  |     |      |  |   |     
|-------------- |  | ---- | ---- | ---- | - | ---- |  | --- | ---- |  | - | ----
|               |  | 2006 |      | 2005
|Calendar       |  | High |      | Low  |   | High |  | Low
|First Quarter  |  | $    | 6.80 |      | $ | 3.50 |  | $   | 4.63 |  | $ | 3.30
|Second Quarter |  |      | 7.11 |      |   | 5.28 |  |     | 4.30 |  |   | 2.80
|Third Quarter  |  |      | 6.91 |      |   | 5.05 |  |     | 4.35 |  |   | 2.71
|Fourth Quarter |  |      | 7.70 |      |   | 5.50 |  |     | 3.77 |  |   | 3.10

As of March 30, 2007, there were approximately 470 common stockholders of record. This figure
does not include stockholders with shares held under beneficial ownership in nominee name.

Under the Companys credit agreements, the
Company currently does not have the ability to pay dividends. The present policy of the Company is to retain any future earnings to provide funds for the operation and expansion of its business.

On October 24, 2006, Zubin Mory exercised his warrant to purchase 400 shares of common stock of the Company (the Mory Warrant). Pursuant
to the net exercise provisions of the Mory Warrant, the Company issued to Mr. Mory 394 shares of common stock of the Company. On November 27, 2006, Oppenheimer & Co., Inc. exercised its warrant to purchase 11,250 shares of common
stock of the Company (the Oppenheimer Warrant). Pursuant to the net exercise provisions of the Oppenheimer Warrant, the Company issued to Oppenheimer & Co., Inc. 11,074 shares of common stock.

The Company issued the Mory Warrant and the Oppenheimer Warrant in 2004 in connection with a private placement of its common stock. In issuing the shares
of the Companys common stock underlying the Mory Warrant and the Oppenheimer Warrant, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, in that the transactions did
not involve a public offering.

The following table summarizes securities authorized for issuance under equity compensation plans at
December 31, 2006:

Equity Compensation Plan Information



|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                           |           |    
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | ----------------------------------------------------------------------------------------- | --------- | ---
|Plan category                                              |  | Number ofsecurities to beissued upon exerciseof outstandingoptions, warrantsand
rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |      | Number of securities remainingavailable for futureissuance under equitycompensation plans |          
|Equity compensation plans approved by security holders     |  | 695,000                                                                                |  | $                                                                        | 2.09 |                                                                                           | 1,011,942 | (1)
|Equity compensation plans not approved by security holders |  |                                                                                       |  |                                                                          |     |                                                                                           |          |    
|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                           |           |    
|Total                                                      |  | 695,000                                                                                |  |                                                                          | 2.09 |                                                                                           | 1,011,942 |    
|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                           |           |    

---

|(1) | Includes 970,000 shares available for issuance under the Companys 2005 Omnibus Incentive Plan and 41,942 shares available for issuance under the Companys 2002 Stock
Retainer Plan for Nonemployee Directors. See Note 8 to the Companys consolidated financial statements for a description of these plans.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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Performance Graph

The following graph compares the five-year cumulative total return (change in stock price plus reinvested dividends) on the Companys common stock with the total returns of the NASDAQ Market Value Index, a broad
market index covering stocks listed on the NASDAQ, and the companies in the Sporting and Athletic Goods industry (SIC Code 3949), a group encompassing approximately nine companies (the SIC Code Index). The performance graph is deemed
furnished and not filed with the Securities and Exchange Commission.

LOGO

Comparison of 5-Year Cumulative Total Return of

Cybex International, Inc., NASDAQ Market Value Index

and the SIC Code Index



|                          |  |      |        |      |   |       |  |      |        |      |   |        |  |   |        |  |   |       
|------------------------- |  | ---- | ------ | ---- | - | ----- |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|                          |  | 2001 |        | 2002 |   | 2003  |  | 2004 |        | 2005 |   | 2006  
|Cybex International, Inc. |  | $    | 100.00 |      | $ | 74.87 |  | $    | 65.24  |      | $ | 218.72 |  | $ | 197.86 |  | $ | 320.86
|SIC Code Index            |  |      | 100.00 |      |   | 67.92 |  |      | 89.30  |      |   | 98.94  |  |   | 85.97  |  |   | 92.03 
|NASDAQ Market Value Index |  |      | 100.00 |      |   | 69.75 |  |      | 104.88 |      |   | 113.70 |  |   | 116.19 |  |   | 128.12

Assumes $100 invested on December 31, 2001 and dividends are reinvested. Source: Hemscott,
Inc.



15



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|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The
following information has been extracted from the Companys consolidated financial statements for the five years ended December 31, 2006. This selected consolidated financial data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and the Companys consolidated financial statements and notes thereto included elsewhere in this report.



|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------- | ----
|                                                                          |  | Year Ended December 31                |        
|                                                                          |  | 2006                                  |         |      | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |       
|                                                                          |  | (in thousands, except per share data) |        
|Statement of Operations Data:                                             |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Net sales                                                                 |  | $                                     | 126,924 |      |      | $ | 114,646 |      |  | $ | 103,421 |   |  | $    | 90,480 |   |  | $ | 81,744  |     
|Cost of sales                                                             |  |                                       | 80,241  |      |      |   | 73,169  |      |  |   | 65,640  |   |  |      | 59,321 |   |  |   | 51,919  |     
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Gross profit                                                              |  |                                       | 46,683  |      |      |   | 41,477  |      |  |   | 37,781  |   |  |      | 31,159 |   |  |   | 29,825  |     
|Selling, general and administrative expenses (including bad debt expense) |  |                                       | 36,757  |      |      |   | 33,908  |      |  |   | 30,900  |   |  |      | 29,367 |   |  |   | 26,733  |     
|Litigation charges                                                        |  |                                       |        |      |      |   | 4,605   | (b)  |  |   |        |   |  |      |       |   |  |   |        |     
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Operating income                                                          |  |                                       | 9,926   |      |      |   | 2,964   |      |  |   | 6,881   |   |  |      | 1,792  |   |  |   | 3,092   |     
|Interest income                                                           |  |                                       | 46      |      |      |   | 5       |      |  |   | 14      |   |  |      | 12     |   |  |   | 30      |     
|Interest expense                                                          |  |                                       | (1,885  | )    |      |   | (2,657  | )    |  |   | (3,539  | ) |  |      | (3,643 | ) |  |   | (3,549  | )   
|Other income (expense), net                                               |  |                                       |        |      |      |   |        |      |  |   |        |   |  |      | 27     |   |  |   | 126     |     
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Income (loss) before income taxes                                         |  |                                       | 8,087   |      |      |   | 312     |      |  |   | 3,356   |   |  |      | (1,812 | ) |  |   | (301    | )   
|Income tax provision (benefit)                                            |  |                                       | (11,967 | )(a) |      |   | 251     |      |  |   | 131     |   |  |      | (51    | ) |  |   | 20,723  | (c) 
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Net income (loss)                                                         |  |                                       | 20,054  | (a)  |      |   | 61      |      |  |   | 3,225   |   |  |      | (1,761 | ) |  |   | (21,024 | )   
|Preferred stock dividends                                                 |  |                                       |        |      |      |   |        |      |  |   | (276    | ) |  |      | (244   | ) |  |   |        |     
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Net income (loss) attributable to common stockholders                     |  | $                                     | 20,054  | (a)  |      | $ | 61      |      |  | $ | 2,949   |   |  | $    | (2,005 | ) |  | $ | (21,024 | )(c)
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Basic earnings (loss) per share                                           |  | $                                     | 1.22    | (a)  |      | $ | .00     |      |  | $ | .26     |   |  | $    | (.23   | ) |  | $ | (2.39   | )(c)
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     
|Diluted earnings (loss) per share                                         |  | $                                     | 1.18    | (a)  |      | $ | .00     |      |  | $ | .24     |   |  | $    | (.23   | ) |  | $ | (2.39   | )(c)
|                                                                          |  |                                       |         |      |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |     

---

|(a) | Includes a benefit of $15,361 resulting from a reduction in the valuation allowance for deferred income taxes.
|--- | --------------------------------------------------------------------------------------------------------------

|(b) | Consists of $4,605 pre-tax charges relating primarily to the Colassi and Kirila litigation matters.
|--- | ---------------------------------------------------------------------------------------------------

|(c) | Includes a charge of $20,773 to establish a valuation allowance for deferred income taxes.
|--- | ------------------------------------------------------------------------------------------



|                                           |  |                |        |      |   |        |  |      |        |  |      |        |   |  |   |         |  
|------------------------------------------ |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ |  | ---- | ------ | - |  | - | ------- | -
|                                           |  | December 31    |       
|                                           |  | 2006           |        | 2005 |   | 2004   |  | 2003 |        |  | 2002 |       
|                                           |  | (in thousands) |       
|Balance Sheet Data:                        |  |                |        |      |   |        |  |      |        |  |      |        |   |  |   |         |  
|Working capital                            |  | $              | 14,061 |      | $ | 4,478  |  | $    | 3,318  |  | $    | (4,882 | ) |  | $ | (21,439 | )
|Total assets                               |  |                | 73,377 |      |   | 55,672 |  |      | 54,486 |  |      | 53,388 |   |  |   | 53,361  |  
|Long-term debt (including current portion) |  |                | 3,762  |      |   | 13,659 |  |      | 20,605 |  |      | 27,086 |   |  |   | 29,010  |  
|Capital leases (including current portion) |  |                | 330    |      |   | 813    |  |      | 1,056  |  |      | 1,023  |   |  |   | 406     |  



16



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|ITEM  7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-------- | -------------------------------------------------------------------------------------

CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION

Statements included in this Managements Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements. There are a number of risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made below. These include, but are not limited to, competitive factors, technological and product developments, market demand, economic conditions, the resolution of litigation involving us,
and our ability to comply with the terms of our credit facilities. Further information on these and other factors which could affect our financial results can be found in our filings with the Securities and Exchange Commission, including Part I of
this Annual Report on Form 10-K.

OVERVIEW

We are a New York corporation that develops, manufactures and markets high performance, professional quality exercise equipment products for the commercial market and, to a lesser extent, the premium segment of the consumer market.

RESULTS OF OPERATIONS

The following
table sets forth selected items from the Consolidated Statements of Operations as a percentage of net sales:



|                                                                         |  |                        |   |  |      |   |  |      |  
|------------------------------------------------------------------------ |  | ---------------------- | - |  | ---- | - |  | ---- | -
|                                                                         |  | Year Ended December 31 |  
|                                                                         |  | 2006                   |   |  | 2005 |   |  | 2004 |  
|Net sales                                                                |  | 100                    | % |  | 100  | % |  | 100  | %
|Cost of sales                                                            |  | 63                     |   |  | 64   |   |  | 63   |  
|                                                                         |  |                        |   |  |      |   |  |      |  
|Gross profit                                                             |  | 37                     |   |  | 36   |   |  | 37   |  
|Selling, general and administrative expenses, including bad debt expense |  | 29                     |   |  | 30   |   |  | 30   |  
|Litigation charges                                                       |  |                       |   |  | 4    |   |  |     |  
|                                                                         |  |                        |   |  |      |   |  |      |  
|Operating income                                                         |  | 8                      |   |  | 2    |   |  | 7    |  
|Interest expense, net                                                    |  | 2                      |   |  | 2    |   |  | 4    |  
|                                                                         |  |                        |   |  |      |   |  |      |  
|Income before income taxes                                               |  | 6                      |   |  |     |   |  | 3    |  
|Income tax provision (benefit)                                           |  | (10                    | ) |  |     |   |  |     |  
|                                                                         |  |                        |   |  |      |   |  |      |  
|Net income                                                               |  | 16                     | % |  |     | % |  | 3    | %
|                                                                         |  |                        |   |  |      |   |  |      |  

NET SALES

Our net sales increased $12,278,000, or 11%, to $126,924,000 in 2006 compared with an $11,225,000, or 11%, increase in 2005 compared to 2004. The increase in 2006 was attributable to an increase in sales of
cardiovascular products of $6,392,000, or 10%, to $68,726,000, and increased sales of strength training products of $5,978,000, or 15%, to $47,036,000, partially offset by decreased freight, parts and other sales of $92,000, or 1%, to $11,162,000.
The sales increase of cardiovascular products in 2006 was predominantly driven by an increase in sales of the LCX-425T treadmill, first introduced in November 2005 for the light commercial and high-end consumer markets, and the Home Arc, which is a
consumer version of the Arc Trainer and first introduced in October 2006. The sales increase of strength training products in 2006 was primarily due to sales of VR3, the new strength line introduced at the end of 2005.

The increase in net sales in 2005 was attributable to an increase in sales of cardiovascular products of $13,598,000, or 28%, to $62,334,000 and
increased freight and other revenue of $808,000, or 17%, to $5,558,000, partially offset by decreased sales of strength training products of $2,569,000, or 6%, to $41,058,000



17



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and decreased parts sales of $612,000, or 10%, to $5,696,000. Of the increase in sales of cardiovascular products, 74% was due to the Arc Trainer, sales for
which increased 44% in 2005. The Arc Trainer is a product category first introduced during 2002. Treadmill and bike sales also increased in 2005.

Sales outside of North America represented 27%, 29% and 29% of consolidated net sales in 2006, 2005 and 2004, respectively.

GROSS MARGIN

Gross margin was 36.8% in 2006, compared with 36.2% in 2005 and 36.5% in 2004. Margins increased in 2006 due to increased sales volume
(.8%) partially offset by reduced product pricing (.2%). Margins decreased from 2004 to 2005 due to higher steel costs (.6%), higher freight costs (.3%) and higher warranty provisions from product mix (.2%), partially offset by higher selling
prices.

The price of steel, a major component of our products, has fluctuated since 2004. The negative impact on gross margins from
changes in steel prices in 2006 was minimal compared to the corresponding period of 2005. We are uncertain of the likely impact of steel prices on margins for 2007.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses, including
bad debt expense, increased by $2,849,000, or 8%, in 2006 to $36,757,000 compared to an increase of $3,008,000, or 10%, in 2005. As a percentage of net sales, these expenses were 29%, 30% and 30% in 2006, 2005 and 2004, respectively. The 2006
increase in selling, general and administrative expenses was predominantly due to an increase in domestic and international selling expenses ($744,000) and an increase in product development costs ($830,000). The balance of the increase in these
expenses is primarily comprised of higher general salary levels and increased insurance costs.

The 2005 increase in selling, general and
administrative expenses was predominantly due to an increase in the direct sales force ($1,149,000), increased sales and marketing expenses ($860,000), and an increase in product development costs ($810,000).

LITIGATION CHARGES

Litigation charges for the year
ended December 31, 2005 relate to a $4,605,000 increase in legal reserves, primarily related to the Colassi and Kirila litigation matters.

INTEREST EXPENSE, NET

Net interest expense decreased by $813,000, or 31%, in 2006 to $1,839,000 compared to a decrease of
$873,000, or 25%, in 2005. The decrease in 2006 was due to lower outstanding debt balances as a result of the repayment of debt during the second half of 2006 with the proceeds from our underwritten public offering, partially offset by the interest
expense related to the change in fair value of an interest rate swap. The decrease in 2005 was due to lower interest rates following the July 2004 refinancing, lower principal balances and lower deferred financing cost amortization due to a $340,000
write-off of deferred financing costs in 2004 upon the retirement of the Hilco facility, partially offset by interest expense of $200,000 associated with the August 2005 Owatonna real estate transaction, which was treated as a financing for
financial accounting purposes. We expect that net interest expense will increase in 2007 compared to 2006, since we will incur additional debt to finance the purchase of our new Owatonna manufacturing facility and related capital expenditures.

INCOME TAXES

We recorded an income
tax benefit of $11,967,000 for the year ended December 31, 2006. In 2002, we established a valuation allowance against all of our deferred tax asset. As of July 1, 2006, we reevaluated the need for this valuation allowance in accordance
with SFAS No. 109, Accounting for Income Taxes, due to the



18



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existence of various factors. Based on this reevaluation, we reduced the valuation allowance by $14,421,000 effective July 1, 2006. During the period
from the establishment of the valuation allowance in 2002, to the July 1, 2006 reduction of the valuation allowance, our income tax provision was limited to state taxes and federal alternative minimum taxes. We recorded an income tax provision
of approximately 41% of income before taxes for the third and fourth quarters of 2006 and we anticipate an income tax provision at a similar effective tax rate in future periods. Actual cash outlays for taxes will, however, continue to be reduced by
the available operating loss carryforwards, consistent with prior periods.

As of December 31, 2006, U.S. federal operating loss
carryforwards of approximately $23,477,000 were available to us to offset future taxable income and, as of such date, we had foreign net operating loss carryforwards of $2,568,000, federal alternative minimum tax credit carryforwards of $540,000 and
federal research and development tax credit carryforwards of $129,000. The net deferred tax asset balance of $12,282,000 at December 31, 2006 represents the amount that we believe is more-likely-than-not to be realized, and the remaining
valuation allowance at December 31, 2006 is $6,599,000. We will continue to assess the need for the remaining valuation allowance in future periods.

PREFERRED STOCK DIVIDENDS

The Companys Series B Convertible Cumulative Preferred Stock was issued in July 2003 and
was converted by the holder thereof into shares of common stock in August 2004. The holder of the preferred stock was entitled to receive cumulative dividends of $14.90, or 10% of the issuance price, per share per year when and if declared by the
Board of Directors. Such dividends decreased the net income or increased the net loss attributable to common stockholders for purposes of computing income or loss per share. In accordance with the terms of the preferred stock, all accrued dividends
on the preferred stock, in the amount of $522,000, were paid at the time of conversion in 2004.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2006, we had working capital of $14,061,000, compared to $4,478,000 at December 31, 2005. The increase in
working capital is primarily due to the reduction of the deferred tax valuation allowance resulting in a current deferred tax asset of $3,509,000, a $1,976,000 increase in accounts receivable, reflecting higher sales volume in the fourth quarter of
2006 versus the fourth quarter of 2005, and a $1,469,000 increase in prepaid expenses.

For the year ended December 31, 2006, we
generated $5,212,000 of cash from operating activities compared to $7,198,000 for the year ended December 31, 2005. The decrease in cash provided by operating activities in 2006 compared to 2005 is primarily due to the decrease in accounts
payable, accrued liabilities and other liabilities, offset by an increase in net income after the effect of the reduction in the deferred tax valuation allowance in 2006 compared to net income after the effect of the increase to the litigation
reserve in 2005.

Cash used in investing activities of $4,151,000 in 2006 consisted of purchases of manufacturing tooling and equipment of
$1,927,000, primarily efficiency enhancing manufacturing equipment and tooling for new products, and computer hardware and infrastructure of $2,224,000, including costs associated with an upgrade to our ERP system. Cash used in investing activities
of $732,000 in 2005 primarily consisted of purchases of and deposits for manufacturing tooling and equipment of $3,149,000 and computer hardware and infrastructure of $1,071,000, offset by the proceeds from the sale of real estate of $3,488,000.
Capital expenditures for 2007, relating mostly to the construction of our Owatonna facility (approximately $15,000,000), manufacturing tooling and equipment and computer hardware and infrastructure, are currently expected to be in the range of
$24,000,000 to $25,000,000. We expect to fund these expenditures with a combination of cash generated from operating activities and borrowings under our credit facilities.



19



---

For the year ended December 31, 2006, cash used in financing activities of $449,000 consisted
primarily of term and net revolver payments of $9,897,000 and payments on capital leases of $483,000, partially offset by proceeds from our public offering of common stock of $9,609,000 and the proceeds and tax benefit from employee stock option
exercises. For the year ended December 31, 2005, cash used in financing activities of $7,485,000 consisted primarily of term and net revolver payments of $11,600,000 and payments on capital leases of $547,000, partially offset by proceeds from
borrowings under term loans of $4,654,000.

We have credit facilities with GMAC Commercial Finance, LLC (GMAC) and with The CIT
Group/Business Credit, Inc. (CIT). Our Amended and Restated Credit Agreement with GMAC presently provides for a $7,000,000 credit line that is available through August 31, 2007 to finance machinery and equipment purchases. Our CIT
Amended Financing Agreement presently provides for working capital revolving loans of up to the lesser of $14,000,000 or an amount determined by reference to a borrowing base. The GMAC loans are secured by our equipment, and mature on
January 1, 2012. The CIT loans are secured by substantially all of our assets except real estate, fixtures and equipment and mature on June 30, 2009.

At December 31, 2006, there was outstanding $3,762,000 in working capital revolving loans and no term loans outstanding. Availability under the revolving loan fluctuates daily. At December 31, 2006, there
was $8,048,000 in unused availability under the working capital revolving facility.

During May 2006, we consummated an underwritten public
offering of 3,500,000 shares of our common stock, of which 1,750,000 shares were sold by selling stockholders. In June 2006, the underwriters in this offering exercised a portion of their over-allotment option and purchased an additional 407,900
shares of common stock, of which 203,950 shares were sold by a selling stockholder. We received net cash proceeds in this offering, after commissions and offering expenses, of approximately $9,609,000. Net proceeds were used to repay our total
indebtedness then outstanding under our credit facilities. We did not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.

In August 2006, we entered into an Industrial Building Lease (Build to Suit/Triple Net) (the Lease) pursuant to which an approximate 340,000 square feet manufacturing, office and warehouse facility in
Owatonna, Minnesota (the Owatonna Premises) is being constructed to our specifications. Simultaneously with entering into the Lease, we exercised our option under the Lease to acquire the Owatonna Premises for a purchase price of
$14,275,000, subject to adjustment. The closing of the purchase and sale of the Owatonna Premises is subject to standard conditions and will occur upon substantial completion of the improvements, scheduled for June 2007, subject to extension. The
lease of our existing Owatonna facility will terminate in conjunction with the relocation to this new facility. In October 2006, we entered into a loan agreement (the Citizens Loan Agreement) with Citizens Bank of Massachusetts
(Citizens), pursuant to which Citizens has agreed to advance to us up to a $13,000,000 mortgage loan to finance the acquisition of the Owatonna Premises. This loan, which is subject to standard conditions, will be advanced simultaneously
with our acquisition of the Owatonna Premises, currently scheduled for June 2007. The Citizens mortgage loan will be secured by a lien on the Owatonna Premises.

In August 2005, we sold our Owatonna, Minnesota manufacturing, warehouse and office facility and entered into a lease of the Owatonna facility. The lease contains renewal options as well as options to terminate the
lease if we elect to relocate. Due to an option to repurchase the facility originally contained in the lease, the transaction was treated for financial accounting purposes as a financing transaction whereby payments made of $200,000 through December
2005 were recorded as interest expense. On December 23, 2005, the lease was amended to eliminate our option to repurchase the building in exchange for certain services to be provided by the landlord. Accordingly, the transaction has been
accounted for as a sale/leaseback subsequent to December 23, 2005, resulting in a deferred gain of $811,000 at December 31, 2005, of which $177,000 was included in accrued expenses and $634,000 was included in other long-term liabilities
and is being amortized over 21 months. At December 31, 2006, $438,000 of the deferred gain was included in accrued expenses.



20



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We posted a letter of credit of $2,945,722 in connection with our appeal of the judgment in Kirila et
al v. Cybex International, Inc., et al. A portion of this judgment of approximately $2,800,000 was paid in November 2006 and the letter of credit has been returned and canceled. The Court ordered in December 2006 that approximately $523,000 be
added to this judgment for additional fees and costs, which was paid in January 2007, and this litigation is now concluded. We have also posted a letter of credit of $2,888,025 in connection with our appeal of the judgment in Colassi v. Cybex
International, Inc. No payments will be required by us with respect to the Colassi judgment until the end of the appeal process.

We rely upon cash flows from our operations and borrowings under our credit facilities to fund our working capital and capital expenditure requirements. A decline in sales or margins or a failure to remain in compliance with the terms of
our credit facilities could result in having insufficient funds for such purposes. We believe that our cash flows and the availability under our credit facilities are sufficient to fund our general working capital and capital expenditure needs for
at least the next 12 months.

As of December 31, 2006, we had approximately $26,045,000 in net operating loss carryforwards,
substantially all of which will be available to offset 2007 taxable income.



CONTRACTUAL OBLIGATIONS

The following is an aggregated summary of the Companys obligations and commitments to make
future payments under various agreements:



|                              |  |       |            |                   |   |                   |  |                   |           |                 |   |         |  |   |        
|----------------------------- |  | ----- | ---------- | ----------------- | - | ----------------- |  | ----------------- | --------- | --------------- | - | ------- |  | - | -------
|                              |  | TOTAL |            | Less ThanOne Year |   | One to ThreeYears |  | Four to FiveYears |           | After FiveYears
|Contractual obligations:      |  |       |            |                   |   |                   |  |                   |           |                 |   |         |  |   |        
|Debt                          |  | $     | 3,762,000  |                   | $ | 3,762,000         |  | $                 |          |                 | $ |        |  | $ |       
|Royalty agreement             |  |       | 2,160,000  |                   |   | 390,000           |  |                   | 720,000   |                 |   | 720,000 |  |   | 330,000
|Capital lease obligations (a) |  |       | 355,000    |                   |   | 267,000           |  |                   | 88,000    |                 |   |        |  |   |       
|Operating lease commitments   |  |       | 1,374,000  |                   |   | 931,000           |  |                   | 429,000   |                 |   | 14,000  |  |   |       
|Building purchase obligation  |  |       | 14,275,000 |                   |   | 14,275,000        |  |                   |          |                 |   |        |  |   |       
|Purchase obligations          |  |       | 16,383,000 |                   |   | 14,556,000        |  |                   | 1,827,000 |                 |   |        |  |   |       
|                              |  |       |            |                   |   |                   |  |                   |           |                 |   |         |  |   |        
|                              |  | $     | 38,309,000 |                   | $ | 34,181,000        |  | $                 | 3,064,000 |                 | $ | 734,000 |  | $ | 330,000
|                              |  |       |            |                   |   |                   |  |                   |           |                 |   |         |  |   |        

---

|(a) | Includes future interest obligation.
|--- | ------------------------------------

OFF-BALANCE SHEET ARRANGEMENTS

We have a lease financing program, whereby we arrange equipment leases and other financing for certain commercial customers for
selected products. These leases are accounted for as sales-type leases and are generally for terms of three to five years, at which time title transfers to the lessee. While most of these financings are without recourse, in certain cases we may
offer a guaranty or other recourse provisions. At December 31, 2006, the maximum contingent liability under all recourse provisions was approximately $4,638,000. A reserve for estimated losses under recourse provisions of $585,000 has been
recorded based upon historical and industry experience, and is included in accrued liabilities at December 31, 2006.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a threshold of more-likely-than-not for
recognition of tax benefits of uncertain tax positions taken or expected to be taken in a tax return.



21



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FIN 48 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. The provisions of FIN 48 are
effective for the Company on January 1, 2007, with any cumulative effect of the change in accounting principle recorded as an adjustment to opening accumulated deficit. We are in the process of assessing the impact of adopting FIN 48 on our
results of operations and financial position. Based on the analysis completed to date, management does not expect FIN 48 to have a material impact on the consolidated financial statements and disclosures.

CRITICAL ACCOUNTING POLICIES

The Companys
significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. The preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. On an ongoing basis, management evaluates its estimates and judgments, including those related to the allowance for doubtful accounts, realizability of inventory, reserves for warranty
obligations, reserves for legal matters and product liability, recoverability of goodwill and valuation of deferred tax assets. Management bases its estimates and judgments on historical experience and on various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions, which could materially impact the Companys results of operations and financial position. These critical accounting policies and estimates have been discussed with the Companys audit
committee.

Allowance for doubtful accounts. Management performs ongoing credit evaluations of customers and adjusts credit
limits based upon payment history and the customers current credit information. Management continuously monitors collections and payments from customers and maintains a reserve for estimated credit losses based upon historical experience and
any specific customer collection issues that have been identified. If the financial condition of a specific customer or the Companys general customer base were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

Realizability of inventory. The Company values inventory at the lower of cost
(first-in, first-out) or market. Management regularly reviews inventory quantities on-hand and records a provision for excess and obsolete inventory based primarily on estimated forecasts of product demand and historical usage, after considering the
impact of new products. If actual market conditions and product demand are less favorable than projected, additional inventory write-downs may be required.

Warranty reserve. All products are warranted for up to three years for labor and up to ten years for structural frames. Warranty periods for parts range from one to ten years depending on the part and the
type of equipment. A warranty liability is recorded at the time of product sale based on estimates that are developed from historical information and certain assumptions about future events. Future warranty obligations are affected by product
failure rates, usage and service costs incurred in addressing warranty claims. These factors are impacted by the level of new product introductions and the mix of equipment sold to the commercial and consumer markets. If actual warranty costs differ
from managements estimates, adjustments to the warranty liability would be required.

Legal matters. The Company has
recorded a reserve related to certain legal matters for which it is probable that a loss has been incurred and the range of such loss can be determined. With respect to other matters, management has concluded that a loss is only possible or remote
and, therefore, no loss is recorded. As additional information becomes available, the Company will continue to assess whether losses from legal matters are probable, possible or remote, as well as the adequacy of accruals for probable loss
contingencies.



22



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Product liability reserve.Due to the nature of its products, the Company is involved in
certain pending product liability claims and lawsuits. The Company maintains product liability insurance coverage subject to deductibles. Reserves for self-insured retention, including claims incurred but not yet reported, are included in accrued
liabilities in the accompanying consolidated balance sheets, based on managements review of outstanding claims and claims history and consultation with its third-party claims administrators. If actual results vary from managements
estimates, adjustments to the reserve would be required.

Recoverability of goodwill. In assessing the recoverability of
goodwill, management is required to make assumptions regarding estimated future cash flows and other factors to determine whether the fair value of the business supports the carrying value of goodwill and net operating assets. This analysis includes
assumptions and estimates about future sales, costs, working capital, capital expenditures and cost of capital. If these assumptions and estimates change in the future, the Company may be required to record an impairment charge related to goodwill.

Valuation of deferred tax assets. In 2002, we established a full valuation allowance against our deferred tax asset. Effective
July 1, 2006, we reevaluated the need for this valuation allowance in accordance with SFAS No. 109, Accounting for Income Taxes, due to the existence of various factors. Based on this reevaluation, we reduced the valuation
allowance by $14,421,000 effective July 1, 2006. The net deferred tax asset balance of $12,282,000 at December 31, 2006 represents the amount that we believe is more-likely-than-not to be realized and the remaining valuation allowance at
December 31, 2006 is $6,599,000. We will continue to assess the need for the remaining valuation allowance in future periods.Approximately $31,000,000 of income before income taxes is needed to fully realize the Companys recorded
net deferred tax asset and $48,000,000 of future taxable income is needed to fully realize the Companys deferred tax assets. If the estimates and related assumptions relating to the likely utilization of the deferred tax asset change in the
future, the valuation allowance may change accordingly.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|-------- | ---------------------------------------------------------

Interest Rate Risk

The Companys debt portfolio as of December 31, 2006 is comprised of variable rate debt
denominated in U.S. dollars. Changes in interest rates have an impact on the variable portion of the Companys debt portfolio. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows
but does not impact the Companys consolidated balance sheet. At December 31, 2006, the Company had variable rate debt with a carrying value of $3,762,000. A 100 basis point change in interest rates would have impacted interest expense by
$6,000 for the year ended December 31, 2006.

The company has an interest rate swap which effectively converts the rate on a
$13,000,000 mortgage, to be incurred in connection with the purchase of a building in 2007, from a floating rate to a fixed rate throughout the duration of the loan. The change in the fair value of the interest swap is included as a component of
interest expense. The fair value of the interest rate swap is $506,000 at December 31, 2006, and is included in other liabilities.



23



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE



|                                                                                                                                    |  |    
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                                                                             |  | F-2
|                                                                                                                                    | 
|Consolidated Financial Statements:                                                                                                  |  |    
|                                                                                                                                    | 
|Consolidated Balance Sheets as of December 31, 2006 and 2005                                                                        |  | F-3
|                                                                                                                                    | 
|Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004                                          |  | F-4
|                                                                                                                                    | 
|Consolidated Statements of Stockholders Equity and Other Comprehensive Income for the years ended December 31, 2006, 2005 and 2004 |  | F-5
|                                                                                                                                    | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                                          |  | F-6
|                                                                                                                                    | 
|Notes to Consolidated Financial Statements                                                                                          |  | F-7
|                                                                                                                                    | 
|Financial Statement Schedule:                                                                                                       |  |    
|                                                                                                                                    | 
|II. Valuation and Qualifying Accounts for the years ended December 31, 2006, 2005 and 2004                                          |  | S-1

All schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission that are not required under the related instructions or are inapplicable, have been omitted.



F-1



---

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Cybex International, Inc.:

We have audited the consolidated
financial statements of Cybex International, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule 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 financial position of Cybex International, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the
consolidated financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123 (R), Share-Based
Payment.

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 30, 2007



F-2



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                        |  |              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                        |  | December 31, |        
|                                                                                        |  | 2006         |         |   | 2005 |  
|ASSETS                                                                                  |  |              |         |   |      |   |         |  
|Current Assets:                                                                         |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                               |  | $            | 1,419   |   |      | $ | 807     |  
|Accounts receivable, net of allowance of $797 and $689                                  |  |              | 20,296  |   |      |   | 18,320  |  
|Inventories                                                                             |  |              | 9,620   |   |      |   | 9,258   |  
|Prepaid expenses and other                                                              |  |              | 4,176   |   |      |   | 2,707   |  
|Deferred tax asset                                                                      |  |              | 3,509   |   |      |   |        |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total current assets                                                                    |  |              | 39,020  |   |      |   | 31,092  |  
|Property, plant and equipment, net                                                      |  |              | 13,055  |   |      |   | 12,124  |  
|Goodwill                                                                                |  |              | 11,247  |   |      |   | 11,247  |  
|Deferred tax asset                                                                      |  |              | 8,773   |   |      |   |        |  
|Other assets                                                                            |  |              | 1,282   |   |      |   | 1,209   |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  | $            | 73,377  |   |      | $ | 55,672  |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                    |  |              |         |   |      |   |         |  
|Current Liabilities:                                                                    |  |              |         |   |      |   |         |  
|Current maturities of long-term debt                                                    |  | $            | 3,762   |   |      | $ | 3,929   |  
|Current portion of capital leases                                                       |  |              | 248     |   |      |   | 481     |  
|Accounts payable                                                                        |  |              | 5,570   |   |      |   | 5,918   |  
|Accrued expenses                                                                        |  |              | 15,379  |   |      |   | 16,286  |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total current liabilities                                                               |  |              | 24,959  |   |      |   | 26,614  |  
|Long-term debt                                                                          |  |              |        |   |      |   | 9,730   |  
|Capital leases, excluding current portion                                               |  |              | 82      |   |      |   | 332     |  
|Accrued warranty obligation                                                             |  |              | 791     |   |      |   | 510     |  
|Other liabilities                                                                       |  |              | 1,878   |   |      |   | 2,298   |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total liabilities                                                                       |  |              | 27,710  |   |      |   | 39,484  |  
|                                                                                        |  |              |         |   |      |   |         |  
|Commitments and contingencies (Notes 11 and 12)                                         |  |              |         |   |      |   |         |  
|Stockholders Equity:                                                                   |  |              |         |   |      |   |         |  
|Common stock, $.10 par value, 30,000 shares authorized, 17,411 and 15,340 shares issued |  |              | 1,741   |   |      |   | 1,534   |  
|Additional paid-in capital                                                              |  |              | 67,503  |   |      |   | 57,565  |  
|Treasury stock, at cost (209 shares)                                                    |  |              | (2,251  | ) |      |   | (2,251  | )
|Accumulated deficit                                                                     |  |              | (20,476 | ) |      |   | (40,530 | )
|Accumulated other comprehensive loss                                                    |  |              | (850    | ) |      |   | (130    | )
|                                                                                        |  |              |         |   |      |   |         |  
|Total stockholders equity                                                              |  |              | 45,667  |   |      |   | 16,188  |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  | $            | 73,377  |   |      | $ | 55,672  |  
|                                                                                        |  |              |         |   |      |   |         |  

The accompanying notes are an integral part of these statements.



F-3



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                               |  | Year Ended December 31, |        
|                                               |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|Net sales                                      |  | $                       | 126,924 |   |      | $ | 114,646 |      |  | $ | 103,421 |  
|Cost of sales                                  |  |                         | 80,241  |   |      |   | 73,169  |      |  |   | 65,640  |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                   |  |                         | 46,683  |   |      |   | 41,477  |      |  |   | 37,781  |  
|Selling, general and administrative expenses   |  |                         | 36,446  |   |      |   | 33,496  |      |  |   | 30,497  |  
|Litigation charges                             |  |                         |        |   |      |   | 4,605   |      |  |   |        |  
|Bad debt expense                               |  |                         | 311     |   |      |   | 412     |      |  |   | 403     |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                       |  |                         | 36,757  |   |      |   | 38,513  |      |  |   | 30,900  |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating income                               |  |                         | 9,926   |   |      |   | 2,964   |      |  |   | 6,881   |  
|Interest income                                |  |                         | 46      |   |      |   | 5       |      |  |   | 14      |  
|Interest expense                               |  |                         | (1,379  | ) |      |   | (2,657  | )    |  |   | (3,539  | )
|Interest rate swap charge                      |  |                         | (506    | ) |      |   |        |      |  |   |        |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Income before income taxes                     |  |                         | 8,087   |   |      |   | 312     |      |  |   | 3,356   |  
|Income tax (benefit) provision                 |  |                         | (11,967 | ) |      |   | 251     |      |  |   | 131     |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                     |  |                         | 20,054  |   |      |   | 61      |      |  |   | 3,225   |  
|Preferred stock dividends                      |  |                         |        |   |      |   |        |      |  |   | (276    | )
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income attributable to common stockholders |  | $                       | 20,054  |   |      | $ | 61      |      |  | $ | 2,949   |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic net income per share                     |  | $                       | 1.22    |   |      | $ | .00     |      |  | $ | .26     |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted net income per share                   |  | $                       | 1.18    |   |      | $ | .00     |      |  | $ | .24     |  
|                                               |  |                         |         |   |      |   |         |      |  |   |         |  

The accompanying notes are an integral part of these statements.



F-4



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND OTHER
COMPREHENSIVE INCOME

(in thousands)



|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|------------------------------------------------- |  | ------------ |  | --------------- | ----- | ------ | ------------------------- | - | ------ | -------------- | ------ | - | ------------------- | - | ------ | ---------------------------------- |  | - | ------------------------- | - |  | - | ------- | - |  | - | ---- | - |  | - | ------- | -
|                                                  |  | Common Stock |  | Preferred Stock |       |        | AdditionalPaid-in Capital |   |        | Treasury Stock |        |   | Accumulated Deficit |   |        | AccumulatedOtherComprehensive Loss |  |   | TotalStockholders Equity |  
|                                                  |  | Shares       |  | Amount          |       | Shares |                           |   | Amount |                |        |   |                     |   |       
|Balance, January 1, 2004                          |  | 9,077        |  | $               | 907   |        | 33                        |   |        | $              | 4,900  |   |                     | $ | 45,852 |                                    |  | $ | (2,251                    | ) |  | $ | (43,294 | ) |  | $ | (96  | ) |  | $ | 6,018   |  
|Conversion of preferred stock to common           |  | 3,289        |  |                 | 329   |        | (33                       | ) |        |                | (4,900 | ) |                     |   | 4,571  |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   |        |  
|Issuance of common stock                          |  | 2,430        |  |                 | 243   |        |                          |   |        |                |       |   |                     |   | 6,956  |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 7,199   |  
|Exercise of warrants/options                      |  | 470          |  |                 | 47    |        |                          |   |        |                |       |   |                     |   | (40    | )                                  |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 7       |  
|Dividend paid to related party                    |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   | (522    | ) |  |   |     |   |  |   | (522    | )
|Common stock issued to Directors                  |  | 37           |  |                 | 4     |        |                          |   |        |                |       |   |                     |   | 125    |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 129     |  
|Comprehensive income:                             |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Cumulative translation adjustment                 |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   |        |   |  |   | (270 | ) |  |   | (270    | )
|Net income                                        |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   | 3,225   |   |  |   |     |   |  |   | 3,225   |  
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Comprehensive income                              |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   | 2,955   |  
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balance, December 31, 2004                        |  | 15,303       |  |                 | 1,530 |        |                          |   |        |                |       |   |                     |   | 57,464 |                                    |  |   | (2,251                    | ) |  |   | (40,591 | ) |  |   | (366 | ) |  |   | 15,786  |  
|Exercise of options                               |  | 17           |  |                 | 2     |        |                          |   |        |                |       |   |                     |   | 23     |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 25      |  
|Common stock issued to Directors and management   |  | 20           |  |                 | 2     |        |                          |   |        |                |       |   |                     |   | 78     |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 80      |  
|Comprehensive income:                             |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Cumulative translation adjustment                 |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   |        |   |  |   | 133  |   |  |   | 133     |  
|Change in fair value of hedge                     |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   |        |   |  |   | 103  |   |  |   | 103     |  
|Net income                                        |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   | 61      |   |  |   |     |   |  |   | 61      |  
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Comprehensive income                              |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   | 297     |  
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balance, December 31, 2005                        |  | 15,340       |  |                 | 1,534 |        |                          |   |        |                |       |   |                     |   | 57,565 |                                    |  |   | (2,251                    | ) |  |   | (40,530 | ) |  |   | (130 | ) |  |   | 16,188  |  
|Issuance of common stock                          |  | 1,954        |  |                 | 195   |        |                          |   |        |                |       |   |                     |   | 9,414  |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 9,609   |  
|Common stock issued to Directors                  |  | 15           |  |                 | 2     |        |                          |   |        |                |       |   |                     |   | 55     |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 57      |  
|Exercise of warrants/options                      |  | 102          |  |                 | 10    |        |                          |   |        |                |       |   |                     |   | 173    |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 183     |  
|Employee stock compensation                       |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   | 157    |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 157     |  
|Income tax benefit from exercise of stock options |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   | 139    |                                    |  |   |                          |   |  |   |        |   |  |   |     |   |  |   | 139     |  
|Comprehensive income:                             |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Cumulative translation adjustment                 |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   |        |   |  |   | (617 | ) |  |   | (617    | )
|Change in fair value of hedge                     |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   |        |   |  |   | (103 | ) |  |   | (103    | )
|Net income                                        |  |             |  |                 |      |        |                          |   |        |                |       |   |                     |   |       |                                    |  |   |                          |   |  |   | (20,054 | ) |  |   |     |   |  |   | (20,054 | )
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Comprehensive income                              |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   | 19,334  |  
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balance, December 31, 2006                        |  | 17,411       |  | $               | 1,741 |        |                          |   |        | $              |       |   |                     | $ | 67,503 |                                    |  | $ | (2,251                    | ) |  | $ | (20,476 | ) |  | $ | (850 | ) |  | $ | 45,667  |  
|                                                  |  |              |  |                 |       |        |                           |   |        |                |        |   |                     |   |        |                                    |  |   |                           |   |  |   |         |   |  |   |      |   |  |   |         |  

The accompanying notes are an integral part of these statements.



F-5



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                  |  | Year Ended December 31, |         
|                                                                                  |  | 2006                    |          |   | 2005 |   |          | 2004 | 
|OPERATING ACTIVITIES:                                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                        |  | $                       | 20,054   |   |      | $ | 61       |      |  | $ | 3,225    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                     |  |                         | 3,252    |   |      |   | 3,412    |      |  |   | 3,704    |  
|Amortization of deferred financing costs                                          |  |                         | 296      |   |      |   | 560      |      |  |   | 1,021    |  
|Deferred income taxes                                                             |  |                         | (12,143  | ) |      |   |         |      |  |   |         |  
|Stock-based compensation                                                          |  |                         | 211      |   |      |   | 55       |      |  |   | 129      |  
|Provisions for doubtful accounts                                                  |  |                         | 311      |   |      |   | 412      |      |  |   | 403      |  
|Change in fair value of interest rate swap                                        |  |                         | 506      |   |      |   |         |      |  |   |         |  
|Change in fair value of foreign currency contract                                 |  |                         | 162      |   |      |   | (72      | )    |  |   |         |  
|Litigation reserve charge                                                         |  |                         |         |   |      |   | 4,605    |      |  |   |         |  
|Changes in operating assets and liabilities:                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                               |  |                         | (2,287   | ) |      |   | (2,812   | )    |  |   | (2,526   | )
|Inventories                                                                       |  |                         | (362     | ) |      |   | (1,244   | )    |  |   | (104     | )
|Prepaid expenses and other                                                        |  |                         | (2,272   | ) |      |   | (459     | )    |  |   | 1,180    |  
|Accounts payable, accrued liabilities and other liabilities                       |  |                         | (2,516   | ) |      |   | 2,680    |      |  |   | (2,580   | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  |                         | 5,212    |   |      |   | 7,198    |      |  |   | 4,452    |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|INVESTING ACTIVITIES:                                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Purchases of property, plant and equipment                                        |  |                         | (4,151   | ) |      |   | (4,220   | )    |  |   | (2,147   | )
|Proceeds from disposition of building                                             |  |                         |         |   |      |   | 3,488    |      |  |   |         |  
|Deposits related to equipment purchases                                           |  |                         |         |   |      |   |         |      |  |   | (625     | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH USED IN INVESTING ACTIVITIES                                             |  |                         | (4,151   | ) |      |   | (732     | )    |  |   | (2,772   | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|FINANCING ACTIVITIES:                                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Repayments of term loans                                                          |  |                         | (12,320  | ) |      |   | (5,496   | )    |  |   | (19,088  | )
|Repayments of revolving loans                                                     |  |                         | (121,973 | ) |      |   | (115,225 | )    |  |   | (105,710 | )
|Borrowings under revolving loans                                                  |  |                         | 124,396  |   |      |   | 109,121  |      |  |   | 103,317  |  
|Borrowings under term loans                                                       |  |                         |         |   |      |   | 4,654    |      |  |   | 15,000   |  
|Deferred financing costs                                                          |  |                         |         |   |      |   | (17      | )    |  |   | (303     | )
|Proceeds from issuance of common stock, net of costs                              |  |                         | 9,609    |   |      |   |         |      |  |   | 7,199    |  
|Proceeds from exercise of stock options and warrants                              |  |                         | 183      |   |      |   | 25       |      |  |   | 7        |  
|Tax benefit from employee stock options                                           |  |                         | 139      |   |      |   |         |      |  |   |         |  
|Dividends paid to related party                                                   |  |                         |         |   |      |   |         |      |  |   | (522     | )
|Principal payments on capital leases                                              |  |                         | (483     | ) |      |   | (547     | )    |  |   | (503     | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH USED IN FINANCING ACTIVITIES                                             |  |                         | (449     | ) |      |   | (7,485   | )    |  |   | (603     | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                         | 612      |   |      |   | (1,019   | )    |  |   | 1,077    |  
|CASH, beginning of year                                                           |  |                         | 807      |   |      |   | 1,826    |      |  |   | 749      |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS, end of year                                            |  | $                       | 1,419    |   |      | $ | 807      |      |  | $ | 1,826    |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                  |  |                         |         
|SUPPLEMENTAL CASH FLOW DISCLOSURE:                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid for interest                                                            |  | $                       | 891      |   |      | $ | 1,542    |      |  | $ | 2,349    |  
|Cash paid for income taxes                                                        |  |                         | 339      |   |      |   | 223      |      |  |   | 39       |  
|Capital leases                                                                    |  |                         |         |   |      |   | 304      |      |  |   | 536      |  
|Conversion of preferred stock to common stock                                     |  |                         |         |   |      |   |         |      |  |   | 4,900    |  
|Common stock issued to directors earned in previous period                        |  |                         | 52       |   |      |   | 77       |      |  |   |         |  

The accompanying notes are an integral part of these statements.



F-6



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1BACKGROUND

Cybex International, Inc.
(the Company or Cybex), a New York corporation, is a manufacturer of exercise equipment and develops, manufactures and markets strength and cardiovascular fitness equipment products for the commercial and, to a lesser extent,
consumer markets. Currently, most of the Companys products are sold under the brand name Cybex. The Company operates in one business segment.

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. The allowance for doubtful accounts, inventory reserve, warranty reserve, reserves for legal and product liability matters, recoverability of goodwill and valuation of deferred tax
assets are the items that are most susceptible to estimates.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of December 31,
2006, the Companys cash equivalents was comprised of a money market account. There were no cash equivalents at December 31, 2005. The carrying value of cash equivalents approximates fair value.

Trade Accounts Receivable

Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is managements best estimate of the amount of probable credit losses in the Companys existing accounts receivable.
Management determines the allowance based on historical write-off experience and a specific review of past due balances over a specified amount. Management reviews the Companys allowance for doubtful accounts monthly. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. Cost includes materials, labor and
manufacturing overhead.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Betterments and improvements are capitalized while repairs and maintenance costs are charged to expense as incurred. Depreciation is recorded using the straight-line
method based on estimated useful lives for financial reporting purposes and various prescribed methods for tax purposes. The estimated useful lives for financial reporting purposes are 25 years for buildings and improvements and three to ten years
for furniture and equipment.



F-7



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



Internal Use Software Costs

Under the provisions of AICPA Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, the Company capitalizes certain costs associated with software for internal use. Capitalization of qualified costs incurred during the application development stage begins when the preliminary project stage is complete and ceases
when the project is substantially complete and ready for its intended purpose. Capitalized costs include hardware, software and services and payroll and payroll-related expenses for employees who were directly associated with developing and
implementing internal use software primarily associated with the Companys Enterprise Resource Planning system. Such costs are included within property, plant and equipment and are being amortized over seven years. As of December 31, 2006
and 2005, the net carrying value of internal use software was $1,846,000 and $1,808,000, respectively. In 2005, the Company capitalized $70,000 in payroll and payroll related expenses relating to internal use software. No such costs were capitalized
during the years ended December 31, 2006 or 2004.

Impairment of Long-Lived Assets

The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, and, accordingly, long-lived assets, including property, plant and equipment and amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets. All long-lived assets
are accounted for as entity level assets under SFAS No. 144 because there are no asset groups with identifiable cash flows that are largely independent of the cash flows of other assets. If a write down was necessary, an impairment charge would
be recognized equal to the amount by which the carrying amount of the assets exceeds their fair value, as determined based upon quoted market prices or discounted cash flows. Management believes that no long-lived assets were impaired as of
December 31, 2006 and 2005.

Goodwill

Goodwill represents the excess of costs over the fair value of the net assets of businesses acquired. The Company follows the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. Pursuant
to SFAS No. 142, goodwill is not amortized, but instead, is tested annually for impairment, or more frequently if events occur or circumstances change that would more-likely-than-not reduce the fair value of the reporting unit below its
carrying amount, such as a significant adverse change in business climate, unanticipated competition or a loss of key personnel. The Company operates as one reporting unit. To the extent that the carrying amount of the reporting unit exceeds the
fair value of the reporting unit, management would be required to perform the second step of the impairment test. Under the second step of the impairment test, management would compare the implied fair value of the reporting unit goodwill with the
carrying amount of the reporting unit goodwill. The implied fair value of goodwill would be determined by allocating the fair value of the reporting unit to all of the assets and liabilities (recognized and unrecognized) of the reporting unit in a
manner similar to a purchase price allocation, in accordance with SFAS No. 141, Business Combinations. The residual fair value after this allocation would be the implied fair value of the reporting unit goodwill. Management
determines the fair value of its reporting unit based on an average of (i) a discounted cash flow analysis; (ii) private sale comparables; and (iii) market capitalization, as adjusted for a control premium. Management determined that
goodwill was not impaired at December 31, 2006 and 2005.

Accrued Warranty Obligations

All products are warranted for up to three years for labor and up to ten years for structural frames. Warranty periods for parts range from one to ten
years depending on the part and the type of equipment. Warranty expense



F-8



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



was $3,323,000, $3,048,000 and $2,512,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The accrued warranty obligation is
recorded at the time of product sale based on management estimates, which are developed from historical information and certain assumptions about future events and are subject to change.

The following table sets forth the changes in the liability for product warranties for the years ended December 31, 2006 and 2005:



|                                      |  |                         |            |   |      |   |            |  
|------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                      |  | Year Ended December 31, |           
|                                      |  | 2006                    |            |   | 2005 |  
|Balance as of January 1               |  | $                       | 2,875,000  |   |      | $ | 2,235,000  |  
|Payments made under warranty          |  |                         | (3,001,000 | ) |      |   | (2,408,000 | )
|Accrual for product warranties issued |  |                         | 3,323,000  |   |      |   | 3,048,000  |  
|                                      |  |                         |            |   |      |   |            |  
|Balance as of December 31             |  | $                       | 3,197,000  |   |      | $ | 2,875,000  |  
|                                      |  |                         |            |   |      |   |            |  

Derivatives

The Company follows SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, to account for derivatives.

At December 31, 2006, derivative instruments include an interest rate swap and 13
forward contracts, of which three remain outstanding at December 31, 2006, that hedge the foreign currency exposure of sales made in the UK in British Sterling. The interest rate swap and forward contracts are not considered eligible for hedge
accounting in accordance with SFAS No. 133 (see Note 7).

Translation of Foreign Currencies

Assets and liabilities of the Companys foreign subsidiary, whose functional currency is its local currency, is translated at year-end exchange
rates. Income and expense items are translated at the average rates of exchange prevailing during the year. The adjustment resulting from translating the financial statements of such foreign subsidiary is reflected in accumulated other comprehensive
loss within stockholders equity.

Fair Value of Financial Instruments

The Companys financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, capital leases and
long-term debt. The carrying values of cash equivalents, accounts receivable and accounts payable are considered to be representative of their respective fair values because of the short maturity of these instruments. Based on the terms of the
Companys debt instruments (including the capital leases) that are outstanding as of December 31, 2006, the carrying values are considered to approximate their respective fair values. See Note 7 for the terms and carrying values of the
Companys various debt instruments.

Revenue Recognition

Revenue is recorded when products are shipped and the Company has no significant remaining obligations, persuasive evidence of an arrangement exists, the
price to the buyer is fixed or determinable, and collection of the relevant receivable is probable. The Company does not offer its customers a right of return, price protection



F-9



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



or inventory rotation programs. In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling
Fees and Costs, the Company classifies amounts billed to customers for shipping and handling as sales. Direct shipping and handling costs are classified as cost of sales. Internal salaries and overhead related to shipping and handling are
classified as selling, general and administrative expense.

Concentration of Risk, Geographic Segment Data and Enterprise-Wide
Disclosures

More than half of the Companys net sales are through specialty fitness dealers and distributors. Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. Sales to one customer in 2006, 2005 and 2004 were 15.2%, 15.4% and 15.9% of net sales, respectively. Accounts
receivable from that customer was $1,691,000 and $1,732,000 at December 31, 2006 and 2005, respectively. No other single customer accounted for more than 10% of the Companys net sales in any of those years.

There was no single geographic area of significant concentration other than the U.S. Sales outside of North America accounted for approximately 27%, 29%
and 29% of total net sales for the years ended December 31, 2006, 2005 and 2004, respectively. Long-lived assets located in foreign countries totaled $135,000 and $92,000 at December 31, 2006 and 2005, respectively.

The Company single sources its stepper and Home Arc products and certain raw materials and component parts, including drive motors, belts, running decks,
molded plastic components and electronics, where management believes that sole sourcing is beneficial for reasons such as quality control and reliability of the vendor or cost. The Company attempts to reduce the risk of sole source suppliers by
maintaining varying levels of inventory. However, the loss of a significant supplier, or delays or disruptions in the delivery of components or materials, or increases in material costs, could have a material adverse effect on the Companys
operations.

The following table summarizes net sales over the past three years (in millions):



|                          |  |                         |       |      |   |       |  |   |      
|------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                          |  | Year Ended December 31,
|                          |  | 2006                    |       | 2005 |   | 2004 
|Cardiovascular products   |  | $                       | 68.7  |      | $ | 62.3  |  | $ | 48.7 
|Strength systems          |  |                         | 47.0  |      |   | 41.1  |  |   | 43.6 
|Parts                     |  |                         | 5.9   |      |   | 5.7   |  |   | 6.3  
|Freight and other revenue |  |                         | 5.3   |      |   | 5.5   |  |   | 4.8  
|                          |  |                         |       |      |   |       |  |   |      
|                          |  | $                       | 126.9 |      | $ | 114.6 |  | $ | 103.4
|                          |  |                         |       |      |   |       |  |   |      

Advertising Costs

The Company charges advertising costs to expense as incurred. For the years ended December 31, 2006, 2005 and 2004, advertising expense was
$2,150,000, $2,142,000 and $1,556,000, respectively, and is included in selling, general and administrative expenses.

Research
and Development Costs

Research and development costs are charged to expense as incurred. Such costs were $4,812,000, $3,982,000, and
$3,172,000 for the years ended December 31, 2006, 2005 and 2004, respectively, and are included in selling, general and administrative expenses.



F-10



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in
the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more-likely-than-not that such assets will not be realized.

Net Income per Common Share

The
table below sets forth the reconciliation of the basic and diluted net income per share computations:



|                                                      |  |                         |            |      |   |            |  |   |           
|----------------------------------------------------- |  | ----------------------- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                      |  | Year Ended December 31,
|                                                      |  | 2006                    |            | 2005 |   | 2004      
|Net income attributable to common stockholders        |  | $                       | 20,054,000 |      | $ | 61,000     |  | $ | 2,949,000 
|                                                      |  |                         |            |      |   |            |  |   |           
|Shares used in computing basic net income per share   |  |                         | 16,397,000 |      |   | 15,122,000 |  |   | 11,359,000
|Dilutive effect of options and warrants               |  |                         | 656,000    |      |   | 586,000    |  |   | 708,000   
|Dilutive effect of preferred stock                    |  |                         |           |      |   |           |  |   | 288,000   
|                                                      |  |                         |            |      |   |            |  |   |           
|Shares used in computing diluted net income per share |  |                         | 17,053,000 |      |   | 15,708,000 |  |   | 12,355,000
|                                                      |  |                         |            |      |   |            |  |   |           

For purposes of presenting diluted net income per share in 2004, the Company assumed the
conversion of the convertible preferred stock as of the earliest possible conversion date, which was June 30, 2004.

For the years
ended December 31, 2006, 2005 and 2004, options to purchase 30,000, 62,000 and 73,000 shares of common stock at exercise prices of $7.37 and ranging from $3.70 to $4.32, and $3.70 to $11.75 per share, respectively, were outstanding but were not
included in the computation of diluted net income per share as the result would be anti-dilutive.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
No. 123R). SFAS No. 123R supersedes SFAS No. 123, Accounting for Stock-Based Compensation, and Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and its related interpretations. SFAS No. 123R requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments, with such cost recognized over the period that the
employee is required to perform services in exchange for the award. SFAS No. 123R also requires measurement of the cost of employee services received in exchange for an award based on the grant date fair value of the award. The Company adopted
SFAS No. 123R using the modified prospective method. Accordingly, prior period amounts have not been restated. Under this method, the Company is required to record compensation expense for all awards granted or modified after the date of
adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. For 2006, the Company recorded stock-based compensation expense of $211,000, consisting of expenses related to stock options issued
to employees ($157,000) and restricted stock to be issued to directors ($54,000). This stock-based compensation charge decreased net income by $150,000 and had no effect on basic and diluted net income per share for 2006. Cash received from the
exercise of stock options for 2006 totaled $183,000.



F-11



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



Before the adoption of SFAS No. 123R, the Company applied APB Opinion No. 25 to account for
its stock-based awards. Under APB Opinion No. 25, the Company was not required to recognize compensation expense for the cost of stock options. Had the Company adopted SFAS No. 123R during 2005 and 2004, the impact would have been as
follows:



|                                                                                                                    |  |                         |          |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | --------- | -
|                                                                                                                    |  | Year Ended December 31, |         
|                                                                                                                    |  | 2005                    |          |   | 2004 |  
|Net income attributable to common stockholders:                                                                     |  |                         |          |   |      |   |           |  
|As reported                                                                                                         |  | $                       | 61,000   |   |      | $ | 2,949,000 |  
|Add: Stock-based compensation included in net income                                                                |  |                         | 55,000   |   |      |   | 129,000   |  
|Deduct: Total stock-based employee compensation expense determined under the fair-value based method for all awards |  |                         | (358,000 | ) |      |   | (246,000  | )
|                                                                                                                    |  |                         |          |   |      |   |           |  
|Pro forma net income (loss) attributable to common stockholders                                                     |  | $                       | (242,000 | ) |      | $ | 2,832,000 |  
|                                                                                                                    |  |                         |          |   |      |   |           |  
|Basic net income (loss) per share:                                                                                  |  |                         |          |   |      |   |           |  
|As reported                                                                                                         |  | $                       | .00      |   |      | $ | .26       |  
|                                                                                                                    |  |                         |          |   |      |   |           |  
|Pro forma                                                                                                           |  | $                       | (.02     | ) |      | $ | .25       |  
|                                                                                                                    |  |                         |          |   |      |   |           |  
|                                                                                                                    |  |                        
|Diluted net income (loss) per share:                                                                                |  |                         |          |   |      |   |           |  
|As reported                                                                                                         |  | $                       | .00      |   |      | $ | .24       |  
|                                                                                                                    |  |                         |          |   |      |   |           |  
|Pro forma                                                                                                           |  | $                       | (.02     | ) |      | $ | .23       |  
|                                                                                                                    |  |                         |          |   |      |   |           |  

The weighted average fair value of each stock option granted during the years ended
December 31, 2006 and 2004 was $5.68 and $.81, respectively. No stock options were issued in 2005. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:



|                        |  |                        |   |  |         |  
|----------------------- |  | ---------------------- | - |  | ------- | -
|                        |  | Year Ended December 31 |  
|                        |  | 2006                   |   |  | 2004    |  
|Risk free interest rate |  | 4.56                   | % |  | 3.9     | %
|Expected dividend yield |  |                       |   |  |        |  
|Expected life           |  | 6.25 years             |   |  | 7 years |  
|Expected volatility     |  | 89                     | % |  | 50      | %

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a threshold of more-likely-than-not for recognition of tax benefits
of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. The provisions of FIN 48 will be effective for the
Company on January 1, 2007, with any cumulative effect of the change in accounting principle recorded as an adjustment to opening accumulated deficit. The Company is in the process of assessing the impact of adopting FIN 48 on its results of
operations and financial position. Based on the analysis completed to date, management does not expect FIN 48 to have a material impact on the consolidated financial statements and disclosures.



F-12



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 3INVENTORIES

Inventories consist of the following:



|                |  |              |           |      |   |          
|--------------- |  | ------------ | --------- | ---- | - | ---------
|                |  | December 31,
|                |  | 2006         |           | 2005
|Raw materials   |  | $            | 5,235,000 |      | $ | 4,989,000
|Work in process |  |              | 2,208,000 |      |   | 2,110,000
|Finished goods  |  |              | 2,177,000 |      |   | 2,159,000
|                |  |              |           |      |   |          
|                |  | $            | 9,620,000 |      | $ | 9,258,000
|                |  |              |           |      |   |          

NOTE 4PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:



|                                             |  |              |            |   |      |   |             |  
|-------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ----------- | -
|                                             |  | December 31, |           
|                                             |  | 2006         |            |   | 2005 |  
|Land, building and improvements              |  | $            | 5,449,000  |   |      | $ | 5,554,000   |  
|Equipment, computers, software and furniture |  |              | 14,297,000 |   |      |   | 26,816,000  |  
|                                             |  |              |            |   |      |   |             |  
|                                             |  |              | 19,746,000 |   |      |   | 32,370,000  |  
|Less-accumulated depreciation                |  |              | (6,691,000 | ) |      |   | (20,246,000 | )
|                                             |  |              |            |   |      |   |             |  
|                                             |  | $            | 13,055,000 |   |      | $ | 12,124,000  |  
|                                             |  |              |            |   |      |   |             |  

Depreciation expense was $3,205,000, $3,275,000 and $3,567,000 for the years ended
December 31, 2006, 2005 and 2004, respectively.

NOTE 5OTHER ASSETS

Other assets consist of the following:



|                                   |  |              |           |      |   |          
|---------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                   |  | December 31,
|                                   |  | 2006         |           | 2005
|Deferred financing costs, net      |  | $            | 136,000   |      | $ | 439,000  
|Other amortizable intangibles, net |  |              | 24,000    |      |   | 71,000   
|Other assets                       |  |              | 1,122,000 |      |   | 699,000  
|                                   |  |              |           |      |   |          
|                                   |  | $            | 1,282,000 |      | $ | 1,209,000
|                                   |  |              |           |      |   |          

Amortization expense of other intangibles was $47,000, $137,000 and $137,000 for the years ended
December 31, 2006, 2005 and 2004, respectively. The remaining balance of other amortizable intangibles of $24,000 at December 31, 2006 will be amortized through 2014.



F-13



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 5OTHER ASSETS  (continued)



In connection with the financings described in Note 7, the Company incurred debt issuance costs
consisting of brokerage fees, warrants and legal fees, which are included within other assets at December 31, 2006, net of accumulated amortization. The Company is amortizing these costs on a straight-line basis, which approximates the
effective interest rate method, over the term of the related debt. The unamortized balance of deferred financing costs of approximately $340,000 was charged to expense in the third quarter of 2004 upon the repayment of the Hilco loan (see Note 7).
Amortization expense related to deferred financing costs was $296,000, $560,000 and $1,021,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

NOTE 6ACCRUED LIABILITIES

Accrued liabilities consist of the following:



|                                         |  |              |            |      |   |           
|---------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                         |  | December 31,
|                                         |  | 2006         |            | 2005
|Current portion of warranty reserves     |  | $            | 2,406,000  |      | $ | 2,365,000 
|Self insurance reserves                  |  |              | 1,996,000  |      |   | 1,769,000 
|Litigation reserve and professional fees |  |              | 4,033,000  |      |   | 6,488,000 
|Payroll related and other                |  |              | 6,944,000  |      |   | 5,664,000 
|                                         |  |              |            |      |   |           
|                                         |  | $            | 15,379,000 |      | $ | 16,286,000
|                                         |  |              |            |      |   |           

NOTE 7LONG-TERM DEBT AND DERIVATIVES

Long-Term Debt

Long-term debt
consists of the following:



|                                   |  |              |            |   |      |   |            |  
|---------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                   |  | December 31, |           
|                                   |  | 2006         |            |   | 2005 |  
|CIT working capital revolving loan |  | $            | 3,762,000  |   |      | $ | 1,339,000  |  
|CIT term loan                      |  |              |           |   |      |   | 5,069,000  |  
|GMAC real estate term loan         |  |              |           |   |      |   | 5,860,000  |  
|GMAC equipment credit line         |  |              |           |   |      |   | 1,391,000  |  
|                                   |  |              |            |   |      |   |            |  
|                                   |  |              | 3,762,000  |   |      |   | 13,659,000 |  
|Lesscurrent portion               |  |              | (3,762,000 | ) |      |   | (3,929,000 | )
|                                   |  |              |            |   |      |   |            |  
|                                   |  | $            |           |   |      | $ | 9,730,000  |  
|                                   |  |              |            |   |      |   |            |  

In July 2004, the Company entered into a credit agreement with GMAC Commercial Finance, LLC
(GMAC) (the GMAC Credit Agreement) and entered into an amendment of a financing agreement with The CIT Group/Business Credit, Inc. (CIT) (as amended, the CIT Amended Financing Agreement). The GMAC
Credit Agreement provided for a $13,000,000 term loan, the proceeds of which were used to retire in full the $11,000,000 term loan under a prior financing agreement with Hilco Capital LP (the Hilco Financing Agreement), repay a
$1,600,000 term loan from CIT and pay financing costs. The unamortized balance of the deferred financing costs under the Hilco Financing Agreement of approximately $340,000 was charged to expense in the third quarter of 2004 upon the repayment of
the Hilco loan. The Company prepaid $3,000,000 of



F-14



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 7LONG-TERM DEBT AND DERIVATIVES  (continued)



the GMAC term loan in September 2004 with the proceeds from a common stock private placement. On February 1, 2005, the Company entered into an amendment
and restatement of the GMAC Credit Agreement that provided for a new equipment credit line pursuant to which the Company received aggregate advances of $1,654,000 to finance equipment and machinery purchases, which advances were represented by a
term note. In August 2005, the Company utilized a portion of the proceeds from the sale/leaseback transaction described below to prepay $3,067,000 of the GMAC term loan. The GMAC Credit Agreement was further amended and restated in January 2006 to
include a $5,000,000 credit line that was available through December 15, 2006 to finance the purchase of machinery and equipment; no advances were requested or made under this credit line. On June 30, 2006, the outstanding loans under the
GMAC Credit Agreement were prepaid in full from the proceeds of the Companys common stock public offering (see Note 8). In December 2006, the Company entered into a further amendment and restatement of the GMAC Credit Agreement with GMAC (as
restated, the GMAC Amended Credit Agreement), which provides for a $7,000,000 credit line available through August 31, 2007 to finance the purchase of machinery and equipment. Such advances will mature on January 1, 2012 and
will be secured by the Companys equipment.

The CIT Amended Financing Agreement provided for a term loan with an original balance of
$4,000,000 and working capital revolving loans of up to the lesser of $14,000,000 or an amount determined by reference to a borrowing base. In May 2005, the Company entered into an amendment to the CIT Amended Financing Agreement which increased the
then outstanding term loan from $3,250,000 to $6,250,000. On May 22, 2006, the CIT term loan was prepaid in full from the proceeds from the Companys common stock public offering (see Note 8). On June 30, 2006, the CIT Amended
Financing Agreement was further amended to, among other things, extend the working capital revolving loan availability through June 30, 2009. In October 2006, the CIT Amended Financing Agreement was again amended to, among other things, permit
the capital expenditures and the mortgage financing to be incurred in connection with the Companys new facility in Owatonna, Minnesota (described below). The CIT loans are secured by substantially all assets of the Company other than real
estate, fixtures and equipment.

At December 31, 2006, there was $3,762,000 in working capital loans outstanding. Availability under
the revolving loan fluctuates daily. At December 31, 2006, there was $8,048,000 in unused availability under the working capital revolving loan.

The CIT working capital revolving loan bears interest at rates ranging between LIBOR plus 1.75% to 2.50% or the prime rate less .25% to plus .50% based on a performance grid (8% at December 31, 2006) (prior to
June 30, 2006, LIBOR plus 2.50% to 3.25% or the prime rate less .25% to plus .50% based on a performance grid). The CIT term loan bore interest at the prime rate plus 3%, with a minimum of 7% (prior to July 13, 2004, a $3,000,000 CIT term
loan bore interest at the prime rate plus 5% with a minimum rate of 10%). The GMAC term loans bore interest, payable monthly, at LIBOR plus 4% or the prime rate plus 1% (prior to September 1, 2004, LIBOR plus 5% or the prime rate plus 2%) and
the advances under the equipment line bear interest at LIBOR plus 3.25% or the prime rate plus 1%. The prime rate was 8.25% and LIBOR was 5.3% at December 31, 2006. The Hilco loan bore interest at the prime rate plus 11.5%, with a minimum of
15.5%.

The average outstanding working capital loan balance during 2006, 2005, and 2004 was approximately $623,000, $2,211,000, and
$7,658,000, respectively, and the weighted average interest rate was 7.71%, 5.94% and 4.0%, respectively. Interest expense on the working capital loan was $106,000, $188,000, and $395,000 for the years ended December 31, 2006, 2005, and 2004,
respectively. Interest expense on the CIT term loans was $216,000, $453,000 and $319,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Interest expense on the GMAC term loans was $309,000, $688,000, and $333,000 for the
years ended December 31, 2006, 2005, and 2004, respectively.



F-15



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 7LONG-TERM DEBT AND DERIVATIVES  (continued)



The GMAC Amended Credit Agreement and the CIT Amended Financing Agreement require the Company to
maintain certain financial covenants including maintaining a minimum fixed charge ratio, a leverage ratio and a limitation on annual capital expenditures. The Company was in compliance with these covenants as of December 31, 2006. The CIT
Amended Financing Agreement also restricts the ability of the Company to pay cash dividends. The CIT Amended Financing Agreement and the GMAC Amended Credit Agreement each contains a cross default provision to the other.

At December 31, 2006, long-term debt maturities are as follows:



|                                       |  |   |            |  
|-------------------------------------- |  | - | ---------- | -
|2007                                   |  | $ | 3,762,000  |  
|2008                                   |  |   |           |  
|2009                                   |  |   |           |  
|2010                                   |  |   |           |  
|2011                                   |  |   |           |  
|                                       |  |   |            |  
|                                       |  |   | 3,762,000  |  
|Less current portion of long-term debt |  |   | (3,762,000 | )
|                                       |  |   |            |  
|                                       |  | $ |           |  
|                                       |  |   |            |  

In August 2005, the Company sold its manufacturing, warehouse and office facility located in
Owatonna, Minnesota for approximately $3,600,000, of which $3,067,000 was used to prepay a portion of the GMAC term loan, $123,000 was used to pay a prepayment fee in connection therewith and $400,000 was used to prepay a portion of the CIT term
loan. Simultaneously with the sale of the Owatonna facility, the Company and the purchaser entered into a lease of the Owatonna facility with an initial term of five years at a rental rate of $40,000 per month, plus operating costs. The lease
contains renewal options as well as options to terminate the lease if the Company elects to relocate. Due to the option to repurchase the facility originally contained in the lease, the transaction was treated for financial accounting purposes as a
financing transaction and payments made of $200,000 through December 2005 were recorded as interest expense. On December 23, 2005, the lease was amended to eliminate the Companys option to repurchase the building in exchange for certain
services to be provided by the landlord. Accordingly, the transaction has been accounted for as a sale/leaseback subsequent to December 23, 2005 resulting in a deferred gain of $811,000 at December 31, 2005, which is being amortized over
21 months. At December 31, 2006 and December 31, 2005, $438,000 and $177,000, respectively, of the deferred gain was included in accrued expenses and $0 and $634,000, respectively, was included in other long-term liabilities.

In August 2006, Cybex entered into an Industrial Building Lease (Build to Suit/Triple Net) (the Lease). Pursuant to the Lease, the lessor
has agreed to construct to the Companys specifications an approximate 340,000 square feet manufacturing, office and warehouse facility in Owatonna, Minnesota (the Owatonna Premises). Simultaneously with entering into the Lease,
Cybex exercised its option under the Lease to acquire the Owatonna Premises for a purchase price of $14,275,000, subject to adjustment. The closing of the purchase and sale of the Owatonna Premises is subject to standard conditions and will occur
upon substantial completion of the improvements, scheduled for June 1, 2007, subject to extension. The lease of the existing Owatonna facility will terminate in conjunction with a relocation to this new facility.

In October 2006, the Company entered into a Loan Agreement (the Citizens Loan Agreement) with Citizens Bank of Massachusetts
(Citizens), pursuant to which Citizens has agreed to advance to the Company $13,000,000 under a mortgage loan to finance the acquisition of the Owatonna Premises. This loan, which is subject to standard conditions, will be advanced
simultaneously with the Companys acquisition of the



F-16



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 7LONG-TERM DEBT AND DERIVATIVES  (continued)



Owatonna Premises. The Citizens mortgage loan will be secured by a lien on the Owatonna Premises and, pending disbursement of the mortgage loan, the
Company has agreed not to incur or permit any liens on its Medway, Massachusetts property. While the mortgage loan will bear interest at a floating rate equal to LIBOR plus 1.20% per annum, the Company has entered into a related interest rate
swap agreement with Citizens which locks in an interest rate of 6.95% per annum through July 2014.

UM Holdings, Ltd. (UM)
provided the collateral to support a $2,945,722 letter of credit in the Companys appeal of the judgment in the litigation, Kirila et al v. Cybex International, Inc., et al (see Note 12), which was replaced during the second quarter of
2005 by a letter of credit issued under the CIT Amended Financing Agreement. This letter of credit was returned and cancelled after the payment of a portion of the Kirila judgment in November 2006. A $2,888,025 letter of credit has also been issued
under the CIT Amended Financing Agreement in connection with the Companys appeal of the judgment in the litigation, Colassi v. Cybex International, Inc. (see Note 12). Letters of credit outstanding under the CIT Amended Financing
Agreement reduce availability under the revolving loan facility.

Derivatives

On September 8, 2004, the Company entered into two interest rate caps with a financial intermediary to lock in one-month LIBOR at a maximum of 3% for
the two-year period ended September 8, 2006 related to the Companys GMAC term debt facility and CIT working capital revolving loan credit facility. The cost of the interest rate caps was approximately $97,000. On May 31, 2006, the
Company terminated its agreement with the financial intermediary and received proceeds of $79,000. The interest rate caps were accounted for as cash flow hedges and the cost of the interest rate caps was being amortized on a straight-line basis over
two years, which approximated the period during which the individual caplets related to each forecasted interest payment were to expire. Changes in the fair value of the interest rate caps were recorded within accumulated other comprehensive loss.
For 2006 and 2005, the change in the fair value of the interest rate caps was a decrease of $24,000 and an increase of $103,000, respectively.

On February 28, 2005, the Company entered into a series of 13 forward contracts with the final contract completed March 31, 2006, whereby Cybex paid a bank 140,212 British Sterling and the bank paid the Company $265,000 each
month. In February 2006, the Company entered into a series of 12 monthly forward contracts, that began on April 1, 2006, whereby the Company pays a bank 150,000 British Sterling and the bank pays the Company $265,000 each month. The purpose of
these transactions is to hedge the foreign currency exposure on sales made in the UK in British Sterling. The Company UKs sales are in British Sterling while its purchases of inventory from the Company are paid in U.S. dollars. The above
transactions are not considered eligible for hedge accounting based on guidance in SFAS No. 133, as amended. The change in fair value of the hedge resulted in a loss of $162,000 and a gain of $72,000 for the years ended December 31, 2006 and
2005, respectively.

On June 29, 2006, the Company entered into an interest rate swap agreement with Citizens to hedge a LIBOR based loan
that will be initiated on July 1, 2007. The notional amount of the swap amortizes based on the same amortization schedule as the related Owatonna facility mortgage debt and the hedged item (one-month LIBOR) is the same as the basis for the
interest rate on the mortgage. The swap effectively converts the rate from a floating rate based on LIBOR to a 6.95% fixed rate throughout the duration of the loan. The swap and interest payments on the debt will settle monthly. The mortgage debt
and the swap both expire on June 30, 2014. There was no initial cost of the interest rate swap. The change in the fair value of the interest rate swap is included as the component of interest expense. During the year ended December 31, 2006,
the Company recorded $506,000 of expense related to this interest rate swap (see Note 14). The fair value of the interest rate swap is included in other liabilities at December 31, 2006.



F-17



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 8STOCKHOLDERS EQUITY



Preferred Stock

The Companys Board has the ability to issue, without approval by the common stockholders, up to 500,000 additional shares of preferred stock having rights and preferences as the Board may determine in its sole
discretion.

Common Stock

On
May 22, 2006, the Company consummated a public offering of 3,500,000 shares of common stock at $5.50 per share. Of the total shares offered, 1,750,000 shares were issued by the Company and 1,750,000 shares were sold by the selling stockholders.
The Company also granted the underwriters of the offering an option to purchase up to an additional 525,000 shares of common stock on the same terms equally split between the Company and the selling stockholders. In June 2006, the underwriters
exercised a portion of their over-allotment option and purchased an additional 407,900 shares of common stock at the offering price of $5.50 per share. Of the over-allotment shares, 203,950 shares were issued and sold by the Company and 203,950 were
sold by a selling stockholder. The net proceeds to the Company in this offering, after commissions and offering expenses, were approximately $9,609,000. The Company did not receive any proceeds from the shares of common stock sold by the selling
shareholders.

On August 2, 2004, the Company issued 3,288,600 shares of common stock upon exercise by the holder of the
Companys preferred stock of its rights to convert all such outstanding preferred shares into common stock.

On August 5, 2004,
the Company consummated a private placement to accredited investors of 2,430,000 shares of common stock, at a price of $3.30 per share. The net proceeds to the Company in this offering, after commissions and offering expenses, were approximately
$7,199,000. Additionally, in connection with the private placement, the Company issued to the placement agent and its affiliates warrants to purchase 25,000 shares of the Companys common stock at an exercise price of $.10 per share. The
warrants have a term of five years.

At December 31, 2006, there are 1,867,990 shares of common stock reserved for future issuance
pursuant to the exercise or issuance of stock options and warrants.

Warrants

On November 27, 2006, a warrant holder exercised in full its warrant to purchase 11,250 shares of the common stock of the Company. Pursuant to the
net exercise provisions of this warrant, the Company issued 11,074 shares of its common stock to the warrant holder. This warrant was issued in connection with the 2004 private placement.

On October 24, 2006, a warrant holder exercised in full its warrant to purchase 400 shares of the common stock of the Company. Pursuant to the net
exercise provisions of this warrant, the Company issued 394 shares of its common stock to the warrant holder. This warrant was issued in connection with the 2004 private placement.

On October 28, 2004, a warrant holder exercised in full its warrant to purchase 176,619 shares of the common stock of the Company. Pursuant to the
net exercise provisions of this warrant, the Company issued to the warrant holder 119,302 shares of its common stock. This warrant was issued in connection with a debt arrangement in 2003.



F-18



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 8STOCKHOLDERS EQUITY  (continued)



On October 21, 2004, a warrant holder exercised in full its warrant to purchase 191,898 shares
of common stock of the Company. Pursuant to the net exercise provisions of this warrant, the Company issued 133,217 shares of its common stock to the warrant holder. This warrant was issued in connection with an earlier debt arrangement in 2001 and
2002.

On September 20, 2004, a warrant holder exercised in full its warrant to purchase 335,816 shares of the common stock of the
Company. Pursuant to the net exercise provisions of this warrant, the Company issued 214,058 shares of its common stock to the warrant holder. This warrant was issued in connection with an earlier debt arrangement in 2001 and 2002.

At December 31, 2006, warrants to purchase 189,640 and 13,350 shares of common stock at $.10 per share are outstanding and expire on July 16,
2008 and August 4, 2009, respectively.

Comprehensive Income

Comprehensive income is the change in equity of a business enterprise from transactions and other events and circumstances from non-owner sources.
Excluding net income, the components of comprehensive income are from foreign currency translation adjustments and changes in the fair value of hedging instruments.

The following summarizes the components of accumulated other comprehensive loss at December 31, 2006 and 2005 (in thousands):



|                                  |  |              |      |   |      |   |      |  
|--------------------------------- |  | ------------ | ---- | - | ---- | - | ---- | -
|                                  |  | December 31, |     
|                                  |  | 2006         |      |   | 2005 |  
|Cumulative translation adjustment |  | $            | (850 | ) |      | $ | (233 | )
|Fair value of hedge               |  |              |     |   |      |   | 103  |  
|                                  |  |              |      |   |      |   |      |  
|Total                             |  | $            | (850 | ) |      | $ | (130 | )
|                                  |  |              |      |   |      |   |      |  

Stock Options

2005 Omnibus Incentive Plan

Cybexs 2005 Omnibus Incentive Plan (Omnibus Plan) is
designed to provide incentives that will attract and retain individuals key to the success of the Company through direct or indirect ownership of the Companys common stock. The Omnibus Plan provides for the granting of stock options, stock
appreciation rights, stock awards, performance awards and bonus stock purchase awards. The Company has reserved 1,000,000 shares of common stock for issuance pursuant to the Omnibus Plan.

The terms and conditions of each award are determined by a committee of the Board of Directors of the Company. Under the Omnibus Plan, the committee may
grant either qualified or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price per share that the committee may determine (which in the case of incentive stock options may not be less than the
fair market value of a share of the Companys common stock on the date of grant). The options generally vest over a three to five year period (with some subject to cliff vesting).



F-19



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 8STOCKHOLDERS EQUITY  (continued)



1995 Omnibus Incentive Plan

The terms and conditions of grants of stock options under the 1995 Omnibus Incentive Plan were determined by a committee of the Board of Directors.
Options outstanding under this plan were granted at exercise prices which were not less than the fair market value of a share of the Companys common stock on the date of grant and were generally exercisable over a period not to exceed ten
years from the original date of grant. No future grants may be made under this plan.

A summary of the status of the Companys stock
option plans as of December 31, 2006 is presented below:



|                                                         |  |                  |   |  |                                |      |                                  |      |                 |   |          
|-------------------------------------------------------- |  | ---------------- | - |  | ------------------------------ | ---- | -------------------------------- | ---- | --------------- | - | ---------
|                                                         |  | Number of Shares |   |  | Weighted AverageExercise Price |      | RemainingContractual Term(years) |      | Intrinsic Value
|Outstanding at January 1, 2006                           |  | 766,100          |   |  | $                              | 1.87 |                                  |      |                 |   |          
|Granted                                                  |  | 30,000           |   |  |                                | 7.37 |                                  |      |                 |   |          
|Exercised                                                |  | (90,850          | ) |  |                                | 2.02 |                                  |      |                 |   |          
|Forfeited                                                |  | (10,250          | ) |  |                                | 1.30 |                                  |      |                 |   |          
|                                                         |  |                  |   |  |                                |      |                                  |      |                 |   |          
|Outstanding at December 31, 2006                         |  | 695,000          |   |  | $                              | 2.09 |                                  | 5.84 |                 | $ | 2,715,000
|                                                         |  |                  |   |  |                                |      |                                  |      |                 |   |          
|Options exercisable at December 31, 2006                 |  | 482,000          |   |  | $                              | 2.07 |                                  | 5.15 |                 | $ | 1,894,000
|                                                         |  |                  |   |  |                                |      |                                  |      |                 |   |          
|Options vested and expected to vest at December 31, 2006 |  | 686,000          |   |  | $                              | 2.07 |                                  | 5.81 |                 | $ | 2,694,000
|                                                         |  |                  |   |  |                                |      |                                  |      |                 |   |          

The intrinsic value of options exercised during the years ended December 31, 2006, 2005, and
2004 was $360,000, $37,000, and $7,000, respectively. A registration statement has been filed for the Omnibus Plan and the Company anticipates providing newly-issued shares of registered common stock upon the exercise of options.

As of December 31, 2006, there was $204,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements, which
is expected to be recognized over a weighted-average period of 3.3 years.

The options generally vest over a three to five year period
(with some subject to cliff vesting). At December 31, 2006, there are 970,000 shares available for future issuance pursuant to the 2005 Omnibus Incentive Plan.



F-20



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 8STOCKHOLDERS EQUITY  (continued)



Information with respect to options outstanding under the Companys plans as of
December 31, 2006 is as follows:



|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     
|------------------------ |  | ----------- |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ------ | ------- | ---------------------------- | - | ----
|                         |  | Outstanding |  | Exercisable                 
|Range of exercise prices |  | Shares      |  | Weightedaverageexerciseprice |      | Weightedaverageremainingcontractuallife (years) |      | Shares |         | Weightedaverageexerciseprice
|$1.22$1.51              |  | 426,000     |  | $                            | 1.27 |                                                 | 6.74 |        | 248,000 |                              | $ | 1.31
|1.701.90                |  | 90,000      |  |                              | 1.75 |                                                 | 4.84 |        | 90,000  |                              |   | 1.75
|3.003.70                |  | 115,000     |  |                              | 3.43 |                                                 | 3.18 |        | 110,000 |                              |   | 3.42
|4.064.31                |  | 34,000      |  |                              | 4.08 |                                                 | 2.72 |        | 34,000  |                              |   | 4.08
|7.37                     |  | 30,000      |  |                              | 7.37 |                                                 | 9.84 |        |        |                              |   |    
|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     
|                         |  | 695,000     |  |                              | 2.09 |                                                 | 5.84 |        | 482,000 |                              |   | 2.07
|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     

Stock Retainer Plan for Nonemployee Directors

The Companys 2002 Stock Retainer Plan for Nonemployee Directors (2002 Plan) provides that each nonemployee director will receive 50% of
his annual retainer in shares of common stock of the Company. Up to 150,000 shares of common stock may be issued under the 2002 Plan. The issuance of shares as partial payment of annual retainers results in expense being recognized based on the fair
market value of such shares. At December 31, 2006, there are 41,942 shares available for future issuance pursuant to the 2002 Plan. The Company recorded stock-based compensation expense of $54,000, $55,000 and $129,000 for the years ended
December 31, 2006, 2005 and 2004, respectively, related to the 2002 Plan. In January 2007, the Company issued 7,509 shares of common stock to the directors, which had a fair value of $47,000, related to directors fees earned in 2006, which were
included in accrued expenses at December 31, 2006. During the quarter ended April 1, 2006, the Company issued 14,344 shares of common stock to the directors, which had a fair value of $52,000, related to directors fees earned in 2005,
which were included in accrued expenses at December 31, 2005.

NOTE 9INCOME TAXES

Income (loss) before income taxes consists of the following:



|         |  |                         |           |      |   |           |      |  |   |           |  
|-------- |  | ----------------------- | --------- | ---- | - | --------- | ---- |  | - | --------- | -
|         |  | Year Ended December 31, |          
|         |  | 2006                    |           | 2005 |   |           | 2004 | 
|Domestic |  | $                       | 7,952,000 |      | $ | 1,139,000 |      |  | $ | 4,023,000 |  
|Foreign  |  |                         | 135,000   |      |   | (827,000  | )    |  |   | (667,000  | )
|         |  |                         |           |      |   |           |      |  |   |           |  
|         |  | $                       | 8,087,000 |      | $ | 312,000   |      |  | $ | 3,356,000 |  
|         |  |                         |           |      |   |           |      |  |   |           |  



F-21



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 9INCOME TAXES  (continued)



The income tax (benefit) provision consists of the following:



|          |  |                         |             |   |      |   |         |  |   |        
|--------- |  | ----------------------- | ----------- | - | ---- | - | ------- |  | - | -------
|          |  | Year Ended December 31,
|          |  | 2006                    |             |   | 2005 |   | 2004   
|Current : |  |                         |             |   |      |   |         |  |   |        
|Federal   |  | $                       | 80,000      |   |      | $ | 136,000 |  | $ | 66,000 
|State     |  |                         | 96,000      |   |      |   | 115,000 |  |   | 65,000 
|          |  |                         |             |   |      |   |         |  |   |        
|          |  |                         | 176,000     |   |      |   | 251,000 |  |   | 131,000
|          |  |                         |             |   |      |   |         |  |   |        
|Deferred: |  |                         |             |   |      |   |         |  |   |        
|Federal   |  |                         | (10,508,000 | ) |      |   |        |  |   |       
|State     |  |                         | (1,635,000  | ) |      |   |        |  |   |       
|          |  |                         |             |   |      |   |         |  |   |        
|          |  |                         | (12,143,000 | ) |      |   |        |  |   |       
|          |  |                         |             |   |      |   |         |  |   |        
|          |  | $                       | (11,967,000 | ) |      | $ | 251,000 |  | $ | 131,000
|          |  |                         |             |   |      |   |         |  |   |        

The reconciliation between income taxes at the federal statutory rate and the amount recorded in
the accompanying consolidated financial statements is as follows:



|                                                                                        |  |                         |             |   |      |   |          |      |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | -------- | ---- |  | - | ---------- | -
|                                                                                        |  | Year Ended December 31, |            
|                                                                                        |  | 2006                    |             |   | 2005 |   |          | 2004 | 
|Tax at statutory rate                                                                   |  | $                       | 2,750,000   |   |      | $ | 106,000  |      |  | $ | 1,141,000  |  
|Federal alternative minimum tax                                                         |  |                         |            |   |      |   | 136,000  |      |  |   | 66,000     |  
|Impact of foreign taxes                                                                 |  |                         | (5,000      | ) |      |   | 33,000   |      |  |   | 27,000     |  
|State income taxes, net                                                                 |  |                         | 426,000     |   |      |   | 179,000  |      |  |   | 274,000    |  
|Other permanent differences, primarily meals and entertainment and stock option expense |  |                         | 223,000     |   |      |   | 44,000   |      |  |   | 52,000     |  
|Change in valuation allowance                                                           |  |                         | (15,361,000 | ) |      |   | (247,000 | )    |  |   | (1,429,000 | )
|                                                                                        |  |                         |             |   |      |   |          |      |  |   |            |  
|                                                                                        |  | $                       | (11,967,000 | ) |      | $ | 251,000  |      |  | $ | 131,000    |  
|                                                                                        |  |                         |             |   |      |   |          |      |  |   |            |  

The significant components of the Companys net deferred tax assets (liabilities) are as
follows:



|                                            |  |              |            |   |      |   |             |  
|------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ----------- | -
|                                            |  | December 31, |           
|                                            |  | 2006         |            |   | 2005 |  
|Deferred tax assets (liabilities):          |  |              |            |   |      |   |             |  
|Net operating and credit loss carryforwards |  | $            | 10,600,000 |   |      | $ | 12,254,000  |  
|Warranty reserves                           |  |              | 1,248,000  |   |      |   | 1,129,000   |  
|Other accruals and reserves                 |  |              | 3,273,000  |   |      |   | 4,912,000   |  
|Bad debt and lease loss reserves            |  |              | 539,000    |   |      |   | 463,000     |  
|Goodwill                                    |  |              | 3,269,000  |   |      |   | 3,788,000   |  
|Other, net                                  |  |              | 1,050,000  |   |      |   | 171,000     |  
|                                            |  |              |            |   |      |   |             |  
|Total deferred tax assets                   |  |              | 19,979,000 |   |      |   | 22,717,000  |  
|Valuation allowance                         |  |              | (6,599,000 | ) |      |   | (21,960,000 | )
|Depreciation                                |  |              | (1,098,000 | ) |      |   | (757,000    | )
|                                            |  |              |            |   |      |   |             |  
|                                            |  | $            | 12,282,000 |   |      | $ |            |  
|                                            |  |              |            |   |      |   |             |  



F-22



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 9INCOME TAXES  (continued)



At December 31, 2006, the Company had U.S. federal net operating loss carryforwards, which are
scheduled to expire as follows:



|                    |  |   |           
|------------------- |  | - | ----------
|2012                |  | $ | 1,561,000 
|2019                |  |   | 3,637,000 
|2020                |  |   | 6,481,000 
|2021                |  |   | 5,528,000 
|2022 and thereafter |  |   | 6,270,000 
|                    |  |   |           
|                    |  | $ | 23,477,000
|                    |  |   |           

In addition, the Company has foreign net operating loss carryforwards of $2,568,000, which have an
unlimited life, federal alternative minimum tax credit carryforwards of $540,000, which do not expire, a federal research and development tax credit carryforward of $129,000, which expires in 2008 and various net operating loss carryforwards for
state tax purposes.

In 2002, the Company established a full valuation allowance against its net deferred tax assets. As of July 1,
2006, management reevaluated the need for this valuation allowance in accordance with SFAS No. 109, Accounting for Income Taxes, due to the existence of various factors. Based on this reevaluation, the Company reduced the valuation
allowance by $15,361,000 in 2006 (including $14,421,000 effective July 1, 2006). Since July 1, 2006, an income tax provision of approximately 41% of income before taxes was recorded, totaling $2,329,000.

Approximately $31,000,000 of income before income taxes is needed to fully realize the Companys recorded net deferred tax asset and $48,000,000 of
future taxable income is needed to fully realize the Companys deferred tax assets. The difference between this figure and the net operating loss carryforwards and credits is primarily book versus tax differences related to various accruals.

The net deferred tax asset balance of $12,282,000 at December 31, 2006 represents the amount that management believes is
more-likely-than-not to be realized, and the remaining valuation allowance at December 31, 2006 is $6,599,000. Management will continue to assess the need for the remaining valuation allowance in future periods.

NOTE 10RELATED PARTY TRANSACTIONS

For the
years ended December 31, 2006, 2005 and 2004, the Company paid $451,000, $291,000 and $342,000, respectively, to a law firm of which one of the directors of the Company is a member.

The Companys Chairman, who is a principal stockholder of the Company, has served as Chief Executive Officer of the Company since November 2000, and
is expected to serve in this capacity for an indefinite period of time. He received salaries of $425,000, $390,000 and $368,000 for 2006, 2005 and 2004, respectively.

From February 2002 to December 31, 2005, the Companys Chief Financial Officer was employed by and provided services to the Company through a services agreement with UM Holdings Ltd, (UM), a principal
stockholder of the Company. Expenses related to these services totaled $216,000 and $192,000 for 2005 and 2004, respectively. UMs general counsel served as general counsel for the Company from September 2003 to February 2005 through a services
agreement with UM. Expenses related to these services totaled $30,000 and $120,000 for 2005 and 2004, respectively. UM provides certain office support services for which the Company reimbursed UM at the rate of $78,000, $28,500 and $11,000 during
2006, 2005 and 2004, respectively. The total amount owed to UM for these services was $7,000 and $24,000 at December 31, 2006 and 2005, respectively.



F-23



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 10RELATED PARTY TRANSACTIONS  (continued)



During 2004, UM agreed to pay Cybex $250,000, representing the full cost of a sports stadium luxury
box rented by Cybex, in return for use of the box.

On August 2, 2004, UM exercised its right, in accordance with the terms of the
preferred stock, to convert the outstanding shares of preferred stock held by it into 3,288,600 shares of common stock. The preferred stock accrued cumulative dividends at the rate of $14.90, or 10% of the issuance price, per share per year when and
if declared by the Board of Directors. The Company paid to UM accrued dividends of $522,000 and interest of $353,000 at the time of conversion of the preferred stock into common stock.

UM provided the collateral to support a $2,945,722 letter of credit in the Companys appeal of the judgment in the litigation, Kirila et al v.
Cybex International, Inc., et al (see Note 12). This letter of credit was replaced during the second quarter of 2005 by a letter of credit issued under the CIT Amended Financing Agreement. A fee of $39,000 and $88,000 was paid to UM in 2005 and
2004, respectively, for the use of this collateral.

NOTE 11COMMERCIAL LEASING

The Company arranges equipment leases and other financings for its customers. While most of these financings are without recourse, in certain cases the
Company may offer a guaranty or other recourse provisions. In such situations, the Company ensures that the transaction between the independent leasing company and the end user customer represents a sales-type lease. The Company monitors the payment
status of the lessee under these arrangements and provides a reserve under SFAS No. 5, Accounting for Contingencies, in situations when collection of the lease payments is not probable. At December 31, 2006, the maximum
contingent liability under all recourse and guarantee provisions was approximately $4,638,000. A reserve for estimated losses under recourse provisions of $585,000 and $289,000 has been recorded based on historical and industry experience and is
included in accrued expenses at December 31, 2006 and 2005, respectively.

In November 2002, the FASB issued FASB Interpretation
No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that the guarantor recognize, at the inception of certain guarantees,
a liability for the fair value of the obligation undertaken in issuing such guarantees. FIN 45 also requires additional disclosure about the guarantors obligations under certain guarantees that it has issued. The initial recognition and
measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has recorded a net liability of $70,000 and $74,000 at December 31, 2006 and 2005,
respectively, in accordance with FIN 45 for the estimated fair value of the Companys guarantees issued after January 1, 2003. The fair value of the guarantees was determined based on the estimated cost for a customer to obtain a letter of
credit from a bank or similar institution. This liability is reduced on a straight-line basis over the term of each respective guarantee. In most cases, if the Company is required to fulfill its obligations under the guarantee then it has the right
to repossess the equipment from the customer. It is not practicable to estimate the approximate amount of proceeds that would be generated from the sale of these assets in such situations.



F-24



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 12COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has
lease commitments expiring at various dates through 2010 for equipment and property under noncancelable operating and capital leases. Future minimum payments under these leases at December 31, 2006 are as follows:



|                                   |  |           |           |         |   |         |  
|---------------------------------- |  | --------- | --------- | ------- | - | ------- | -
|                                   |  | Operating |           | Capital |  
|2007                               |  | $         | 931,000   |         | $ | 267,000 |  
|2008                               |  |           | 281,000   |         |   | 66,000  |  
|2009                               |  |           | 148,000   |         |   | 22,000  |  
|2010                               |  |           | 14,000    |         |   |        |  
|                                   |  |           |           |         |   |         |  
|                                   |  |           | 1,374,000 |         |   | 355,000 |  
|Less: amount representing interest |  |           |          |         |   | (25,000 | )
|                                   |  |           |           |         |   |         |  
|                                   |  | $         | 1,374,000 |         |   | 330,000 |  
|                                   |  |           |           |         |   |         |  
|Less: current portion              |  |           |           |         |   | 248,000 |  
|                                   |  |           |           |         |   |         |  
|                                   |  |           |           |         | $ | 82,000  |  
|                                   |  |           |           |         |   |         |  

Rent expense under all operating leases for the years ended December 31, 2006, 2005 and 2004
was $1,131,000, $622,000 and $366,000, respectively. Interest expense related to capital leases was $52,000, $85,000 and $95,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Assets subject to capital leases had a cost of
$1,514,000 and $1,517,000 and accumulated depreciation of $746,000 and $522,000 at December 31, 2006 and 2005, respectively.

Royalty Agreement

In connection with the settlement of a license dispute, the Company is required to make minimum royalty
payments through November 2012. Future minimum payments included in accrued expenses (current portion) and other liabilities (long-term portion) under this arrangement are as follows at December 31, 2006:



|                             |  |   |           |  
|---------------------------- |  | - | --------- | -
|2007                         |  | $ | 390,000   |  
|2008                         |  |   | 360,000   |  
|2009                         |  |   | 360,000   |  
|2010                         |  |   | 360,000   |  
|2011                         |  |   | 360,000   |  
|Thereafter                   |  |   | 330,000   |  
|                             |  |   |           |  
|                             |  |   | 2,160,000 |  
|Amount representing interest |  |   | (541,000  | )
|                             |  |   |           |  
|                             |  | $ | 1,619,000 |  
|                             |  |   |           |  

Interest expense related to this obligation was $172,000, $190,000 and $206,000 for the years
ended December 31, 2006, 2005 and 2004, respectively.

Purchase Obligations

The Company is required to make purchases of goods and services that are legally binding of $14,556,000 in 2007 and $1,827,000 in 2008.



F-25



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 12COMMITMENTS AND CONTINGENCIES  (continued)



Product Liability

Due to the nature of its products, the Company is involved in certain pending product liability claims and lawsuits. The Company maintains product
liability insurance coverage subject to deductibles. Management believes that the outcome of known product liability claims will not have a material effect on the Companys financial position, results of operations or cash flows. The
Companys product liability insurance is written on a claims made basis and provides an aggregate of $5,000,000 of coverage, with a deductible of up to $250,000 per occurrence with an annual aggregate deductible of $750,000. The Company has
excess primary coverage on a per-claim and aggregate basis beyond the deductible levels and also maintains umbrella policies to supplement the primary liability coverage. Reserves for self-insured retention, including claims incurred but not yet
reported, are included in accrued liabilities in the accompanying consolidated balance sheets, based on managements review of outstanding claims and claims history and consultation with its third-party claims administrators. Actual results may
vary from managements estimates.

The Company is also involved in certain legal actions and claims arising in the ordinary course of
business. At December 31, 2006, an aggregate reserve of $3,736,000 is included in accrued expenses for estimated losses to be incurred related to those matters for which it is probable that a loss has been incurred. The ultimate resolution of
these matters could be material to the Companys financial position, results of operations and cash flows; however, management believes that the recorded reserve is adequate.

Litigation

Kirila et al v. Cybex
International, Inc., et al

This action was commenced in the Court of Common Pleas of Mercer County, Pennsylvania in May 1997 against
the Company, the Company's wholly-owned subsidiary, Trotter, and certain officers, directors and affiliates of the Company. The plaintiffs include companies that sold to Trotter a strength equipment company in 1993, a principal of the corporate
plaintiffs who was employed by Trotter following the acquisition, and a company that leased to Trotter a plant located in Sharpsville, Pennsylvania. The complaint made numerous allegations, including wrongful closure of the Sharpsville facility,
wrongful termination of the individual plaintiffs employment and nonpayment of compensation, fraud and breach of the asset purchase agreement. A jury verdict was rendered in this litigation in February 2002. While the jury found in favor of
the Company with respect to the majority of the plaintiffs claims, it also found that the Company owed certain incentive compensation payments and rent, plus interest. In December 2002, plaintiff Kirila Realty and the Company agreed to enter
judgment in favor of Kirila Realty for $48,750 on the claims related to lease issues. Such amount represented the approximate $38,000 jury verdict together with an agreed amount of interest due and was paid by the Company in 2002. In March 2004,a $2,452,783 judgment was entered with respect to the incentive compensation portion of the jury verdict. Cybex filed an appeal of this judgment. In January 2006, the Superior Court of Pennsylvania affirmed the judgment, and both Cybex and the
plaintiffs filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court. On June 7, 2006, the Pennsylvania Supreme Court denied the respective Petitions for Allowance of Appeal of the Company and the plaintiffs. The Company
determined not to further pursue its appeals, and in November 2006, it satisfied a portion of the judgment, which, with interest and costs, amounted to approximately $2,800,000. The plaintiffs asserted that additional attorneys fees were
payable by the Company and the Court, on December 29, 2006, ordered that $523,000 be added to the judgment representing additional fees and costs. The amended judgment was paid in January 2007, and the matter is now concluded.

Colassi v. Cybex International, Inc.

This action was filed in the United States District Court for the District of Massachusetts. The plaintiff alleged that certain of the Company's treadmill products infringed a patent allegedly owned by the plaintiff. The



F-26



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 12COMMITMENTS AND CONTINGENCIES  (continued)



plaintiff sought injunctive relief and monetary damages. The Company filed an answer to the complaint denying the material allegations of the complaint and
asserting counterclaims. A jury verdict was rendered in this litigation in August 2005. The jury determined that the deck system of certain of the Companys treadmill products infringes plaintiffs patent and awarded damages which with
interest equaled approximately $2,800,000 at December 31, 2006. A six-month stay of a permanent injunction against sale of these treadmill products was entered in September 2005, and the Company has implemented a redesign of its deck system.
The Company has filed an appeal of the judgment entered by the trial court on the jury verdict, which required that Cybex post a letter of credit for $2,888,025 (see Note 7). The Court of Appeals in February 2007, denied the Companys appeal,
and the Company has moved for a rehearing. In November 2006 the plaintiff filed with the trial court a motion to enter a substitute judgment in an attempt to substitute plaintiffs reissued patent for the patent that was at issue at trial. In
December 2006, the trial court denied this motion and in January 2007, the plaintiff appealed this decision. The Companys and the plaintiffs respective appeals remain pending.

Free Motion Fitness v. Cybex International, Inc.

In December 2001, Free Motion Fitness (f.k.a. Ground Zero Design Corporation) filed in the United States District Court for the District of Utah an action for patent infringement against the Company alleging that the
Companys FT360 Functional Trainer infringed the plaintiffs patent. The Company filed an answer denying the material allegations of the complaint and including claims which management believes could invalidate the Free Motion Fitness
patent; the Company also filed a counterclaim against Free Motion Fitness seeking damages. In September 2003, this case was combined with a separate matter also in the United States District Court, District of Utah in which Free Motion Fitness had
sued the Nautilus Group for infringement of the same patent at issue in the Cybex case. In May 2004, the Court ruled in favor of the Companys motion for summary judgment, dismissing all of the claims of the plaintiff against the Company and
Nautilus and also dismissing the Companys counterclaims against the plaintiff. The plaintiff appealed the grant of summary judgment and in September 2005, the Court of Appeals for the Federal Circuit reversed the lower court ruling, with the
result that this case was returned to the trial court level. In January 2007, the parties entered into a settlement agreement pursuant to which, among other things, Cybex received a license of certain Free Motion patents and paid an upfront license
fee and the litigation was dismissed with prejudice.

Other Litigation and Contingencies

The Company is involved in certain other legal actions, contingencies and claims arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or cash flows. Legal fees related to those matters are charged to expense as incurred.

Employment Agreements

The Company
has entered into employment agreements with its executive officers. Under these agreements, the employment may be terminated with or without cause at any time. In the event that the Company terminates the officers employment other than
for cause the Company is obligated to continue normal salary payments for periods generally varying from one to two years. The employment agreements generally provide that upon a change of control, as defined, the officer may in certain
events resign and receive the severance which would have been payable upon a non-cause termination. The maximum aggregate exposure under these agreements is $3,475,000 as of December 31, 2006.



F-27



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 13BENEFIT PLANS

The Company has a 401(k) defined contribution retirement plan. The Company currently matches 50% of the first 4% of the employees eligible compensation contributions. Matching contributions by the Company to the
plan were $307,000 and $288,000 for the years ended December 31, 2006 and 2005, respectively. No matching contributions were made during 2004. Additionally, the Company may make discretionary contributions to the plan. No discretionary
contributions were made for the years ended December 31, 2006, 2005 or 2004.

NOTE 14QUARTERLY DATA (unaudited)

The following table presents unaudited quarterly financial information for the years ended December 31, 2006 and 2005:



|                                |  |                    |            |        |   |            |                   |  |             |            |  |   |           
|------------------------------- |  | ------------------ | ---------- | ------ | - | ---------- | ----------------- |  | ----------- | ---------- |  | - | ----------
|                                |  | 2006 Quarter Ended
|                                |  | April 1            |            | July 1 |   |            | September 30      |  | December 31
|                                |  |                    |            |        |   |            | (As Restated) (a) |  |            
|Sales                           |  | $                  | 28,912,000 |        | $ | 29,951,000 |                   |  | $           | 29,849,000 |  | $ | 38,212,000
|Gross profit                    |  |                    | 10,551,000 |        |   | 10,861,000 |                   |  |             | 10,580,000 |  |   | 14,691,000
|Net income                      |  |                    | 668,000    |        |   | 16,107,000 | (b)               |  |             | 503,000    |  |   | 2,776,000 
|Basic net income per share(d)   |  |                    | .04        |        |   | 1.00       | (b)               |  |             | .03        |  |   | .16       
|Diluted net income per share(d) |  |                    | .04        |        |   | .96        | (b)               |  |             | .03        |  |   | .16       



|                                       |  |                    |            |         |   |              |  |   |             |      |  |   |            |    
|-------------------------------------- |  | ------------------ | ---------- | ------- | - | ------------ |  | - | ----------- | ---- |  | - | ---------- | ---
|                                       |  | 2005 Quarter Ended |           
|                                       |  | March 26           |            | June 25 |   | September 24 |  |   | December 31 |     
|Sales                                  |  | $                  | 24,759,000 |         | $ | 27,197,000   |  | $ | 26,690,000  |      |  | $ | 36,000,000 |    
|Gross profit                           |  |                    | 8,855,000  |         |   | 9,651,000    |  |   | 9,547,000   |      |  |   | 13,424,000 |    
|Net income                             |  |                    | 119,000    |         |   | 1,038,000    |  |   | (3,535,000  | )(c) |  |   | 2,439,000  | (b)
|Basic net income (loss) per share(d)   |  |                    | .01        |         |   | .07          |  |   | (.23        | )(c) |  |   | .16        | (b)
|Diluted net income (loss) per share(d) |  |                    | .01        |         |   | .07          |  |   | (.23        | )(c) |  |   | .16        | (b)

---

|(a) | Net income, basic net income per share and diluted net income per share for the quarter ended September 30, 2006 have been restated for the effects of accounting for the interest
rate swap with Citizens under SFAS No. 133, as amended (see Note 7). The interest rate swap does not qualify for hedge accounting and, therefore, changes in fair value are recorded as a component of interest expense. The impact of the adjustment was
to increase reported interest expense by $506,000, thereby decreasing reported net income by $314,000 (net of tax) and decreasing reported basic and diluted net income per share by $.02.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes a benefit of $14,421,000 ($.86 per share) resulting from a reduction in the valuation allowance for deferred income taxes.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(c) | Includes a third quarter charge of $4,101,000 ($.27 per share) and fourth quarter charge of $504,000 ($.03 per share) relating primarily to the Colassi and Kirila litigation matters
(see Note 12).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The sum of the quarterly net income (loss) per share amounts do not equal the amount for the full year due to the use of weighted average shares for each period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



F-28



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II



|                                     |  |                              |         |           |   |            |  |                         |         |  |   |        
|------------------------------------ |  | ---------------------------- | ------- | --------- | - | ---------- |  | ----------------------- | ------- |  | - | -------
|Description                          |  | Balance atBeginning ofPeriod |         | Additions |   | Write-offs |  | Balance atEnd of Period
|For the year ended December 31, 2006 |  |                              |         |           |   |            |  |                         |         |  |   |        
|Allowance for doubtful accounts      |  | $                            | 689,000 |           | $ | 311,000    |  | $                       | 203,000 |  | $ | 797,000
|                                     |  |                              |         |           |   |            |  |                         |         |  |   |        
|For the year ended December 31, 2005 |  |                              |         |           |   |            |  |                         |         |  |   |        
|Allowance for doubtful accounts      |  | $                            | 887,000 |           | $ | 412,000    |  | $                       | 610,000 |  | $ | 689,000
|                                     |  |                              |         |           |   |            |  |                         |         |  |   |        
|For the year ended December 31, 2004 |  |                              |         |           |   |            |  |                         |         |  |   |        
|Allowance for doubtful accounts      |  | $                            | 982,000 |           | $ | 403,000    |  | $                       | 498,000 |  | $ | 887,000
|                                     |  |                              |         |           |   |            |  |                         |         |  |   |        



S-1



---

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

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

The
Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys controls and procedures pursuant to
Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company (including its consolidated subsidiaries) in its periodic filings with the Securities and Exchange Commission is recorded, processed,
summarized and reported, within the time periods specified in the Commissions rules and forms. There has been no change in the Companys internal control over financial reporting during the last fiscal quarter in the period covered by
this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

In December
2006, the Company entered into a Third Amended and Restated Credit Agreement (the Amended Credit Agreement) with GMAC Commercial Finance LLC (GMAC). The Amended Credit Agreement amends the Second Amended and Restated Credit
Agreement with GMAC dated as of January 31, 2006 (the Original Agreement) by creating a new $7 million credit line availability. Subject to the terms and conditions of the Amended Credit Agreement, Cybex may, from time-to-time
during the period from the date of the Amended Credit Agreement to August 31, 2007, borrow pursuant to the credit line up to $7 million to finance the purchase of equipment and machinery. Such advances will mature on January 1, 2012, and
will be secured by Cybexs equipment. Each advance under the new credit line will be retired by equal monthly installments of principal, with any remaining unpaid principal due and payable on the maturity date. All other terms of the Original
Agreement remain materially the same.

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

The information set forth under the sections captioned Election of Directors, Corporate Governance and Security Ownership of Certain Beneficial Owners and ManagementSection 16(a)
Beneficial Ownership Reporting Compliance in the Companys definitive Proxy Statement for its 2007 Annual Meeting of Shareholders (the Proxy Statement) is incorporated herein by reference. For information concerning the
executive officers of the Company, see Executive Officers of the Registrant in Part I of this report.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The
information set forth under the caption Executive Compensation in the Proxy Statement is incorporated herein by reference.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information set forth under the sections captioned Security Ownership of Certain Beneficial Owners and Management and Executive
CompensationEquity Compensation Plan Information in the Proxy Statement and the information set forth in this Form 10-K in Part II, Item 5(d) under the caption Equity Compensation Plan Information is incorporated by reference
herein.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

The information set forth under the caption Corporate Governance in the Proxy Statement is incorporated herein by reference.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The information set forth under the caption Audit Committee MattersAudit Fees in the Proxy Statement is incorporated herein by reference.



II-1



---

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

The following documents are filed or incorporated by reference as a part of this report:



|    |  |                      |  |                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | Financial Statements |  |                                                                                                                                                                                                                                                                                                       
|    |  |                     
|(a) |  |                      |  | Consolidated Financial Statements and Financial Statement Schedule of the Company are set forth on Page F-1, Part II, Item 8 hereof and are incorporated by reference herein.                                                                                                                         
|    |  | Exhibits             |  |                                                                                                                                                                                                                                                                                                       
|    |  |                     
|    |  | 1                    |  | Form of Underwriting Agreement, incorporated by reference to Exhibit 1 to Amendment No. 2 to the Registration Statement on Form S-1 filed May 15, 2006.                                                                                                                                               
|    |  |                     
|    |  | 3(a)(1)              |  | Restated Certificate of Incorporation of the Company, dated May 20, 1988, incorporated by reference to Exhibit 3(a)(1) to the Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 (the June 1996 10-Q).                                                                               
|    |  |                     
|    |  | 3(a)(2)              |  | Certificate of Amendment of the Certificate of Incorporation of the Company, dated May 30, 1988, incorporated by reference to Exhibit 3(a)(2) to the June 1996 10-Q.                                                                                                                                  
|    |  |                     
|    |  | 3(a)(3)              |  | Certificate of Amendment of the Certificate of Incorporation of the Company, dated August 7, 1996, incorporated by reference to Exhibit 3(a)(3) to the June 1996 10-Q.                                                                                                                                
|    |  |                     
|    |  | 3(a)(4)              |  | Certificate of Amendment of the Certificate of Incorporation of the Company, dated May 27, 1997, incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.                                                                                   
|    |  |                     
|    |  | 3(a)(5)              |  | Certificate of Amendment to the Certificate of Incorporation of the Company, filed July 8, 2003, incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter
ended June 28, 2003 (the June 2003 10-Q).                                                            
|    |  |                     
|    |  | 3(a)(6)              |  | Certificate of Amendment to the Certificate of Incorporation of the Company, dated May 4, 2005, incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended June 25, 2005 (the June 2005 10-Q).                                                            
|    |  |                     
|    |  | 3(b)                 |  | By-Laws of the Company, as amended, incorporated by reference to Exhibit 3(b) to the Annual Report on Form 10-K for the year ended December 31, 1987.                                                                                                                                                 
|    |  |                     
|    |  | 4(a)                 |  | Common Stock Purchase Warrant to purchase 189,640 shares of Common Stock, issued to Hilco Capital LP, incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003 (the September 2003 10-Q).                                            
|    |  |                     
|    |  | 4(b)                 |  | Form of Warrant to Purchase Common Stock issued to Oppenheimer & Co. and affiliates, each dated August 5, 2004, for an aggregate of 25,000 shares, incorporated by reference to Exhibit 4.1
to the Quarterly Report on Form 10-Q for the quarter ended September 25, 2004 (the September 2004 10-Q).
|    |  |                     
|    |  | 10(a)                |  | 1995 Omnibus Incentive Plan, as amended, incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001
10-K).*                                                                                                                        
|    |  |                     
|    |  | 10(b)                |  | 2005 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 6, 2005.*                                                                                                                                                                       



II-2



---

| |  |          |  |                                                                                                                                                                                                                                                                          
| |  | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |         
| |  | 10(c)(1) |  | 2002 Stock Retainer Plan for Non-employee Directors, incorporated by reference to Exhibit 10(k) to the 2001 10-K.*                                                                                                                                                       
| |  |         
| |  | 10(c)(2) |  | Amendment to 2002 Stock Retainer Plan for Non-employee Directors, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed February 18, 2005.*                                                                                                  
| |  |         
| |  | 10(d)    |  | Employment Agreement dated April 8, 2003, between the Company and John Aglialoro, incorporated by reference to Exhibit 10.4 to the June 2003 10-Q.*                                                                                                                      
| |  |         
| |  | 10(e)(1) |  | Financing Agreement, dated July 16, 2003, between the Company and The CIT Group/Business Credit, Inc., incorporated by reference to Exhibit 10.2 to the September 2003 10-Q.                                                                                             
| |  |         
| |  | 10(e)(2) |  | First Amendment to Financing Agreement, dated as of May 4, 2004, between the Company and The CIT Group/Business Credit, Inc., incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for the quarter ended June 26, 2004.                        
| |  |         
| |  | 10(e)(3) |  | Second Amendment to Financing Agreement, dated as of July 13, 2004, between the Company and The CIT Group/Business Credit, Inc., incorporated by reference to Exhibit 10.2 to the September
2004 10-Q.                                                                   
| |  |         
| |  | 10(e)(4) |  | Third Amendment to Financing Agreement and Consent, dated as of September 30, 2004, between the Company and The CIT Group/Business Credit, Inc., incorporated by reference to Exhibit 10.2 to
the June 2005 10-Q.                                                        
| |  |         
| |  | 10(e)(5) |  | Fourth Amendment to Financing Agreement and Waiver, dated as of May 27, 2005, between the Company and The CIT Group/Business Credit, Inc., incorporated by reference to Exhibit 10.3 to the
June 2005 10-Q.                                                              
| |  |         
| |  | 10(e)(6) |  | Sixth Amendment to Financing Agreement, dated as of June 30, 2006, between the Company and The CIT Group/Business Credit, Inc., incorporated by reference to the Quarterly Report on Form
10-Q for the quarter ended July 1, 2006.                                       
| |  |         
| |  | 10(e)(7) |  | Seventh Amendment to Financing Agreement, dated as of October 17, 2006, between the Company and The CIT Group/Business Credit, Inc.,
incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (the September 2006
10-Q).
| |  |         
| |  | 10(f)    |  | Warrantholders Rights Agreement, dated as of July 16, 2003, among the Company, certain stockholders of the Company and Hilco Capital LP, incorporated by reference to Exhibit 10.7 to the
September 2003 10-Q.                                                           
| |  |         
| |  | 10(h)(1) |  | Second Amended and Restated Credit Agreement, dated January 31, 2006, between the Company and GMAC Commercial Finance, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on January 31, 2006.                                       
| |  |         
| |  | 10(h)(2) |  | Third Amended and Restated Credit Agreement, dated December 2006, between the Company and GMAC Commercial Finance, LLC (Filed herewith).                                                                                                                                 
| |  |         
| |  | 10(i)    |  | Amended and Restated Management Employment Agreement, dated as of January 1, 2006, between the Company and Ray Giannelli, incorporated by reference to Exhibit 10.4 to the Current Report on
Form 8-K filed February 22, 2006 (the February 22, 2006 Form 8-K).*       
| |  |         
| |  | 10(j)    |  | Management Employment Agreement dated February 22, 2006, between the Company and Arthur W. Hicks, Jr., incorporated by reference to Exhibit 10.3 to the February 22, 2006 Form
8-K.*                                                                                     



II-3



---

| |  |          |  |                                                                                                                                                                                                                                                                          
| |  | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |         
| |  | 10(k)    |  | Form of Incentive Stock Option Agreement issued pursuant to the 1995 Omnibus Incentive Plan as Amended, incorporated by reference to Exhibit 10.4 to the September 2004 10-Q.*                                                                                           
| |  |         
| |  | 10(l)    |  | Form of Incentive Stock Option Agreement issued pursuant to the 1995 Omnibus Incentive Plan as Amended, incorporated by reference to Exhibit 10.5 to the September 2004 10-Q.*                                                                                           
| |  |         
| |  | 10(m)    |  | Form of Restricted Stock Award Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 22, 2007 (the February 22, 2007 Form
8-K).*                                                                                        
| |  |         
| |  | 10(n)    |  | Form of Notification of Participation in the 2007 Management Incentive Compensation Bonus Program (Executive Officers), incorporated by reference to Exhibit 10.2 to the February 22, 2007 Form
8-K.*                                                                    
| |  |         
| |  | 10(o)    |  | Form of Notification of Participation in the 2007 Management Incentive Compensation Bonus Program (Non-Executive Officers/Director Level), incorporated by reference to Exhibit 10.3 to the
February 22, 2007 Form 8-K.*                                                 
| |  |         
| |  | 10(p)    |  | Form of Notification of Participation in the 2007 Management Incentive Compensation Bonus Program (Non-Executive Officers/Vice President Level), incorporated by reference to Exhibit 10.4 to
the February 22, 2007 Form 8-K.*                                           
| |  |         
| |  | 10(q)    |  | Purchase and Sale Agreement, dated as of July 25, 2005, between the Company and Doug Hughes Properties, LLC, incorporated by reference to the Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the quarter ended September 24, 2005 (the September 2005 10-Q).    
| |  |         
| |  | 10(r)(1) |  | Lease for Commercial Land and Building, dated July 25, 2005, between the Company and Doug Hughes Properties, LLC, incorporated by reference to Exhibit 10.2 to the September 2005
10-Q.                                                                                  
| |  |         
| |  | 10(r)(2) |  | Amendment to Lease for Commercial Land and Building, dated December 23, 2005 between the Company and Doug Hughes Properties, LLC, incorporated by reference to Exhibit 10(u)(2) to the
Annual Report on Form 10-K for the year ended December 31, 2005 (the 2005 10-K).
| |  |         
| |  | 10(s)    |  | Ultimate Net Loss Vendor Agreement with Portfolio Purchase, dated December 30, 1994, among the Company, Cybex Financial Corp. and C.I.T., incorporated by reference to Exhibit 10(x) to the
Annual Report on Form 10-K for the year ended December 31, 1994.             
| |  |         
| |  | 10(t)(1) |  | Manufacturing and Distribution License Agreement, dated May 30, 2005, among Impulse Technology, Ltd., the Company and Trazer Technologies, Inc., incorporated by reference to Exhibit 10.4 to
the June 2005 10-Q.                                                        
| |  |         
| |  | 10(t)(2) |  | Amendment to Manufacturing and Distribution License Agreement, dated December 22, 2005, among Impulse Technology, Ltd., the Company and Trazer Technologies, Inc., incorporated by reference to
Exhibit 10(v)(2) to the 2005 10-K.                                       
| |  |         
| |  | 10(u)    |  | Fulfillment Agreement, dated as of March 20, 2007, between the Company and eNOVA Group Limited Liability Company, incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K filed March 20, 2007.                                                      
| |  |         
| |  | 10(v)    |  | Industrial Building Lease, dated August 22, 2006, between the Company and First Industrial Development Services, Inc., incorporated by reference to Exhibit 10.1 to the September 2006
10-Q.                                                                             



II-4



---

| |  |        |  |                                                                                                                                                                                                                      
| |  | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |       
| |  | 10(w)  |  | Agreement of Purchase and Sale, dated August 22, 2006, between the Company and First Industrial Development Services, Inc., incorporated by reference to Exhibit 10.2 to the September 2006
10-Q.                    
| |  |       
| |  | 10(x)  |  | Tri-Party Agreement, dated August 22, 2006, among the Company, First Industrial Development Services, Inc. and the City of Owatonna, Minnesota, incorporated by reference to Exhibit 10.3 to
the September 2006 10-Q.
| |  |       
| |  | 10(y)  |  | Business Subsidy Agreement, dated August 22, 2006, between the Company and the City of Owatonna, Minnesota, incorporated by reference to Exhibit 10.4 to the September 2006
10-Q.                                    
| |  |       
| |  | 10(z)  |  | Loan Agreement, dated as of October 17, 2006, between the Company and Citizens Bank of Massachusetts, incorporated by reference to Exhibit 10.5 to the September 2006
10-Q.                                          
| |  |       
| |  | 10(aa) |  | Office Services Agreement, dated as of January 1, 2006, between the Company and UM Holdings Ltd., incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed January 4,
2006.                 
| |  |       
| |  | 10(bb) |  | Management Employment Agreement between the Company and Edward Kurzontkowski (Filed herewith).*                                                                                                                      
| |  |       
| |  | 10(cc) |  | Management Employment Agreement between the Company and Ed Pryts (Filed herewith).*                                                                                                                                  
| |  |       
| |  | 10(dd) |  | Management Employment Agreement between the Company and John Young (Filed herewith).*                                                                                                                                
| |  |       
| |  | 21     |  | Subsidiaries of the Registrant (Filed herewith).                                                                                                                                                                     
| |  |       
| |  | 23     |  | Consent of Independent Registered Public Accounting FirmKPMG LLP (Filed herewith).                                                                                                                                  
| |  |       
| |  | 31(a)  |  | Certification of Chief Executive Officer (Filed herewith).                                                                                                                                                           
| |  |       
| |  | 31(b)  |  | Certification of Chief Operating and Chief Financial Officer (Filed herewith).                                                                                                                                       
| |  |       
| |  | 32(a)  |  | Certification of Chief Executive Officer pursuant to Section 1350 (Furnished herewith).                                                                                                                              
| |  |       
| |  | 32(b)  |  | Certification of Chief Operating and Chief Financial Officer pursuant to Section 1350 (Furnished herewith).                                                                                                          

---

|* | Executive compensation plans and arrangements
|- | ---------------------------------------------



II-5



---

SIGNATURES

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



CYBEX INTERNATIONAL, INC. (Registrant)By:

/s/    JOHN AGLIALOROJohn AglialoroChairman


March 30, 2007

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



|                                                         |  |                                                                                             |  |               
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------
|Signature                                                |  | Title                                                                                       |  | Date          
|                                                         |  |                                                                                            
|/s/    JOHN
AGLIALORO John Aglialoro                     |  | Chairman and Chief Executive Officer (principal executive officer)                          |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    ARTHUR W. HICKS,
JR. Arthur W. Hicks, Jr.         |  | Director, Chief Operating Officer and Chief Financial Officer (principal financial officer) |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    JAMES M.
AHEARN James M. Ahearn                   |  | Treasurer (principal accounting officer)                                                    |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    JAMES H.
CARLL James H. Carll                     |  | Director                                                                                    |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    JOAN
CARTER Joan Carter                           |  | Director                                                                                    |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    JERRY
LEE Jerry Lee                               |  | Director                                                                                    |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    MILTON LEONTIADES,
PH.D. Milton Leontiades, Ph.D. |  | Director                                                                                    |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    JOHN
MCCARTHY John McCarthy                       |  | Director                                                                                    |  | March 30, 2007
|                                                         |  |                                                                                            
|/s/    HARVEY
MORGAN Harvey Morgan                       |  | Director                                                                                    |  | March 30, 2007



II-6