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, 2009

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).
Yes  [    ]   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, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
[    ]    Accelerated filer [    ]    Non-accelerated filer [    ]    Smaller reporting company [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]





The aggregate
market value of the common stock held by non-affiliates of the registrant as of June 27, 2009 was $10,108,601.





The number of
shares outstanding of the registrants class of common stock, as of March 2, 2010

Common Stock, $.10 Par Value
 17,120,383 shares





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):



|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  
|--------------------------- |  | --------- | ----- | ------- | ---- | - | --------- | ---- | ------- |  | --- | --------- |  | ------- | ----- |  | --- | -
|                            |  | 2009      |       |         | 2008 |   |           | 2007 |        
|                            |  | Net Sales |       | Percent |      |   | Net Sales |      | Percent |  |     | Net Sales |  | Percent |      
|Cardiovascular products     |  | $         | 66.7  |         | 55   | % |           | $    | 76.8    |  | 52  | %         |  | $       | 78.9  |  | 54  | %
|Strength systems            |  |           | 42.0  |         | 35   |   |           |      | 58.2    |  | 39  |           |  |         | 55.2  |  | 38  |  
|Parts                       |  |           | 5.3   |         | 4    |   |           |      | 4.8     |  | 3   |           |  |         | 5.2   |  | 4   |  
|Freight and other sales (1) |  |           | 6.5   |         | 6    |   |           |      | 8.1     |  | 6   |           |  |         | 7.2   |  | 4   |  
|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  
|                            |  | $         | 120.5 |         | 100  | % |           | $    | 147.9   |  | 100 | %         |  | $       | 146.5 |  | 100 | %
|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  



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

Cybex, Eagle, VR3 and Arc Trainer are registered trademarks of Cybex,
and Bravo, Cyclone-S, CX-445T, FT-360, FT-450, Home Arc, Jungle Gym, LCX-425T, Legacy, MG500, MG525,
Pro3, Safety Sentry, and
VR1 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. All of the cardiovascular products, except the Home Arc, can be equipped with optional TV monitors that feature
controls integrated into the control console, with an incremental list price of approximately $1,600.

Cross
Trainers. Cybex Arc Trainer is a 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 up to 900 Watts in the commercial
version to meet the demands ranging from the casual user to the athlete. The 750AT and 750A Arc Trainers use a control console that is based on the 750T treadmill console, facilitating cross-use of



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these products. The 750AT 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. The Company also
produces the 425A Arc Trainer for the light commercial and high-end consumer markets and the 360A Arc Trainer for the consumer market. The Arc Trainers list price ranges from $3,495 to $7,995.

Treadmills. The Company has four treadmill models, the 750T, Pro3, 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, Pro3and 750T 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 and include wireless heart rate monitoring
capabilities. The Companys treadmills have list prices ranging from $4,795 to $7,895.

Bikes. The
Company has two bikes, the 750C Upright Cycle and 750R Recumbent Cycle. These bikes feature improved ergonomics including a walk-through design on the recumbent model as well as improved ease of use and an exceptionally broad resistance range with
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 750T, 750A and 750AT to provide a common method of operation.
The list price of the upright bike is $3,495 and the recumbent bike is $3,695.

Steppers. The
Company has one model of stepper targeting the commercial marketplace. The Cyclone-S Stepper features the family display common to the Pro3as 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 $3,395.

Trazer. The Company also offers 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, jungle gyms, modular multi-station units, MG500 multi-gym, functional trainers,
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 VR1, VR3 and Eagle. The VR1 line represents a value-engineered line suitable for smaller general-purpose facilities and as an entry line in larger facilities. This 20 piece line was introduced in
2007 as a replacement for the VR line. Eight new dual function machines intended for use in smaller facilities were added in 2008 and 2009. The VR3 line is a 23 piece line designed for exceptional ease of use in fitness facilities. 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. The Company currently sells 81
selectorized equipment products under the above lines with list prices between $2,745 and $7,295.

Modular
Units. This product line has the advanced design and high performance features of a selectorized equipment line while being able to be configured into a multiple station design. Pricing for the modular units



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depends on configuration. The list price of a typical configuration is approximately $12,000. This line is being phased out in early 2010, and is replaced by the Jungle Gym introduced in late
2009. The Jungle Gym has many of the same features as the Modular units but features a more compact footprint and updated aesthetics and, like the Modular units, can be configured to meet the facilities needs. The list price of a typical
configuration is approximately $11,600.

Multi-gym. The Companys MG500 multi-gym is being replaced in early
2010 by the MG-525. The multi-gym uses considerably less space than multiple selectorized single station equipment. It contains three weight stacks to meet the needs of the vertical commercial market, especially hotels, corporate fitness centers and
other small-scale locations. This product has a list price of $5,795.

Functional Trainers. The FT-360 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 $4,795 list price. The Bravo (originally
named the FT-450) was introduced in late 2008. This product adds the ability to vary the width of the cables and to add stabilization in a progressive manner. This product is available in two versions. These products have a list price ranging from
$6,195 to $6,495.

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. In 2009, the Company introduced eight updated
models while phasing out earlier products. The Company currently offers 17 plate-loaded products, ranging in price from $1,395 to $3,945.

Free-Weight Equipment. The Company also sells free-weight benches and racks and complements them with OEM supplied dumbbells, barbells and plates. In 2009, the Company introduced 10 updated
free weight models while phasing out earlier products. The Company offers 18 items of free-weight equipment with list prices ranging from $395 to $2,495.

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 2009 net sales. Typical commercial customers are health clubs, hotels, resorts, spas, educational institutions, sports teams, sports medicine clinics, military installations, golf clubs, corporate fitness and community centers.
Sales to Cutler-Owens International Ltd., an independent authorized dealer, represented 13.6%, 12.3% and 14.0% of the Companys net sales for 2009, 2008 and 2007, respectively. Sales to Planet Fitness Equipment, LLC represented 10.6%, 10.2%,
and 5.6% of the Companys net sales for 2009, 2008, and 2007, respectively. Sales to Snap Fitness, Inc. or its franchisees represented 7.4%, 12.9% and 13.2% of the Companys net sales for 2009, 2008 and 2007, respectively. No other
customer accounted for more than 10% of the Companys net sales for 2009, 2008 or 2007.

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



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training. As of March 2, 2010, the Company has approximately 63 active dealers with 134 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 is comprised of 35 positions including territory managers or reps, regional or national account managers, Vice Presidents, and a 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.

Sales outside of North America accounted for approximately 29%, 28% and 28% of the Companys net sales for 2009, 2008 and 2007, respectively. The international sales force consists of one Senior Vice
President, one Vice President of Europe Business Development, five regional sales managers, one director of European strategic accounts, one operations manager and one operations coordinator. The Company, through its wholly-owned subsidiary, Cybex
UK, directly markets and sells Cybex products in the United Kingdom. Cybex UK has 22 employees. The Company utilizes independent distributors for the balance of its international sales. There are approximately 65 independent distributors in 73
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. At the end of 2009, the Company retained Greg Norman to engage in marketing of the
Companys products, specifically to the golf club market.

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 one year of 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. Effective
June 1, 2009, the Company provides extended warranties on its cardio products. Warranty expense for the years ended December 31, 2009, 2008 and 2007 was $4,940,000, $4,361,000 and $5,220,000, 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.



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Product Development

Research and development expense for the years ended December 31, 2009, 2008 and 2007 was $4,545,000, $6,603,000 and $6,673,000, respectively. At December 31, 2009, the Company had the
equivalent of 35 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.

Manufacturing and Supply

The Company maintains two vertically integrated manufacturing facilities equipped to perform fabrication, machining, welding, grinding, assembly and finishing of its products.

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, electronics and video monitors, 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 currently provides an aggregate of $10,000,000 of annual coverage on a claims made basis
($5,000,000 annual coverage for claims made prior to December 1, 2008). These policies include a deductible of $250,000 on claims made after December 1, 2008 with an annual aggregate deductible of $1,000,000 (for claims made prior to
December 1, 2008, a $100,000 deductible with an annual aggregate deductible of $750,000). Reserves for self insured retention, including claims incurred but not yet reported, are included in accrued liabilities on the consolidated balance
sheet.



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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.

Employees

On March 2, 2010, the Company employed 558 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.

General economic conditions affect our results. Demand for our products is affected by economic conditions and consumer confidence.
In times of economic uncertainty, our customers, particularly commercial customers such as fitness clubs, may become cautious in making expansion and other investments and may reduce their capital expenditures for items such as the fitness equipment
offered by us. In addition, economic conditions could make it more difficult for us to collect amounts as they become due to us. Our net sales for 2009 were approximately 19% below net sales for 2008. We believe that this sales decline largely
reflected our customers caution in making capital investment decisions due to economic conditions, both generally and in the fitness industry. If these economic conditions persist or further deteriorate, our ability to generate future revenues
and earnings and our business prospects, liquidity and financial condition could be materially adversely affected.

We
incurred losses in 2008 and 2009. We have incurred net losses in 2008 and 2009. In 2008 we recorded a goodwill impairment charge of $11,247,000, resulting in a net loss for the year. An approximate 19% decline in our 2009 net sales compared to
the prior year was a substantial contributor to our 2009 net loss. We believe the 2009 decline in net sales reflected our customers caution in making capital investment decisions due to economic conditions, both generally and in the fitness
industry. If we are unable to maintain our profitability and we incur losses in the future, such losses could have a material adverse effect on our business prospects, liquidity, financial condition and cash flows.



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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 profit 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.

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 Home Arc, our stepper and certain raw materials and component parts (e.g., drive motors, belts, running decks, molded plastic components and
electronics) from single suppliers. Current economic conditions may make it more likely that our suppliers are unable to deliver supplies which we require on a timely basis or at all. 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.

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 and contractual disputes. In 2006 and 2007 we paid a total of approximately $6.3 million in satisfaction of judgments entered against us in
two matters. 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. Most 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.

The loss of a major customer could adversely affect
us. In 2009 sales to one independent authorized dealer represented 13.6% of our net sales and sales to an end user customer represented 10.6% of net sales. These



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customers represented 6.1% and 14.1%, respectively, of our accounts receivable as of December 31, 2009. The concentration of customers may increase our overall exposure to credit risk. The
loss or significant reduction in the business of a major customer, or a major customer experiencing financial difficulty, 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 2009, 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.

Our major stockholders may exercise effective control over us.John Aglialoro, Joan Carter and UM Holdings Ltd., who are related parties, collectively own approximately 45% of our outstanding
common stock. Such 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. 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.

We failed to meet certain financial covenants in 2009.We failed to meet certain financial covenants contained in our credit facilities at March 28 and June 27, 2009. We obtained waivers from each lender for the quarters then ended, and we also renegotiated our financial covenants with our
lenders. We believe that we will remain in compliance, for the foreseeable future, with these financial covenants. A failure to remain in compliance with our credit facilities could result in a number of consequences, such as our lenders requiring
all indebtedness to be paid, or our revolving lender refusing to extend further revolving loans, which could have a material adverse effect on our business, prospects or financial condition.

We may not be able to generate sufficient income to realize our deferred tax asset.At December 31, 2009, we had a net deferred
tax asset of $13,855,000. Approximately $36,000,000 of income before taxes is needed to fully realize this deferred tax asset, and there is no assurance that we will be able to generate sufficient income to realize all or a significant portion of
this asset.

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 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, 2009, our maximum contingent
liability under all recourse provisions was approximately $6,386,000. 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.



9



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Unfavorable international political or economic changes and/or currency fluctuations
could negatively impact us.Approximately 29% and 28% of our sales in 2009 and 2008, 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 45% of our outstanding common stock. In addition, our Certificate of Incorporation requires an affirmative super-majority stockholder vote before we can 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.Effective internal controls are necessary for us to provide reasonable assurance with respect to our
financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our business and operating results could be harmed. Pursuant to the Sarbanes-Oxley Act
of 2002, we are required to furnish a report by management on internal control over financial reporting, including managements assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect
misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the
preparation and fair presentation of financial statements. In addition, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls,
or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could also be a material adverse effect on our stock price.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



10



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

The Company occupies approximately 120,000 square feet of space in Medway, Massachusetts and approximately 340,000 square feet of space in Owatonna, Minnesota for administrative offices, manufacturing, assembly and warehousing. Both
facilities are owned by the Company. 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. Management believes that the Companys facilities are adequate for its operations for the foreseeable future.

Additional information concerning the financing of the Companys facilities are described in Notes 7 and 14 to the Companys
consolidated financial statements.



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

Product Liability

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 liabilities in the consolidated balance sheet.

Litigation and Contingencies

United Leasing, Inc. v. Cybex International, Inc., et al.

The Company on February 25, 2009 was served with an Amended Complaint which added the Company and its wholly owned subsidiary, Cybex Capital Corp. (collectively with the Company referred to herein as
Cybex), as additional defendants in this action originally venued in the Circuit Court for Williamson County, State of Tennessee. The plaintiff, United Leasing, Inc., provided a series of lease financings for the sale of Cybex equipment to a
purchaser/lessee which has since entered bankruptcy, many of which sales were made by an independent dealer, also a defendant in the action. The plaintiff alleges that it was induced to finance in excess of the purchase price for certain of the
equipment based primarily upon alleged rebates to the purchaser/lessee made by the independent dealer. Cybex Capital assisted in the lease financing and the plaintiff now asserts that Cybex participated in the alleged scheme. The Amended Complaint
included claims for breach of contract, conversion, intentional/fraudulent misrepresentation, fraudulent concealment and civil conspiracy. The plaintiff seeks from Cybex an unspecified amount of compensatory and punitive damages, including
repurchase of the leases; damages in the amount of the alleged rebates, stated to be at least $350,000; payment of the lease guarantees, stated to be at least $365,000 plus one-half of the remaining balance of one lease; and interest, costs and
counsel fees.

During March 2009, this action was removed to the United States District Court for the Middle District of
Tennessee, and Cybex filed an Answer denying all material allegations of the Amended Complaint, other than admitting limited guarantees of certain of the leases at issue had been provided. While Cybex has asserted that the plaintiffs acts and
omissions have relieved Cybex of liability under the lease guarantees, a reserve for the estimated amount of the guarantee obligation is included in accrued liabilities at December 31, 2009, should it be determined that Cybex remains
responsible thereunder.



11



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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. | RESERVED
|------- | --------



|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 2, 2010 were as follows:



|                     |  |     |  |                                                               
|-------------------- |  | --- |  | --------------------------------------------------------------
|Name                 |  | Age |  | Position                                                      
|John Aglialoro       |  | 66  |  | Chairman and Chief Executive Officer                          
|Arthur W. Hicks, Jr. |  | 51  |  | President, Chief Operating Officer and Chief Financial Officer
|Edward Kurzontkowski |  | 46  |  | Senior Vice President of Manufacturing                        
|Raymond Giannelli    |  | 56  |  | Senior Vice President of Research and Development             
|Edward J. Pryts      |  | 49  |  | Senior Vice President of Sales  North America                
|John P. Young        |  | 47  |  | Senior Vice President of Sales  International                
|Galen S. Lemar       |  | 63  |  | Senior Vice President/President-Cybex Capital Corp.           

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. (Trotter) 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.

Mr. Hicks is the Companys President, Chief Operating Officer and Chief Financial Officer.
Mr. Hicks has served the Company as President since 2008, as Chief Operating Officer since 2006 and as Chief Financial Officer since 2002. He also held the title Executive Vice President from 2006 until his appointment as President. 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. 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 since 2008. He joined Trotter
in 1981 and has served the Company in a variety of capacities, including Executive Vice President of Operations from 2002 to 2003 and Senior Vice President of Manufacturing and Engineering from 2003 to 2008.

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. Mr. Giannelli left Cybex in 1999 and returned in 2001 to assist in Cybexs research and development effort as the Chairman of the Cybex Institute.

Mr. Pryts has served as the Companys Senior Vice President of Sales  North America since 2007. Mr. Pryts first joined
Trotter in 1993 and has served the Company 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.



12



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Mr. Lemar has served as the Companys Senior Vice President and the President of
the Companys wholly-owned subsidiary, Cybex Capital Corp., since 2008. He was originally employed by the Company from 2001 to 2006 in several capacities, most recently as its Senior Vice President of Sales and Marketing from 2003 to 2006. From
2006 to 2007 he was employed by Main Street National Bank as its Executive Vice President of Financing and Operations.



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 are traded on the NASDAQ Global Market under the symbol CYBI.

The following table shows the high and low market prices as reported by NASDAQ:



|               |  |      |      |      |   |      |  |     |      |  |   |     
|-------------- |  | ---- | ---- | ---- | - | ---- |  | --- | ---- |  | - | ----
|               |  | 2009 |      | 2008
|Calendar       |  | High |      | Low  |   | High |  | Low
|First Quarter  |  | $    | 1.93 |      | $ | 0.81 |  | $   | 5.18 |  | $ | 3.75
|Second Quarter |  |      | 1.49 |      |   | 0.95 |  |     | 4.30 |  |   | 3.37
|Third Quarter  |  |      | 2.55 |      |   | 0.86 |  |     | 3.77 |  |   | 2.78
|Fourth Quarter |  |      | 1.89 |      |   | 1.15 |  |     | 3.14 |  |   | 1.10

As of March 2,
2010, there were approximately 443 common stockholders of record. This figure does not include stockholders with shares held under beneficial ownership in nominee name.

Warrant holders exercised in full their respective warrants to purchase the number of shares of common stock of the Company listed below, on the dates indicated below. Pursuant to the net exercise
provisions of these warrants, the Company issued to the warrant holders the number of shares of common stock of the Company set forth below.



|                      |  |                          |  |                 
|--------------------- |  | ------------------------ |  | ----------------
|Warrant Exercise Date |  | Shares Subject ToWarrant |  | Net SharesIssued
|7/16/2009             |  | 600                      |  | 548             
|7/21/2009             |  | 1,700                    |  | 1,538           
|7/27/2009             |  | 1,500                    |  | 1,351           
|7/29/2009             |  | 1,200                    |  | 1,080           
|8/3/2009              |  | 750                      |  | 679             

In
addition, a warrant for 2,500 shares expired during the third quarter of 2009.

These warrants were issued in connection with
the Companys 2004 private placement. In issuing the shares of the Companys common stock underlying these warrants, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as
amended, in that the transaction did not involve a public offering.

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.



14



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The following table summarizes securities authorized for issuance under equity compensation
plans at December 31, 2009:

Equity Compensation Plan Information



|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                          |         |    
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | ---------------------------------------------------------------------------------------- | ------- | ---
|Plan category                                              |  | Number ofsecurities to beissued upon exerciseof outstandingoptions, warrantsand
rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |      | Number ofsecurities remainingavailable for futureissuance under equitycompensation
plans |        
|Equity compensation plans approved by security holders     |  | 577,375                                                                                |  | $                                                                        | 2.57 |                                                                                          | 781,000 | (1)
|Equity compensation plans not approved by security holders |  |                                                                                       |  |                                                                          |     |                                                                                          |        |    
|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                          |         |    
|Total                                                      |  | 577,375                                                                                |  | $                                                                        | 2.57 |                                                                                          | 781,000 |    
|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                          |         |    



|(1) | Includes 781,000 shares available for issuance under the Companys 2005 Omnibus Incentive Plan. See Note 10 to the Companys consolidated financial statements
for a description of this plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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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 22 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 Among

Cybex International, Inc., NASDAQ Market Index,

and SIC Code
Index (1)



|                          |  |      |        |      |   |        |  |      |        |      |   |        |  |   |       |  |   |       
|------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ----- |  | - | ------
|                          |  | 2004 |        | 2005 |   | 2006   |  | 2007 |        | 2008 |   | 2009  
|Cybex International, Inc. |  | $    | 100.00 |      | $ | 90.46  |  | $    | 146.70 |      | $ | 111.49 |  | $ | 44.99 |  | $ | 28.61 
|SIC Code Index            |  |      | 100.00 |      |   | 103.76 |  |      | 120.61 |      |   | 104.69 |  |   | 54.95 |  |   | 59.71 
|NASDAQ Market Index       |  |      | 100.00 |      |   | 102.20 |  |      | 112.68 |      |   | 124.56 |  |   | 74.70 |  |   | 108.56

(1) Assumes $100
invested on December 31, 2004 and dividends are reinvested. Source: Morningstar, Inc.



16



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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, 2009. 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                |        
|                                             |  | 2009                                  |         |   | 2008 |   |         | 2007 |  |   | 2006    |      |  | 2005 |        
|                                             |  | (in thousands, except per share data) |        
|Statement of Operations Data:                |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Net sales                                    |  | $                                     | 120,474 |   |      | $ | 147,929 |      |  | $ | 146,503 |      |  | $    | 126,924 |      |  | $ | 114,646 |    
|Cost of sales                                |  |                                       | 84,466  |   |      |   | 99,940  |      |  |   | 95,683  |      |  |      | 80,241  |      |  |   | 73,169  |    
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Gross profit                                 |  |                                       | 36,008  |   |      |   | 47,989  |      |  |   | 50,820  |      |  |      | 46,683  |      |  |   | 41,477  |    
|Selling, general and administrative expenses |  |                                       | 37,680  |   |      |   | 42,321  |      |  |   | 42,224  |      |  |      | 36,757  |      |  |   | 38,513  | (d)
|Goodwill impairment charge                   |  |                                       |        |   |      |   | 11,247  | (a)  |  |   |        |      |  |      |        |      |  |   |        |    
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Operating income (loss)                      |  |                                       | (1,672  | ) |      |   | (5,579  | )    |  |   | 8,596   |      |  |      | 9,926   |      |  |   | 2,964   |    
|Interest expense, net                        |  |                                       | (1,274  | ) |      |   | (1,176  | )    |  |   | (963    | )    |  |      | (1,839  | )    |  |   | (2,652  | )  
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Income (loss) before income taxes            |  |                                       | (2,946  | ) |      |   | (6,755  | )    |  |   | 7,633   |      |  |      | 8,087   |      |  |   | 312     |    
|Income tax expense (benefit)                 |  |                                       | (509    | ) |      |   | 2,333   |      |  |   | (2,121  | )(b) |  |      | (11,967 | )(c) |  |   | 251     |    
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Net income (loss)                            |  | $                                     | (2,437  | ) |      | $ | (9,088  | )    |  | $ | 9,754   |      |  | $    | 20,054  |      |  | $ | 61      |    
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Basic earnings (loss) per share              |  | $                                     | (0.14   | ) |      | $ | (0.52   | )    |  | $ | .56     |      |  | $    | 1.22    |      |  | $ | .00     |    
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    
|Diluted earnings (loss) per share            |  | $                                     | (0.14   | ) |      | $ | (0.52   | )    |  | $ | .55     |      |  | $    | 1.18    |      |  | $ | .00     |    
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |      |  |      |         |      |  |   |         |    



|(a) | Includes a non-cash non-tax deductible goodwill impairment charge of $11,247 triggered by declines in the Companys stock price in the period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes a benefit of $5,377 resulting from a reduction in the valuation allowance for deferred income taxes.
|--- | -------------------------------------------------------------------------------------------------------------

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

|(d) | Includes pre-tax charges of $4,605 relating primarily to two litigation matters.
|--- | --------------------------------------------------------------------------------



|                                           |  |                |        |      |   |        |  |      |        |      |   |        |  |   |       
|------------------------------------------ |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                           |  | December 31   
|                                           |  | 2009           |        | 2008 |   | 2007   |  | 2006 |        | 2005
|                                           |  | (in thousands)
|Balance Sheet Data:                        |  |                |        |      |   |        |  |      |        |      |   |        |  |   |       
|Working capital                            |  | $              | 21,107 |      | $ | 20,929 |  | $    | 18,186 |      | $ | 14,061 |  | $ | 4,478 
|Total assets                               |  |                | 88,635 |      |   | 91,301 |  |      | 98,129 |      |   | 73,377 |  |   | 55,672
|Long-term debt (including current portion) |  |                | 17,606 |      |   | 18,488 |  |      | 18,950 |      |   | 3,762  |  |   | 13,659
|Total stockholders equity                 |  |                | 43,109 |      |   | 45,451 |  |      | 55,042 |      |   | 45,667 |  |   | 16,188



17



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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 AND OUTLOOK

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.

We estimate that commercial sales
represent more than 90% of our total net sales. Our financial performance can be affected when, in times of economic uncertainty, our commercial customers, particularly fitness clubs, become cautious in making expansion and other capital investments
and reduce their expenditures for items such as the fitness equipment offered by us.

Commencing with the fourth quarter of
2008, our net sales have declined compared to the corresponding period of the prior year, with net sales in 2009 19% below net sales in 2008. We believe that this sales decline largely reflects our commercial customers, particularly fitness clubs,
being cautious in making capital investments due to economic conditions, both generally and in the fitness industry.

While we
cannot be certain how long these conditions will persist or the extent that these conditions will affect our financial performance, we expect sales to continue to be negatively impacted by the economy. We further expect that sales will rebound as
the economy recovers.

We have taken various steps to reduce expenses in response to the decline in our sales. These steps
have included a first quarter 2009 work force reduction of about 5% and a wage reduction of 3% or 5% for all employees in effect from the second quarter 2009 to December 31, 2009. In addition, at the request of our outside Board members, a 5%
reduction in director fees was in effect during the period of the employee wage reduction. We intend to monitor general economic conditions and our sales performance and, if warranted, may effect further cost saving measures during 2010.

We failed to meet certain financial covenants contained in our credit facilities at March 28 and June 27, 2009. We received
waivers with respect to these failures and have renegotiated our financial covenants with our lenders. At December 31, 2009 we were in compliance with each credit facilitys financial covenants as currently in effect and we believe that we
will remain in compliance with these financial covenants for the foreseeable future.

The foregoing statements are based on
current expectations. These statements are forward-looking and actual results may differ materially. In particular, the continued uncertainties in U.S. and global economic conditions and in the fitness industry make it particularly difficult to
predict product demand and other related matters and may preclude us from achieving expected results.



18



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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 |   
|                                             |  | 2009                   |    |  | 2008 |    |  | 2007 |  
|Net sales                                    |  | 100                    | %  |  | 100  | %  |  | 100  | %
|Cost of sales                                |  | 70                     |    |  | 68   |    |  | 65   |  
|                                             |  |                        |    |  |      |    |  |      |  
|Gross profit                                 |  | 30                     |    |  | 32   |    |  | 35   |  
|Selling, general and administrative expenses |  | 31                     |    |  | 28   |    |  | 29   |  
|Goodwill impairment charge                   |  |                       |    |  | 8    |    |  |     |  
|                                             |  |                        |    |  |      |    |  |      |  
|Operating income (loss)                      |  | (1                     | )  |  | (4   | )  |  | 6    |  
|Interest expense, net                        |  | 1                      |    |  | 1    |    |  | 1    |  
|                                             |  |                        |    |  |      |    |  |      |  
|Income (loss) before income taxes            |  | (2                     | )  |  | (5   | )  |  | 5    |  
|Income tax expense (benefit)                 |  |                       |    |  | 1    |    |  | (2   | )
|                                             |  |                        |    |  |      |    |  |      |  
|Net income (loss)                            |  | (2                     | )% |  | (6   | )% |  | 7    | %
|                                             |  |                        |    |  |      |    |  |      |  

NET SALES

Our net sales decreased $27,455,000, or 19%, to $120,474,000 in 2009 compared with a $1,426,000, or 1%, increase in 2008 compared to 2007.

The decrease in 2009 was attributable to decreases in sales of cardiovascular products of $10,074,000, or 13% to $66,704,000, strength
training products of $16,181,000, or 28% to $41,992,000 and freight, parts and other sales of $1,200,000, or 9% to $11,778,000. The sales decline was generally throughout our product offerings and we believe was reflective of economic conditions,
generally and in the fitness industry.

The increase in 2008 was attributable to an increase in sales of strength training
products of $3,006,000, or 5%, to $58,173,000, and increased freight, parts and other revenue of $582,000, or 5%, to $12,978,000, partially offset by a decrease in sales of cardiovascular products of $2,162,000, or 3%, to $76,778,000. The sales
increase of strength training products in 2008 was primarily due to sales of VR1, the strength line introduced in the second quarter of 2007. The sales decrease of cardiovascular products in 2008 was predominantly driven by reduced sales of Arc
Trainers, offset by increased sales of treadmills including models first introduced in the second quarter of 2008.

Sales
outside of North America represented 29%, 28% and 28% of consolidated net sales in 2009, 2008 and 2007, respectively.

GROSS MARGIN

Gross margin was 29.9% in 2009, compared with 32.4% in 2008 and 34.7% in 2007. Margins decreased in 2009 due to higher
material costs (2.3%) as a percentage of sales due primarily to higher steel costs and product and customer mix, higher warranty costs (1.2%), and higher overhead as a percentage of sales mainly due to lower volumes (.8%). These decreases in
margin were partially offset by lower labor costs as a percentage of sales (1.1%) and improvements in freight billings compared to freight costs (.7%). Margins decreased in 2008 largely due to higher commodity and freight costs.



19



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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses, including bad debt expense, decreased by $4,641,000, or 11%, in 2009 to $37,680,000 compared to
an increase of $97,000, or .2%, in 2008. As a percentage of net sales, these expenses were 31%, 29% and 29% in 2009, 2008 and 2007, respectively.

The 2009 decrease in selling, general and administrative expenses was predominantly due to a decrease in domestic and international selling expenses ($2,879,000) and a decrease in product development
costs ($2,058,000). In response to economic conditions we effectuated various cost reductions during 2009. We will continue to monitor economic conditions and sales results, and will adjust spending levels accordingly.

GOODWILL IMPAIRMENT CHARGE

At December 31, 2008, we tested our goodwill for impairment and performed the initial step of our impairment evaluation by comparing the fair market value of our single reporting unit, as determined using market capitalization, as
adjusted for a control premium, to its carrying value. As the carrying amount exceeded the fair value, the second step of the impairment evaluation was performed to calculate impairment and as a result, a goodwill impairment charge of $11,247,000,
the entire amount of the goodwill carrying value, was recorded effective December 31, 2008, with no corresponding tax benefit. The primary reason for the impairment charge was the reduction in our market capitalization resulting from the
sustained decline of our stock price during the second half of 2008.

INTEREST EXPENSE, NET

Net interest expense increased by $98,000, or 8%, in 2009 to $1,274,000 compared to an increase of $213,000, or 22%, in 2008. During 2009,
interest expense increased slightly due to increases in the applicable interest rate resulting from debt modifications, offset by lower average borrowings. The increase in 2008 relates primarily to $289,000 of interest income recognized in 2007
related to the Citizens interest rate swap, offset by higher deferred financing costs in 2007. We expect that net interest expense for 2010 will approximate 2009.

INCOME TAXES

We recorded an income tax expense (benefit) of ($509,000) and
$2,333,000 for the years ended December 31, 2009 and 2008, respectively. In 2002, we established a valuation allowance against all of our deferred tax assets. On a quarterly basis, we reevaluate the need for this valuation allowance based upon
the existence of various factors. Based on this reevaluation, we reduced the valuation allowance by $5,244,000 effective September 29, 2007. The effective tax (benefit) rate was (17.3%) in 2009, 51.9% in 2008 before the non-deductible
goodwill impairment charge and 42.7% in 2007 excluding changes in the valuation allowance. The low benefit rate for 2009 is primarily due to the effects of non-deductible foreign losses and changes in unrecognized tax benefits. The tax rate increase
in 2008 was primarily due to non-deductible foreign losses representing a higher percentage of our results for the year. Actual cash outlays for taxes continue to be reduced by the available operating loss carryforwards.

As of December 31, 2009, U.S. federal operating loss carryforwards of approximately $17,488,000 were available to us to offset future
taxable income and, as of such date, we also had foreign net operating loss carryforwards of $5,111,000, federal alternative minimum tax credit carryforwards of $666,000 and federal research and development tax credit carryforwards of $277,000. The
net deferred tax asset balance of $13,855,000 at December 31, 2009 represents the amount that we believe is more-likely-than-not to be realized, and the remaining valuation allowance at December 31, 2009 is $1,486,000. 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. Approximately $36,000,000 of income before taxes is needed to fully realize the Companys
recorded net deferred tax asset.



20



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We adopted the provisions of FASB ASC 740-10-15 on January 1, 2007. There was no impact
on our financial position upon adoption (see Note 11 to the consolidated financial statements for disclosures of unrecognized tax benefits through December 31, 2009).

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of
December 31, 2009, we had working capital of $21,107,000 compared to $20,929,000 at December 31, 2008.

For the year
ended December 31, 2009, we generated $7,219,000 of cash from operating activities compared to $9,092,000 for the year ended December 31, 2008. The decrease in cash provided by operating activities in 2009 compared to 2008 is primarily due
to the net loss in 2009 compared to the net income excluding the goodwill impairment charge in 2008, offset by the decrease in inventory.

Cash used in investing activities of $613,000 in 2009 consisted of purchases of manufacturing tooling and equipment of $312,000, primarily for the manufacture of new products, and computer hardware and
infrastructure of $301,000. Cash used in investing activities of $7,436,000 during 2008 consisted of purchases of manufacturing tooling and equipment of $5,032,000, primarily for the manufacture of new products, $1,814,000 of renovations to our
Medway manufacturing facility and computer hardware of $590,000. While 2010 capital expenditures are expected to be approximately $3,500,000, the timing and amount of these expenditures will depend on economic conditions and results of our
operations.

For the year ended December 31, 2009, cash used in financing activities of $1,355,000 consisted primarily of
net term loan payments of $882,000 and $451,000 for the purchase of treasury stock through a repurchase program. For the year ended December 31, 2008, cash used in financing activities of $637,000 consisted primarily of net revolver payments of
$1,392,000 and $252,000 for the purchase of treasury stock through a repurchase program, offset by net term loan borrowings of $930,000.

We have credit facilities with RBS Citizens, National Association (Citizens) and Wachovia Bank, N.A. (Wachovia). Our Citizens Credit Agreement provides a revolving line of credit
of up to the lesser of a ceiling or an amount determined by reference to a borrowing base. Our Citizens Loan Agreement provided for a $13,000,000 real estate loan which was advanced in 2007 to finance the acquisition of our Owatonna facility. We
entered into the Wachovia Loan Agreement in 2007, providing for a term loan to finance the acquisition of machinery and equipment. The Wachovia Loan Agreement was supplemented in 2008 and 2009 to provide additional term loans to finance the
acquisition of machinery and equipment. A total of $5,000,000, $1,975,000, and $1,000,000, respectively, was advanced under the initial, second and third Wachovia term loans. The Citizens revolving line of credit is secured by our accounts
receivable and inventory, and matures July 1, 2011. The Citizens real estate loan is secured by a mortgage on the Owatonna facility, is cross-collateralized by our accounts receivable and inventory and matures on July 2, 2014. The Wachovia
loans are secured by our equipment. The first Wachovia term loan matures on March 1, 2013, the second term loan matures on January 1, 2014 and the third term loan matures on December 1, 2011.

At December 31, 2009, there were no outstanding revolving credit loans, a $11,743,000 real estate loan and $5,863,000 in term loans.
Availability under the revolving loan fluctuates daily. At December 31, 2009, there was $5,000,000 in unused availability under the revolving loan facility.

Our credit facilities include financial covenants. We failed to meet certain of these covenants at March 28 and June 27, 2009. We obtained waivers from each lender for the quarters then ended
and also entered into amendments of each credit facility which among other things modified the financial covenants. At December 31, 2009, we were in compliance with each credit facilitys financial covenants and we believe that we will
remain in compliance with these financial covenants for the foreseeable future.



21



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In November 2008, we announced that our Board of Directors had authorized a stock repurchase
program of up to one million shares of our common stock. There is no requirement that any level of purchases up to the maximum be made under this program, and the timing, amount and cost of any purchase depends upon various factors, including our
stock price and market conditions. Pursuant to our credit facilities, we are currently restricted in making further purchases of our shares. Through December 31, 2009, 531,200 shares had been repurchased under this program with an aggregate
cost to us of $703,000.

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, 2009, we had approximately $22,599,000 in U.S. Federal and non-U.S. net operating loss carryforwards, substantially all of which will be available to offset future 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                                                    |  | $     | 17,606,000 |                   | $ | 2,415,000         |  | $                 | 4,330,000  |                 | $ | 10,861,000 |  | $ | 
|Interest due including impact of interest rate swap (a) |  |       | 4,892,000  |                   |   | 1,355,000         |  |                   | 2,174,000  |                 |   | 1,363,000  |  |   | 
|Operating lease commitments                             |  |       | 721,000    |                   |   | 465,000           |  |                   | 225,000    |                 |   | 31,000     |  |   | 
|Purchase obligations                                    |  |       | 18,775,000 |                   |   | 13,177,000        |  |                   | 4,698,000  |                 |   | 900,000    |  |   | 
|                                                        |  |       |            |                   |   |                   |  |                   |            |                 |   |            |  |   |  
|                                                        |  | $     | 41,994,000 |                   | $ | 17,412,000        |  | $                 | 11,427,000 |                 | $ | 13,155,000 |  | $ | 
|                                                        |  |       |            |                   |   |                   |  |                   |            |                 |   |            |  |   |  



|(a) | This includes fixed rates of 8.25% to 8.75% based on a performance grid and 8.06% per the interest rate swap agreements.
|--- | ------------------------------------------------------------------------------------------------------------------------

We have agreements with our named executive officers that provide for severance payments to the officer in the event the employee is
terminated without cause or, in certain situations, the officer resigns after a change in control. As further described in Note 14, Employment Agreements, the maximum cash exposure under these agreements is $2,795,000 as of December 31, 2009.
The actual amounts to be paid can only be determined at the time of the executive officers separation from the Company.

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 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, 2009, the maximum contingent liability under all recourse provisions was approximately $6,386,000. A reserve for estimated losses under recourse provisions of $1,030,000 has
been recorded based upon historical experience, and is included in accrued liabilities at December 31, 2009.



22



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RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued guidance codified in ASC Topic 820 Fair Value
Measurements and Disclosures (ASC 820) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies under other accounting pronouncements that require
or permit fair value measurements, but does not require any new fair value measurements. This guidance covers financial assets and liabilities, for which the guidance became effective for fiscal years beginning after November 15, 2007, as well
as nonfinancial assets and liabilities that are not required or permitted to be remeasured to fair value on a recurring basis, for which the guidance is effective for fiscal years beginning after November 15, 2008. The Company adopted ASC 820
on January 1, 2008 for financial assets and liabilities and on January 1, 2009 for non-financial assets and liabilities and there was no impact on its financial position, results of operations or cash flows.

In March 2008, the FASB issued guidance codified in ASC Topic 815, Derivatives and Hedging (ASC 815), Disclosures
about Derivative Instruments and Hedging Activities. The new guidance is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial condition, financial performance, and cash flows. The adoption of this guidance did not have an impact on the Companys consolidated financial condition, results of operations or cash
flows.

In May 2009, the FASB issued guidance codified in ASC Topic 855, Subsequent Events, which establishes the
standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company adopted guidance included in ASC 855 for the period ended June 27, 2009. The adoption of
this guidance did not have an impact on the Companys consolidated financial condition, results of operations or cash flows.

Effective September 26, 2009, the Company adopted Accounting Standards Update No. 2009-01, Statement of Financial Accounting Standards No. 168  The FASB Accounting Standards Codification and Hierarchy of Generally
Accepted Accounting Principles, (ASU 2009-01). ASU 2009-01 did not change U.S. generally accepted accounting principles but combines all nongovernmental authoritative standards into a comprehensive, topically organized database. All other
accounting literature excluded from ASU 2009-01 will be considered nonauthoritative. All references to authoritative accounting literature have been made in accordance with ASU 2009-01.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable
Revenue Arrangements, (ASU 2009-13) which provides new revenue recognition guidance with respect to revenue arrangements that include multiple deliverables. This new guidance establishes a new hierarchy for allocating revenues among multiple
deliverables in a multi-element arrangement. In order of preference, revenues will be allocated based on vendor specific objective evidence (VSOE), third-party evidence, or estimated selling price. Additional disclosures are required to describe the
effects of adoption, including changes in how arrangement consideration is allocated or in the pattern and timing of revenue recognition. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010, and the Company has elected
to early adopt for new or materially modified arrangements entered into on or after January 1, 2009. Adoption did not materially impact the Companys consolidated financial condition, results of operations or cash flows.

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



23



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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, 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 worthiness, as determined by a review of their current credit information.
Management continuously monitors collections and payments from customers and maintains a provision 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 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 one year of 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 will record 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, and the adequacy of accruals for probable loss contingencies.

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
condensed 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. See Note 14 to the consolidated financial statements for further discussion on product liability.

As of December 31, 2009 and 2008, the Company accrued $7,627,000 and $5,000,000, respectively, for product liability claims and a corresponding receivable for the liability claims estimated to be recoverable under the Companys
insurance policies. On a quarterly basis, the Company reviews and adjusts each product liability claim and corresponding receivable. This accrual was included as a component of other liabilities and the



24



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insurance recoverable was included as a component of other assets at December 31, 2009 and December 31, 2008.

Valuation of deferred tax assets.In 2002, the Company established a full valuation allowance against its net deferred tax assets. On
a quarterly basis, management reevaluates the need for this valuation allowance due to the existence of various factors. Based on this reevaluation, the Company reduced the valuation allowance by $5,377,000 in 2007. The net deferred tax asset
balance of $13,855,000 at December 31, 2009 represents the amount that management believes is more-likely-than-not to be realized and the remaining valuation allowance at December 31, 2009 is $1,486,000. Management will continue to assess
the need for the remaining valuation allowance in future periods.Approximately $36,000,000 of income before income taxes is needed to fully realize the Companys recorded net deferred tax asset and $39,000,000 of future taxable income
is needed to fully realize the Companys deferred tax assets. The difference between total deferred tax assets and the net operating loss carry forwards and credits is primarily book versus tax differences of various expenses. 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, 2009 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, 2009, the Company had variable rate debt with a carrying value of $3,652,000. A 100 basis point
change in interest rates would have impacted interest expense by $37,000 for the year ended December 31, 2009.

The
Company uses interest rate swaps to hedge its exposure to interest rate changes and also to reduce volatility of its financing costs. Under these swaps the Company agrees with a counterparty to exchange the difference between fixed-rate and
floating-rate interest amounts based on agreed notational principal amounts. These agreements are considered highly effective as cash flow hedges for a portion of the Companys variable debt, and hedge accounting is used to account for these
instruments.

The Company entered into an interest rate swap agreement effective March 3, 2008 with respect to the first
Wachovia term loan, which effectively converts the rate from a floating rate based on LIBOR to a fixed rate of 8.06% throughout the duration of the swap agreement. The Company also has an interest rate swap which effectively converts the Citizens
real estate loan in the amount of $11,743,000 at December 31, 2009 from a floating rate to a fixed rate of 8.25% to 8.75% based on a performance grid throughout the duration of the loan. See Note 8 to the consolidated financial statements for
further discussion of these instruments.

Foreign Currency Rates

The Company uses foreign currency forward contracts to hedge its foreign currency exposure on sales made in the UK in British Sterling.There were no foreign currency forward contracts outstanding at December 31, 2009.



25



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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-1
|                                                                                                                               | 
|Consolidated Financial Statements:                                                                                             |  |    
|                                                                                                                               | 
|Consolidated Balance Sheets as of December 31, 2009 and 2008                                                                   |  | F-2
|                                                                                                                               | 
|Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and
2007                                     |  | F-3
|                                                                                                                               | 
|Consolidated Statements of Stockholders Equity and Comprehensive Income for the years ended December 31,
 2009, 2008 and 2007 |  | F-4
|                                                                                                                               | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007                                     |  | F-5
|                                                                                                                               | 
|Notes to Consolidated Financial Statements                                                                                     |  | F-6
|                                                                                                                               | 
|Financial Statement Schedule:                                                                                                  |  |    
|                                                                                                                               | 
|II. Valuation and Qualifying Accounts for the years ended December 31, 2009, 2008 and
2007                                     |  | 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.



26



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Cybex International, Inc.:

We have audited the accompanying consolidated balance sheets of Cybex International, Inc.
and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2009. 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, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2009, 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.

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 2, 2010



F-1



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                        |  |              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                        |  | December 31, |        
|                                                                                        |  | 2009         |         |   | 2008 |  
|ASSETS                                                                                  |  |              |         |   |      |   |         |  
|Current Assets:                                                                         |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                               |  | $            | 6,879   |   |      | $ | 1,628   |  
|Accounts receivable, net of allowance of $1,362 and $1,215                              |  |              | 16,815  |   |      |   | 18,735  |  
|Inventories                                                                             |  |              | 10,054  |   |      |   | 13,465  |  
|Prepaid expenses and other                                                              |  |              | 1,216   |   |      |   | 2,249   |  
|Deferred income taxes                                                                   |  |              | 5,040   |   |      |   | 4,685   |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total current assets                                                                    |  |              | 40,004  |   |      |   | 40,762  |  
|Property, plant and equipment, net                                                      |  |              | 31,835  |   |      |   | 36,551  |  
|Deferred income taxes                                                                   |  |              | 8,815   |   |      |   | 8,698   |  
|Other assets                                                                            |  |              | 7,981   |   |      |   | 5,290   |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  | $            | 88,635  |   |      | $ | 91,301  |  
|                                                                                        |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                    |  |              |         |   |      |   |         |  
|Current Liabilities:                                                                    |  |              |         |   |      |   |         |  
|Current portion of long-term debt                                                       |  | $            | 2,415   |   |      | $ | 1,882   |  
|Accounts payable                                                                        |  |              | 4,436   |   |      |   | 5,965   |  
|Accrued liabilities                                                                     |  |              | 12,046  |   |      |   | 11,986  |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total current liabilities                                                               |  |              | 18,897  |   |      |   | 19,833  |  
|Long-term debt                                                                          |  |              | 15,191  |   |      |   | 16,606  |  
|Accrued warranty obligation                                                             |  |              | 1,412   |   |      |   | 1,378   |  
|Other liabilities                                                                       |  |              | 10,026  |   |      |   | 8,033   |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total liabilities                                                                       |  |              | 45,526  |   |      |   | 45,850  |  
|                                                                                        |  |              |         |   |      |   |         |  
|Commitments and contingencies (Notes 13 and 14)                                         |  |              |         |   |      |   |         |  
|Stockholders Equity:                                                                   |  |              |         |   |      |   |         |  
|Common stock, $.10 par value, 30,000 shares authorized, 17,860 and 17,813 shares issued |  |              | 1,786   |   |      |   | 1,781   |  
|Additional paid-in capital                                                              |  |              | 68,661  |   |      |   | 68,426  |  
|Treasury stock, at cost (740 and 329 shares)                                            |  |              | (2,955  | ) |      |   | (2,503  | )
|Accumulated deficit                                                                     |  |              | (22,247 | ) |      |   | (19,810 | )
|Accumulated other comprehensive loss                                                    |  |              | (2,136  | ) |      |   | (2,443  | )
|                                                                                        |  |              |         |   |      |   |         |  
|Total stockholders equity                                                              |  |              | 43,109  |   |      |   | 45,451  |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  | $            | 88,635  |   |      | $ | 91,301  |  
|                                                                                        |  |              |         |   |      |   |         |  

The accompanying notes are an integral part of these statements.



F-2



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | Year Ended December 31, |        
|                                             |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Net sales                                    |  | $                       | 120,474 |   |      | $ | 147,929 |      |  | $ | 146,503 |  
|Cost of sales                                |  |                         | 84,466  |   |      |   | 99,940  |      |  |   | 95,683  |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                 |  |                         | 36,008  |   |      |   | 47,989  |      |  |   | 50,820  |  
|Selling, general and administrative expenses |  |                         | 37,680  |   |      |   | 42,321  |      |  |   | 42,224  |  
|Goodwill impairment charge                   |  |                         |        |   |      |   | 11,247  |      |  |   |        |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                     |  |                         | 37,680  |   |      |   | 53,568  |      |  |   | 42,224  |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating income (loss)                      |  |                         | (1,672  | ) |      |   | (5,579  | )    |  |   | 8,596   |  
|Interest expense, net                        |  |                         | (1,274  | ) |      |   | (1,176  | )    |  |   | (963    | )
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes            |  |                         | (2,946  | ) |      |   | (6,755  | )    |  |   | 7,633   |  
|Income tax expense (benefit)                 |  |                         | (509    | ) |      |   | 2,333   |      |  |   | (2,121  | )
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                            |  | $                       | (2,437  | ) |      | $ | (9,088  | )    |  | $ | 9,754   |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic net income (loss) per share            |  | $                       | (0.14   | ) |      | $ | (0.52   | )    |  | $ | .56     |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted net income (loss) per share          |  | $                       | (0.14   | ) |      | $ | (0.52   | )    |  | $ | .55     |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  

The accompanying notes are an integral part of these statements.



F-3



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME

(in thousands)



|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | ----- | ------------- | - | ------ | ------------------ | - | ------ | --------------------------------- |  | - | ------------------------ | - |  | - | ------ | ------ | - | - | ------ | -
|                                                                                      |  | Common Stock |  | AdditionalPaid-inCapital |       | TreasuryStock |   |        | AccumulatedDeficit |   |        | AccumulatedOtherComprehensiveLoss |  |   | TotalStockholdersEquity |  
|                                                                                      |  | Shares       |  | Amount                   |       |               |   |        |                   
|Balance, January 1, 2007                                                              |  | 17,411       |  | $                        | 1,741 |               | $ | 67,503 |                    | $ | (2,251 | )                                 |  | $ | (20,476                  | ) |  | $ | (850   | )      |   | $ | 45,667 |  
|Common stock issued to Directors and Management                                       |  | 26           |  |                          | 2     |               |   | 133    |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 135    |  
|Exercise of warrants/options                                                          |  | 116          |  |                          | 12    |               |   | 150    |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 162    |  
|Employee stock compensation                                                           |  |             |  |                          |      |               |   | 92     |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 92     |  
|Income tax benefit from exercise of stock options                                     |  |             |  |                          |      |               |   | 171    |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 171    |  
|Comprehensive income:                                                                 |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |  
|Cumulative translation adjustment                                                     |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | (407   | )      |   |   | (407   | )
|Change in fair value of hedge, net of deferred income tax benefit of $340             |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | (532   | )      |   |   | (532   | )
|Net income                                                                            |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   | 9,754                    |   |  |   |       |        |   |   | 9,754  |  
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|Comprehensive income                                                                  |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        | 8,815  |  
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|Balance, December 31, 2007                                                            |  | 17,553       |  |                          | 1,755 |               |   | 68,049 |                    |   | (2,251 | )                                 |  |   | (10,722                  | ) |  |   | (1,789 | )      |   |   | 55,042 |  
|Common stock issued to Directors                                                      |  | 16           |  |                          | 2     |               |   | 88     |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 90     |  
|Exercise of warrants/options                                                          |  | 244          |  |                          | 24    |               |   | 67     |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 91     |  
|Repurchases of common stock                                                           |  |              |  |                          |       |               |   | (252   | )                  |   |        |                                   |  |   |                          |   |  |   |        | (252   | )
|Employee stock compensation                                                           |  |             |  |                          |      |               |   | 176    |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 176    |  
|Income tax benefit from exercise of stock options                                     |  |             |  |                          |      |               |   | 46     |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 46     |  
|Comprehensive loss:                                                                   |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |  
|Cumulative translation adjustment                                                     |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | 106    |        |   |   | 106    |  
|Change in fair value of hedge, net of deferred income tax benefit of $501             |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | (760   | )      |   |   | (760   | )
|Net loss                                                                              |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   | (9,088                   | ) |  |   |       |        |   |   | (9,088 | )
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|Comprehensive loss                                                                    |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        | (9,742 | )
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|Balance, December 31, 2008                                                            |  | 17,813       |  |                          | 1,781 |               |   | 68,426 |                    |   | (2,503 | )                                 |  |   | (19,810                  | ) |  |   | (2,443 | )      |   |   | 45,451 |  
|Common stock issued to Directors                                                      |  | 42           |  |                          | 5     |               |   | 55     |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   | 60     |  
|Exercise of warrants/options                                                          |  | 5            |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   |       |        |   |   |       |  
|Repurchases of common stock                                                           |  |             |  |                          |      |               |   |       |                    |   | (452   | )                                 |  |   |                         |   |  |   |       |        |   |   | (452   | )
|Employee stock compensation                                                           |  |             |  |                          |      |               |   | 180    |                    |   |        |                                   |  |   |                         |   |  |   |       |        |   |   | 180    |  
|Comprehensive loss:                                                                   |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |  
|Cumulative translation adjustment                                                     |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | (146   | )      |   |   | (146   | )
|Change in fair value of hedge, net of deferred income tax (expense) benefit of ($315) |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | 453    |        |   |   | 453    |  
|Net loss                                                                              |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   | (2,437                   | ) |  |   |       |        |   |   | (2,437 | )
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|Comprehensive loss                                                                    |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        | (2,130 | )
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  
|Balance, December 31, 2009                                                            |  | 17,860       |  | $                        | 1,786 |               | $ | 68,661 |                    | $ | (2,955 | )                                 |  | $ | (22,247                  | ) |  | $ | (2,136 | )      |   | $ | 43,109 |  
|                                                                                      |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |        |   |   |        |  

The accompanying notes are an integral part of these statements.



F-4



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                         |  | Year Ended December 31, |       
|                                                                                         |  | 2009                    |        |   | 2008 |   |         | 2007 | 
|OPERATING ACTIVITIES:                                                                    |  |                         |        |   |      |   |         |      |  |   |          |  
|Net income (loss)                                                                        |  | $                       | (2,437 | ) |      | $ | (9,088  | )    |  | $ | 9,754    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                         |        |   |      |   |         |      |  |   |          |  
|Depreciation and amortization                                                            |  |                         | 5,391  |   |      |   | 5,054   |      |  |   | 3,905    |  
|Amortization of deferred financing costs                                                 |  |                         | 41     |   |      |   | 38      |      |  |   | 153      |  
|Goodwill impairment charge                                                               |  |                         |       |   |      |   | 11,247  |      |  |   |         |  
|Deferred income taxes                                                                    |  |                         | (678   | ) |      |   | 2,161   |      |  |   | (2,422   | )
|Stock-based compensation                                                                 |  |                         | 180    |   |      |   | 235     |      |  |   | 182      |  
|Provisions for doubtful accounts                                                         |  |                         | 328    |   |      |   | 506     |      |  |   | 482      |  
|Change in fair value of interest rate swap                                               |  |                         | (31    | ) |      |   | (31     | )    |  |   | (304     | )
|Change in fair value of foreign currency contract                                        |  |                         | 462    |   |      |   | (309    | )    |  |   | (243     | )
|Changes in operating assets and liabilities:                                             |  |                         |        |   |      |   |         |      |  |   |          |  
|Accounts receivable                                                                      |  |                         | 1,579  |   |      |   | 1,746   |      |  |   | (1,267   | )
|Inventories                                                                              |  |                         | 3,398  |   |      |   | 308     |      |  |   | (4,254   | )
|Prepaid expenses and other                                                               |  |                         | 493    |   |      |   | 129     |      |  |   | 3,371    |  
|Accounts payable, accrued liabilities and other liabilities                              |  |                         | (1,507 | ) |      |   | (2,904  | )    |  |   | (256     | )
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                |  |                         | 7,219  |   |      |   | 9,092   |      |  |   | 9,101    |  
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|INVESTING ACTIVITIES:                                                                    |  |                         |        |   |      |   |         |      |  |   |          |  
|Purchases of property, plant and equipment                                               |  |                         | (613   | ) |      |   | (7,436  | )    |  |   | (24,947  | )
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|NET CASH USED IN INVESTING ACTIVITIES                                                    |  |                         | (613   | ) |      |   | (7,436  | )    |  |   | (24,947  | )
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|FINANCING ACTIVITIES:                                                                    |  |                         |        |   |      |   |         |      |  |   |          |  
|Repayments of term loans                                                                 |  |                         | (1,882 | ) |      |   | (1,270  | )    |  |   | (217     | )
|Repayments under revolving loans                                                         |  |                         | (3,425 | ) |      |   | (79,384 | )    |  |   | (150,852 | )
|Borrowings under revolving loans                                                         |  |                         | 3,425  |   |      |   | 77,992  |      |  |   | 148,482  |  
|Borrowings under term loans                                                              |  |                         | 1,000  |   |      |   | 2,200   |      |  |   | 17,775   |  
|Deferred financing costs                                                                 |  |                         |       |   |      |   |        |      |  |   | (237     | )
|Purchase of treasury stock through repurchase program                                    |  |                         | (451   | ) |      |   | (252    | )    |  |   |         |  
|Proceeds from exercise of stock options                                                  |  |                         |       |   |      |   | 91      |      |  |   | 162      |  
|Tax benefit from employee stock options                                                  |  |                         |       |   |      |   | 46      |      |  |   | 171      |  
|Other financing activities payments                                                      |  |                         | (22    | ) |      |   | (60     | )    |  |   | (248     | )
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                      |  |                         | (1,355 | ) |      |   | (637    | )    |  |   | 15,036   |  
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |                         | 5,251  |   |      |   | 1,019   |      |  |   | (810     | )
|CASH AND CASH EQUIVALENTS, beginning of year                                             |  |                         | 1,628  |   |      |   | 609     |      |  |   | 1,419    |  
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|CASH AND CASH EQUIVALENTS, end of year                                                   |  | $                       | 6,879  |   |      | $ | 1,628   |      |  | $ | 609      |  
|                                                                                         |  |                         |        |   |      |   |         |      |  |   |          |  
|SUPPLEMENTAL CASH FLOW DISCLOSURE:                                                       |  |                         |        |   |      |   |         |      |  |   |          |  
|Cash paid for interest                                                                   |  | $                       | 1,327  |   |      | $ | 1,247   |      |  | $ | 1,059    |  
|Cash paid for income taxes, net                                                          |  |                         | 40     |   |      |   | 239     |      |  |   | 131      |  
|Common stock issued to directors earned in previous period                               |  |                         | 60     |   |      |   | 90      |      |  |   | 135      |  

The accompanying notes
are an integral part of these statements.



F-5



---

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. 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 changes in 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, 2009 and 2008, the Companys cash equivalents consisted of a money market account. 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 3 to 10 years for furniture and equipment.



F-6



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



Internal Use Software Costs

Pursuant to FASB ASC Topic 350-40, 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 7 years. As of December 31, 2009 and 2008, the net carrying
value of internal use software was $34,000 and $566,000, respectively.

Impairment of Long-Lived Assets

The Company follows the FASB issued guidance codified in ASC Topic 360, 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. If a write down were 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, 2009 and 2008.

Goodwill

At December 31, 2008, the Company performed the initial step of its impairment evaluation by comparing the fair market value of its
single reporting unit to its carrying value. As the carrying amount exceeded the fair value, the second step of the impairment evaluation was performed to calculate impairment and as a result, a goodwill impairment charge of $11,247,000, the entire
amount of the goodwill carrying value, was recorded effective December 31, 2008, with no corresponding tax benefit. The primary reason for the impairment charge was the reduction in the Companys market capitalization resulting from the
sustained decline of the Companys stock price during the second half of 2008.

The following table sets forth the change
in the carrying amount of goodwill for the years ended December 31, 2009 and 2008:



|                          |  |                         |   |      |   |             |  
|------------------------- |  | ----------------------- | - | ---- | - | ----------- | -
|                          |  | Year Ended December 31, |  
|                          |  | 2009                    |   | 2008 |  
|Balance as of January 1   |  | $                       |  |      | $ | 11,247,000  |  
|Impairment charge         |  |                         |  |      |   | (11,247,000 | )
|                          |  |                         |   |      |   |             |  
|Balance as of December 31 |  | $                       |  |      | $ |            |  
|                          |  |                         |   |      |   |             |  



F-7



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



Accrued Warranty Obligations

All products are warranted for one year of labor and for parts ranging from one to ten years depending on the part and the type of equipment.
Warranty expense was $4,940,000, $4,361,000 and $5,220,000 for the years ended December 31, 2009, 2008 and 2007, 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 amount expected to be paid in the following year is classified in accrued liabilities.

The following table sets forth the changes in the liability for product warranties for the years ended December 31, 2009 and 2008:



|                                      |  |                         |            |   |      |   |            |  
|------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                      |  | Year Ended December 31, |           
|                                      |  | 2009                    |            |   | 2008 |  
|Balance as of January 1               |  | $                       | 4,208,000  |   |      | $ | 4,213,000  |  
|Payments made under warranty          |  |                         | (5,025,000 | ) |      |   | (4,366,000 | )
|Accrual for product warranties issued |  |                         | 4,940,000  |   |      |   | 4,361,000  |  
|                                      |  |                         |            |   |      |   |            |  
|Balance as of December 31             |  | $                       | 4,123,000  |   |      | $ | 4,208,000  |  
|                                      |  |                         |            |   |      |   |            |  

Derivatives

The Company follows FASB ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities, to account for derivatives.

At December 31, 2009, derivative instruments include two interest rate swaps that hedge variable rate interest payments.

See Notes 7, 8 and 9 for further discussion of these financial instruments.

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, 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 variable rate terms of the Companys debt instruments that are outstanding as
of December 31, 2009, 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.



F-8



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



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 or inventory rotation programs. 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. Sales tax collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of operations.

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 2009, 2008 and 2007 were 13.6%, 12.3% and 14.0% of net sales, respectively. Accounts receivable from that customer was
$1,025,000 and $1,583,000 at December 31, 2009 and 2008, respectively. Sales to another customer in 2009, 2008, and 2007 were 10.6%, 10.2%, and 5.6% of net sales, respectively. Accounts receivable from that customer was $2,364,000 and
$1,416,000 at December 31, 2009 and 2008, respectively. Sales to a third customer or its franchisees in 2009, 2008 and 2007 were 7.4%, 12.9% and 13.2% of net sales, respectively. Accounts receivable from that customer and its franchisees were
less than $200,000 at December 31, 2009 and 2008. No other single customer accounted for more than 10% of the Companys net sales in any of those years.

There is no single geographic area of significant concentration other than the U.S. Sales outside of North America accounted for approximately 29%, 28% and 28% of total net sales for the years ended
December 31, 2009, 2008 and 2007, respectively. Long-lived assets located in foreign countries totaled $36,000 and $51,000 at December 31, 2009 and 2008, 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,
|                          |  | 2009                    |       | 2008 |   | 2007 
|Cardiovascular products   |  | $                       | 66.7  |      | $ | 76.8  |  | $ | 78.9 
|Strength systems          |  |                         | 42.0  |      |   | 58.2  |  |   | 55.2 
|Parts                     |  |                         | 5.3   |      |   | 4.8   |  |   | 5.2  
|Freight and other revenue |  |                         | 6.5   |      |   | 8.1   |  |   | 7.2  
|                          |  |                         |       |      |   |       |  |   |      
|                          |  | $                       | 120.5 |      | $ | 147.9 |  | $ | 146.5
|                          |  |                         |       |      |   |       |  |   |      



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)



Advertising Costs

The Company charges advertising costs to expense as incurred. For the years ended December 31, 2009, 2008 and 2007, advertising expense
was $1,763,000, $1,864,000 and $2,105,000, 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 $4,545,000, $6,603,000, and $6,673,000 for the years ended December 31, 2009, 2008 and 2007, respectively, and are included in selling, general and administrative expenses.

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 (Loss) per Common Share

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



|                                                             |  |                         |            |   |      |   |            |      |  |   |           
|------------------------------------------------------------ |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------
|                                                             |  | Year Ended December 31,
|                                                             |  | 2009                    |            |   | 2008 |   |            | 2007
|Net income (loss) attributable to common stockholders        |  | $                       | (2,437,000 | ) |      | $ | (9,088,000 | )    |  | $ | 9,754,000 
|                                                             |  |                         |            |   |      |   |            |      |  |   |           
|Shares used in computing basic net income (loss) per share   |  |                         | 17,175,000 |   |      |   | 17,465,000 |      |  |   | 17,304,000
|Dilutive effect of options and warrants                      |  |                         |           |   |      |   |           |      |  |   | 477,000   
|                                                             |  |                         |            |   |      |   |            |      |  |   |           
|Shares used in computing diluted net income (loss) per share |  |                         | 17,175,000 |   |      |   | 17,465,000 |      |  |   | 17,781,000
|                                                             |  |                         |            |   |      |   |            |      |  |   |           

For the years ended December 31, 2009, 2008 and
2007, options to purchase 577,375, 674,000 and 33,000 shares of common stock at exercise prices ranging from $1.20 to $7.37, $1.22 to $7.37 and $5.86 to $7.37 per share, respectively, were outstanding but were not included in the computation of
diluted net income (loss) per share as the result would be anti-dilutive.

Stock-Based Compensation

The Company records stock-based compensation to recognize 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. The Company measures the cost of employee services



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)



received in exchange for an award based on the grant date fair value of the award. For 2009, the Company recorded stock-based compensation expense of $180,000, consisting of expenses related to
stock options ($170,000) and stock to be issued to directors ($10,000). For 2008, the Company recorded stock-based compensation expense of $235,000, consisting of expenses related to stock options ($166,000) and stock to be issued to directors
($69,000). For 2007, the Company recorded stock-based compensation expense of $182,000, consisting of expenses related to stock options ($85,000) and stock to be issued to directors ($97,000).

The weighted average fair value of each stock option granted during the years ended December 31, 2009, 2008, and 2007 was $0.98, $3.24
and $3.26, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



|                                       |  |                        |   |  |            |  |              |  
|-------------------------------------- |  | ---------------------- | - |  | ---------- |  | ------------ | -
|                                       |  | Year Ended December 31 |  
|                                       |  | 2009                   |   |  | 2008       |  | 2007         |  
|Risk free interest rate                |  | 2.27% - 3.05           | % |  | 3.70%      |  | 3.70% - 4.67 | %
|Expected dividend yield                |  |                       |   |  |           |  |             |  
|Expected life                          |  | 6.25 years             |   |  | 6.25 years |  | 6.25 years   |  
|Expected volatility                    |  | 68% - 70               | % |  | 79%        |  | 79% - 83     | %
|Expected volatility  weighted average |  | 69                     | % |  | 79%        |  | 79           | %

Expected
volatilities are calculated based on the historical volatility of the Companys stock over the expected term of the option. Management monitors share option exercise and employee termination patterns to estimate forfeiture rates within the
valuation model. The expected term of the option is derived from the Companys historical stock option exercise experience as it is a relevant indicator of future exercise patterns. The risk free interest rate is based on the implied yield
available on the U.S, Treasury yield curve with a term approximating the expected life of the option.

Recent Accounting
Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued guidance codified in
ASC Topic 820 Fair Value Measurements and Disclosures (ASC 820) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies under other accounting
pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. This guidance covers financial assets and liabilities, for which the guidance became effective for fiscal years beginning after
November 15, 2007, as well as nonfinancial assets and liabilities that are not required or permitted to be remeasured to fair value on a recurring basis, for which the guidance is effective for fiscal years beginning after November 15,
2008. The Company adopted ASC 820 on January 1, 2008 for financial assets and liabilities and on January 1, 2009 for non-financial assets and liabilities and there was no impact on its financial position, results of operations or cash
flows. See Notes 8 and 9 for the disclosures required by this accounting pronouncement.

In March 2008, the FASB issued
guidance codified in ASC Topic 815, Derivatives and Hedging (ASC 815), Disclosures about Derivative Instruments and Hedging Activities. The new guidance is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial condition, financial performance, and cash flows. The Company adopted guidance included in ASC
815 on January 1, 2009 and included the appropriate disclosures in Note 8. The adoption of this guidance did not have an impact on the Companys consolidated financial condition, results of operations or cash flows.



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)



In May 2009, the FASB issued guidance codified in ASC Topic 855, Subsequent
Events, which establishes the standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company adopted guidance included in ASC 855 for the period ended
June 27, 2009 and has included the appropriate disclosure in Note 16. The adoption of this guidance did not have an impact on the Companys consolidated financial condition, results of operations or cash flows.

Effective September 26, 2009, the Company adopted Accounting Standards Update No. 2009-01, Statement of Financial Accounting
Standards No. 168  The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, (ASU 2009-01). ASU 2009-01 did not change U.S. generally accepted accounting principles but combines all
nongovernmental authoritative standards into a comprehensive, topically organized database. All other accounting literature excluded from ASU 2009-01 will be considered nonauthoritative. All references to authoritative accounting literature have
been made in accordance with ASU 2009-01.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, (ASU 2009-13), which provides new revenue recognition guidance with respect to revenue arrangements that include multiple deliverables. This new guidance
establishes a new hierarchy for allocating revenues among multiple deliverables in a multi-element arrangement. In order of preference, revenues will be allocated based on vendor specific objective evidence (VSOE), third-party evidence, or estimated
selling price. Additional disclosures are required to describe the effects of adoption, including changes in how arrangement consideration is allocated or in the pattern and timing of revenue recognition. ASU 2009-13 is effective for fiscal years
beginning on or after June 15, 2010, and the Company has elected to early adopt for new or materially modified arrangements entered into on or after January 1, 2009. Adoption did not materially impact the Companys consolidated
financial condition, results of operations or cash flows.

Reclassifications

Certain reclassifications to prior period amounts have been made to conform to the current presentation.

NOTE 3INVENTORIES

Inventories consist of the following:



|                |  |              |            |      |   |           
|--------------- |  | ------------ | ---------- | ---- | - | ----------
|                |  | December 31,
|                |  | 2009         |            | 2008
|Raw materials   |  | $            | 5,180,000  |      | $ | 7,434,000 
|Work in process |  |              | 2,837,000  |      |   | 3,140,000 
|Finished goods  |  |              | 2,037,000  |      |   | 2,891,000 
|                |  |              |            |      |   |           
|                |  | $            | 10,054,000 |      | $ | 13,465,000
|                |  |              |            |      |   |           



F-12



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 4PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:



|                                             |  |              |             |   |      |   |             |  
|-------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                             |  | December 31, |            
|                                             |  | 2009         |             |   | 2008 |  
|Land                                         |  | $            | 3,129,000   |   |      | $ | 3,121,000   |  
|Building and improvements                    |  |              | 19,881,000  |   |      |   | 18,958,000  |  
|Equipment, computers, software and furniture |  |              | 24,475,000  |   |      |   | 25,886,000  |  
|                                             |  |              |             |   |      |   |             |  
|                                             |  |              | 47,485,000  |   |      |   | 47,965,000  |  
|Less-accumulated depreciation                |  |              | (15,650,000 | ) |      |   | (11,414,000 | )
|                                             |  |              |             |   |      |   |             |  
|                                             |  | $            | 31,835,000  |   |      | $ | 36,551,000  |  
|                                             |  |              |             |   |      |   |             |  

Depreciation expense was $5,388,000, $5,049,000 and $3,900,000 for the years ended December 31, 2009,
2008 and 2007, respectively.

NOTE 5OTHER ASSETS

Other assets consist of the following:



|                                   |  |              |           |      |   |          
|---------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                   |  | December 31,
|                                   |  | 2009         |           | 2008
|Deferred financing costs, net      |  | $            | 177,000   |      | $ | 223,000  
|Other amortizable intangibles, net |  |              | 11,000    |      |   | 14,000   
|Recoverable insurance claim        |  |              | 7,627,000 |      |   | 5,000,000
|Other assets                       |  |              | 166,000   |      |   | 53,000   
|                                   |  |              |           |      |   |          
|                                   |  | $            | 7,981,000 |      | $ | 5,290,000
|                                   |  |              |           |      |   |          

Amortization expense of other intangibles was $3,000,
$5,000 and $5,000 for the years ended December 31, 2009, 2008 and 2007, respectively. The remaining balance of other amortizable intangibles of $11,000 at December 31, 2009 will be amortized through 2014.

In connection with the financings described in Note 7, the Company incurred debt issuance costs consisting of brokerage fees and legal fees,
which are included within other assets at December 31, 2009 and December 31, 2008, 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. Interest expense related to deferred financing costs was $41,000, $38,000 and $153,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

As of December 31, 2009 and 2008, the Company accrued $7,627,000 and $5,000,000, respectively, (in other liabilities) for product
liability claims and a corresponding receivable for the liability claims estimated to be recoverable under the Companys insurance policies (see Note 14). On a quarterly basis, the Company reviews and adjusts each product liability claim and
corresponding receivable.



F-13



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 6ACCRUED LIABILITIES



Accrued liabilities consist of the following:



|                                         |  |              |            |      |   |           
|---------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                         |  | December 31,
|                                         |  | 2009         |            | 2008
|Current portion of warranty reserves     |  | $            | 2,711,000  |      | $ | 2,830,000 
|Self insurance reserves                  |  |              | 2,773,000  |      |   | 2,226,000 
|Litigation reserve and professional fees |  |              | 387,000    |      |   | 311,000   
|Customer deposits                        |  |              | 1,870,000  |      |   | 1,973,000 
|Payroll related                          |  |              | 1,524,000  |      |   | 1,657,000 
|Lease contingency reserve                |  |              | 1,114,000  |      |   | 947,000   
|Other                                    |  |              | 1,667,000  |      |   | 2,042,000 
|                                         |  |              |            |      |   |           
|                                         |  | $            | 12,046,000 |      | $ | 11,986,000
|                                         |  |              |            |      |   |           

NOTE 7LONG-TERM DEBT

Long-term debt consists of the following:



|                               |  |              |            |   |      |   |            |  
|------------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                               |  | December 31, |           
|                               |  | 2009         |            |   | 2008 |  
|Citizens revolving credit loan |  | $            |           |   |      | $ |           |  
|Citizens real estate loan      |  |              | 11,743,000 |   |      |   | 12,263,000 |  
|Wachovia term loans            |  |              | 5,863,000  |   |      |   | 6,225,000  |  
|                               |  |              |            |   |      |   |            |  
|                               |  |              | 17,606,000 |   |      |   | 18,488,000 |  
|Lesscurrent portion           |  |              | (2,415,000 | ) |      |   | (1,882,000 | )
|                               |  |              |            |   |      |   |            |  
|                               |  | $            | 15,191,000 |   |      | $ | 16,606,000 |  
|                               |  |              |            |   |      |   |            |  

In June 2007, a $13,000,000 mortgage loan was advanced to the Company pursuant to the loan agreement dated
as of October 17, 2006 (the Citizens Loan Agreement) with RBS Citizens, National Association (Citizens). The proceeds of this loan were used to finance a portion of the acquisition of an approximate 340,000 square foot
manufacturing, office and warehouse facility located in Owatonna, Minnesota. The loan is secured by the Owatonna real estate and is cross-collateralized by the Companys accounts receivable and inventory.

In July 2007, the Company entered into a Loan Agreement (the Wachovia Loan Agreement) with Wachovia Bank, NA
(Wachovia), which was supplemented and modified in March 2008 and March and December 2009. The Wachovia Loan Agreement as supplemented and modified provides for three term loans, the proceeds of which have financed the acquisition of
machinery and equipment. $5,000,000 was advanced pursuant to the initial term loan, $1,975,000 was advanced pursuant to the second term loan and $1,000,000 was advanced pursuant to the third term loan. The principal of the initial term loan is to be
retired by sixty equal monthly principal payments that commenced March 1, 2008 with a maturity date of March 1, 2013, the principal of the second term loan is to be retired by sixty equal monthly principal payments which commenced
January 1, 2009 with a maturity date of January 1, 2014 and the principal of the third term loan is to be retired by twenty four equal monthly principal payments which commenced January 1, 2010 with a maturity date of December 1,
2011. The Wachovia term loans are secured by the Companys equipment.



F-14



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 7LONG-TERM DEBT  (continued)



In July 2008, the Company entered into a credit agreement (the Citizens Credit
Agreement) with Citizens, providing for a revolving line of credit of up to the lesser of a ceiling or an amount determined by reference to a borrowing base composed of designated percentages of the Companys eligible accounts receivable
and eligible inventory. The revolving line of credit is available to July 1, 2011 and is secured by the Companys accounts receivable and inventory. Availability under the revolving loan fluctuates daily based on the borrowing base.

The Citizens revolving line of credit prior to April 1, 2009 bore interest at a floating rate equal to LIBOR plus 1.25%
or the prime rate minus 1%, from April 1, 2009 to June 30, 2009 bore interest at LIBOR plus 2.25%, and after such date bears interest at LIBOR plus 2.5% to 3.0% based on a performance grid. The Citizens real estate loan prior to
April 1, 2009, bore interest at a floating rate equal to LIBOR plus 1.2% per annum, from April 1, 2009 to June 30, 2009 bore interest at LIBOR plus 2.25%, and after such date bears interest at LIBOR plus 2.5% to 3.0% based on a
performance grid. The Wachovia initial and second term loans prior to April 1, 2009 bore interest at LIBOR plus 1.2% to 1.45% based on a performance grid and from April 1, 2009 to June 30, 2009 these loans bore interest at LIBOR plus
2.25%. The third Wachovia term loan prior to June 30, 2009 bore interest at LIBOR plus 2.25%. After June 30, 2009, each Wachovia term loan bears interest at LIBOR plus 3.5%. LIBOR was .23% at December 31, 2009.

The average outstanding revolving loan balance during 2009, 2008, and 2007 was $859,000, $468,000 and $4,770,000, respectively, and the
weighted average interest rate was 1.77%, 4.20% and 7.80%, respectively. Interest expense on the revolving loans was $50,000, $83,000 and $448,000 for the years ended December 31, 2009, 2008 and 2007, respectively. Interest expense on the
Wachovia term loans was $332,000, $267,000 and $71,000 for the years ended December 31, 2009, 2008, and 2007, respectively. Interest expense on the Citizens real estate loan was $963,000, $883,000 and $467,000 for the years ended
December 31, 2009, 2008, and 2007, respectively.

The Citizens and Wachovia credit facilities require the Company to
maintain various financial covenants. The Company failed to meet certain of these covenants at the end of the first and second quarters of 2009, which failures were in each case waived by the lenders. In connection with these waivers, the Company
entered into amendments to its credit facilities. The Wachovia amendments increased the interest rate on the term loans, modified the financial covenants, and increased the collateral for the term loans to include all of the Companys
equipment. The Citizens amendments increased the interest rate on the credit facilities, cross-collateralized the two Citizens credit facilities, reduced the ceiling and modified the borrowing base calculation for the revolving line of credit, and
amended the financial and certain other covenants contained in the credit facilities. The Company at December 31, 2009 was in compliance, and believes that it will remain in compliance for the foreseeable future, with each credit
facilitys financial covenants.

The Companys credit agreements contain cross default provisions to each other.

At December 31, 2009, there were no outstanding revolving credit loans, a $11,743,000 real estate loan and $5,863,000 in
term loans. Availability under the revolving loan fluctuates daily based on the borrowing base. At December 31, 2009, there was $5,000,000 unused availability under the revolving line of credit. The Company believes that the availability under
the revolving line of credit together with the Companys anticipated cash flows are sufficient to fund its general working capital and capital expenditure needs for at least the next 12 months.



F-15



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 7LONG-TERM DEBT  (continued)



At December 31, 2009 long-term debt maturities are as follows:



|                                       |  |   |            |  
|-------------------------------------- |  | - | ---------- | -
|2010                                   |  | $ | 2,415,000  |  
|2011                                   |  |   | 2,415,000  |  
|2012                                   |  |   | 1,915,000  |  
|2013                                   |  |   | 1,165,000  |  
|2014                                   |  |   | 9,696,000  |  
|                                       |  |   |            |  
|                                       |  |   | 17,606,000 |  
|Less current portion of long-term debt |  |   | (2,415,000 | )
|                                       |  |   |            |  
|                                       |  | $ | 15,191,000 |  
|                                       |  |   |            |  

NOTE 8DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses certain financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates and interest rates.
The Company uses these derivative instruments to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative purposes.

Foreign currency forward contracts are utilized to hedge the foreign currency exposure on sales made in the UK in British Sterling. The
Companys UK sales are denominated in British Sterling, while its purchases of inventory from the Company are paid in US dollars. These contracts are not designated as hedging instruments and accordingly changes in their fair value are
recognized in selling, general and administrative expense in the consolidated statement of operations. Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. These agreements are currently
designated as cash flow hedges, therefore the unrealized gains and losses are recorded in accumulated other comprehensive loss.

In March 2007, the Company entered into a series of 13 monthly forward contracts that began on April 30, 2007, whereby the Company paid a bank 150,000 British Sterling and the bank paid the Company $290,000 each month. In November,
2007, the Company entered into a series of 13 monthly forward contracts that began on May 30, 2008, whereby the Company paid a bank 150,000 British Sterling and the bank paid the Company $309,000 each month. This agreement was amended
February 9, 2009 whereby the existing contract ended February 27, 2009. In February 2009, the Company entered into a series of 10 monthly forward contracts that began on March 31, 2009, whereby the Company paid a bank 130,000 British
Sterling and the bank paid the Company $214,000 each month. This series of contracts ended on December 31, 2009.

In June
2006, the Company entered into a forward starting interest rate swap agreement with Citizens which commenced on June 29, 2007 to hedge the LIBOR-based Citizens real estate loan. The notional amount of the swap amortizes based on the same
amortization schedule as the Citizens Loan Agreement and the hedged item (one-month LIBOR) is the same as the basis for the interest rate on the loan. The swap effectively converts the rate from a floating rate based on LIBOR to a fixed rate which
prior to April 1, 2009 equaled 6.95%, from April 1, 2009 to June 30, 2009 equaled 8.00% and after June 30, 2009 throughout the duration of the loan, the rate equals 8.25% or 8.75% based on a performance grid. The swap and
interest payments on the debt settle monthly. The real estate loan and the swap both mature on July 2, 2014. There was no initial cost of the interest rate swap. The change in fair value of the swap resulted in income of $289,000 for the six
months ended June 30, 2007. Effective June 27, 2007, the Company designated the interest rate swap as a hedging instrument and, accordingly, changes in the fair value of this swap after such date are recorded as a component of accumulated
other comprehensive loss.



F-16



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 8DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  (continued)



In November 2007, the Company entered into a forward starting interest rate swap
agreement with Wachovia, which commenced on March 3, 2008, which is intended to hedge the initial LIBOR-based Wachovia term loan. The notional amount of the swap amortizes based on the same amortization schedule as the initial Wachovia term
loan and the hedged item (one-month LIBOR) is the same as the basis for the interest rate on the loan. The swap effectively converts the rate from a floating rate based on LIBOR to a fixed rate which prior to April 1, 2009 equaled 5.76% or
6.01% based on a performance grid, from April 1, 2009 to June 30, 2009 equaled 6.81% and after June 30, 2009 equals 8.06% throughout the duration of the swap. The swap and interest payments on the debt settle monthly. The term loan
matures March 1, 2013 and the swap matures on March 1, 2011. There was no initial cost of the interest rate swap. The Company determined the interest rate swap qualifies as a derivative hedging instrument and, accordingly, changes in the
fair value of this swap are recorded as a component of accumulated other comprehensive loss.

The following table presents the
fair values of derivatives included within the consolidated balance sheets:



|                                                |  |                   |   |                       |   |                      |                           |                  |   |                  |           |                      |   |           |   |                  
|----------------------------------------------- |  | ----------------- | - | --------------------- | - | -------------------- | ------------------------- | ---------------- | - | ---------------- | --------- | -------------------- | - | --------- | - | -----------------
|                                                |  | Asset Derivatives |   | Liability Derivatives
|                                                |  | Fair Value        |   |                       |   | Fair Value           |                           |                 
|                                                |  | December 31,2009  |   | December 31,2008      |   | BalanceSheetLocation |                           | December 31,2009 |   | December 31,2008 |           | BalanceSheetLocation
|Derivativesdesignated ashedging instruments     |  |                   |   |                       |   |                      |                           |                  |   |                  |           |                      |   |           |   |                  
|Interest rate swapagreements                    |  | $                 |  |                       | $ |                     |                           |                 |   | $                | 1,505,000 |                      | $ | 2,304,000 |   | Other Liabilities
|                                                |  |                   |   |                       |   |                     
|Derivatives notdesignated ashedging instruments |  |                   |   |                       |   |                      |                           |                  |   |                  |           |                      |   |           |   |                  
|                                                |  |                   |   |                       |   |                      | Prepaidexpenses and other |                  |   |                  |           |                      |   |           |  
|Foreign currencyforward contracts               |  | $                 |  |                       | $ | 462,000              |                           |                  | $ |                 |           | $                    |  |           | 

The
following table presents the amounts affecting the consolidated statements of operations and accumulated other comprehensive loss for the years ended December 31, 2009, 2008, and 2007, respectively.



|                                              |      |                                                                                               |         |  |   |          |   |  |   |          |  
|--------------------------------------------- | ---- | --------------------------------------------------------------------------------------------- | ------- |  | - | -------- | - |  | - | -------- | -
|Derivatives in Cash Flow Hedging Relationship |      | Amount of Gain (Loss) Recognized in Other ComprehensiveLoss, net of taxYear Ended
December 31 |        
|                                              | 2009 |                                                                                               | 2008    |  |   | 2007     |  
|Interest rate swap agreements                 |      | $                                                                                             | 453,000 |  | $ | (760,000 | ) |  | $ | (532,000 | )



|                                              |      |                                                                                                               |          |      |  |   |          |   |  |   |         |  
|--------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------- | -------- | ---- |  | - | -------- | - |  | - | ------- | -
|Derivatives in Cash Flow Hedging Relationship |      | Amount of Gain (Loss) Reclassified from Accumulated OtherComprehensive Loss Into IncomeYear Ended
December 31 |         
|                                              | 2009 |                                                                                                               |          | 2008 |  |   | 2007     |  
|Interest rate swap agreements                 |      | $                                                                                                             | (811,000 | )    |  | $ | (428,000 | ) |  | $ | (34,000 | )



F-17



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 8DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  (continued)



|                                                  |                        |                                                          |          |                                                             |  |      |         |  |   |         |  |                                             
|------------------------------------------------- | ---------------------- | -------------------------------------------------------- | -------- | ----------------------------------------------------------- |  | ---- | ------- |  | - | ------- |  | --------------------------------------------
|Derivatives Not Designated as Heading Instruments |                        | Amount of Gain (Loss) Recognized inIncome on Derivatives |          | Location of Gain (Loss) Recognized in Income on Derivatives
|                                                  | Year Ended December 31 |                                                         
|                                                  | 2009                   |                                                          |          | 2008                                                        |  | 2007 |        
|Foreign currency forward contracts                |                        | $                                                        | (462,000 | )                                                           |  | $    | 309,000 |  | $ | 243,000 |  | Selling, general and administrative expenses

See Note 9  Fair Value of Financial Instruments for a description of how the above financial instruments are valued.

The Company is exposed to credit related losses in the event of non-performance by counterparties to these financial instruments. The counterparties to all derivative transactions are major financial
institutions with investment grade credit ratings, and although no assurances can be given, the Company does not expect any of the counterparties to fail to meet its obligations. The credit exposure related to these financial instruments is
represented by the fair value of contracts with a positive fair value at the reporting date, therefore the Company had no exposure to its counterparties as of December 31, 2009.

For the cash flow hedges referred to above, the amounts in accumulated other comprehensive loss are reclassified into earnings as the
underlying hedged item affects earnings. The amount expected to be reclassified into pre-tax earnings in the next 12 months is $171,000. The timing of actual amounts reclassified into earnings is dependent on future movement in interest rates.

NOTE 9FAIR VALUE OF FINANCIAL INSTRUMENTS

The Companys financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and derivative instruments (discussed below). 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
that are outstanding as of December 31, 2009 and December 31, 2008, respectively, 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.

The following table presents the Companys financial assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.



|                               |  |                                              |           |                                                             |   |                                             |   |                                        |  |  
|------------------------------ |  | -------------------------------------------- | --------- | ----------------------------------------------------------- | - | ------------------------------------------- | - | -------------------------------------- |  | -
|                               |  | Fair Value Measurements at December 31, 2009
|                               |  | Balance atDecember 31,2009                   |           | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |   | SignificantUnobservableInputs(Level
3)
|Interest rate swap liabilities |  | $                                            | 1,505,000 |                                                             |  |                                             | $ | 1,505,000                              |  | 

The
valuation of the interest rate swap agreements are based on quoted prices from the counterparties that value these instruments using proprietary models and market information at the date presented, as well as consideration of the impact of the risk
of non-performance of the counterparty and the Company.

There were no non-financial assets or liabilities subject to
measurement at fair value on a non-recurring basis at December 31, 2009.



F-18



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 10STOCKHOLDERS EQUITY

Preferred Stock

The
Companys Board has the ability to issue, without approval by the common shareholders, up to 500,000 shares of $1 par value preferred stock having rights and preferences as the Board may determine in its sole discretion.

Common Stock

On
November 3, 2008, the Companys Board of Directors authorized the repurchase of up to 1 million shares of its common stock, in open market transactions or through privately negotiated transactions, subject to market conditions and
other factors. This stock repurchase program does not have an expiration date. Pursuant to its credit facilities, the Company is currently restricted in making further purchases of its shares. For the year ended December 31, 2009, the Company
purchased 411,200 shares for $451,000 pursuant to this program. Through December 31, 2009, 531,200 shares had been repurchased under this program with an aggregate cost of $703,000. This stock repurchase is recorded in treasury stock on the
consolidated balance sheet.

At December 31, 2009, there are 1,358,375 shares of common stock reserved for future
issuance pursuant to the exercise or issuance of stock options.

Warrants

In July 2009, five warrant holders exercised in full their respective warrants to purchase an aggregate of 5,750 shares of common stock of
the Company. Pursuant to the net exercise provisions of these warrants, the Company issued 5,196 shares of its common stock to the warrant holders. These warrants were issued in connection with the Companys 2004 private placement.

On July 16, 2008, a warrant holder exercised in full its warrant to purchase 189,640 shares of common stock of the Company, for an
aggregate exercise price of $18,964. This warrant was issued in connection with a 2003 financing.

On December 13, 2007,
a warrant holder exercised in full its warrant to purchase 5,100 shares of common stock of the Company. Pursuant to the net exercise provisions of this warrant, the Company issued 4,997 shares of its common stock to the warrant holder. This warrant
was issued in connection with the 2004 private placement.

Comprehensive Income (Loss)

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



F-19



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 10STOCKHOLDERS EQUITY  (continued)



The following summarizes the components of accumulated other comprehensive loss at
December 31, 2009 and 2008 (in thousands):



|                                                             |  |              |        |   |      |   |        |  
|------------------------------------------------------------ |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                             |  | December 31, |       
|                                                             |  | 2009         |        |   | 2008 |  
|Cumulative translation adjustment                            |  | $            | (1,297 | ) |      | $ | (1,151 | )
|Change in fair value of interest rate hedge (net of tax) (1) |  |              | (839   | ) |      |   | (1,292 | )
|                                                             |  |              |        |   |      |   |        |  
|Total                                                        |  | $            | (2,136 | ) |      | $ | (2,443 | )
|                                                             |  |              |        |   |      |   |        |  



|(1) | Net of deferred income tax asset of $526,000 and $841,000 at December 31, 2009 and 2008, respectively.
|--- | ------------------------------------------------------------------------------------------------------

Stock Options

2005 Omnibus Incentive Plan

Cybexs 2005 Omnibus Incentive Plan (the 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 reserved 1,000,000 shares of common stock for issuance pursuant to the Omnibus Plan. A registration statement has been filed for the Omnibus Plan and
the Company provides newly-issued shares of registered common stock upon the exercise of options and upon stock grants under the Omnibus Plan. The Omnibus Plan was amended at the 2007 Annual Meeting to provide for one-time stock awards to newly
elected nonemployee directors and that stock options or stock appreciation rights granted under the Omnibus Plan will automatically vest upon the death of the holder.

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).

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 exercisable over a period not to exceed ten
years from the original date of grant. No future grants may be made under this plan.



F-20



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 10STOCKHOLDERS EQUITY  (continued)



A summary of the status of the Companys stock option plans as of December 31,
2009 is presented below:



|                                                         |  |                |   |  |                              |      |                                 |      |                |   |  
|-------------------------------------------------------- |  | -------------- | - |  | ---------------------------- | ---- | ------------------------------- | ---- | -------------- | - | -
|                                                         |  | NumberofShares |   |  | WeightedAverageExercisePrice |      | RemainingContractualTerm(years) |      | IntrinsicValue
|Outstanding at January 1, 2009                           |  | 674,375        |   |  | $                            | 2.80 |                                 |      |                |   |  
|Granted                                                  |  | 40,000         |   |  |                              | 1.53 |                                 |      |                |   |  
|Exercised                                                |  |               |   |  |                              |     |                                 |      |                |   |  
|Cancelled/Forfeited                                      |  | (137,000       | ) |  |                              | 3.44 |                                 |      |                |   |  
|                                                         |  |                |   |  |                              |      |                                 |      |                |   |  
|Outstanding at December 31, 2009                         |  | 577,375        |   |  | $                            | 2.57 |                                 | 5.12 |                | $ | 
|                                                         |  |                |   |  |                              |      |                                 |      |                |   |  
|Options exercisable at December 31, 2009                 |  | 459,750        |   |  | $                            | 2.24 |                                 | 4.30 |                | $ | 
|                                                         |  |                |   |  |                              |      |                                 |      |                |   |  
|Options vested and expected to vest at December 31, 2009 |  | 569,570        |   |  | $                            | 2.55 |                                 | 5.08 |                | $ | 
|                                                         |  |                |   |  |                              |      |                                 |      |                |   |  

The intrinsic value of options exercised during the
years ended December 31, 2009, 2008, and 2007 was $0, $138,000, and $527,000, respectively.

As of December 31,
2009, there was $338,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.05 years.

The options generally vest over a three to five year period (with some subject to cliff vesting). At December 31, 2009, there are
781,000 shares available for future issuance pursuant to the 2005 Omnibus Incentive Plan.

Information with respect to options
outstanding under the Companys plans as of December 31, 2009 is as follows:



|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     
|------------------------ |  | ----------- |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ------ | ------- | ---------------------------- | - | ----
|                         |  | Outstanding |  | Exercisable                 
|Range of exercise prices |  | Shares      |  | Weightedaverageexerciseprice |      | Weightedaverageremainingcontractuallife (years) |      | Shares |         | Weightedaverageexerciseprice
|$1.20$1.51              |  | 293,375     |  | $                            | 1.26 |                                                 | 4.23 |        | 273,375 |                              | $ | 1.26
|1.701.90                |  | 92,000      |  |                              | 1.76 |                                                 | 2.99 |        | 77,000  |                              |   | 1.75
|3.003.70                |  | 13,000      |  |                              | 3.54 |                                                 | 3.49 |        | 13,000  |                              |   | 3.54
|4.56                     |  | 146,500     |  |                              | 4.56 |                                                 | 8.01 |        | 72,625  |                              |   | 4.56
|5.867.37                |  | 32,500      |  |                              | 7.25 |                                                 | 6.90 |        | 23,750  |                              |   | 7.29
|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     
|                         |  | 577,375     |  | $                            | 2.57 |                                                 | 5.12 |        | 459,750 |                              | $ | 2.24
|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     

Stock Retainer Plan for Nonemployee Directors

The Companys 2002 Stock Retainer Plan for Nonemployee Directors (2002 Plan) provided that each nonemployee director
received 50% of his annual retainer in shares of common stock of the Company. Up to 150,000 shares of common stock could be issued under the 2002 Plan. The January 2009 issuance of shares



F-21



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 10STOCKHOLDERS EQUITY  (continued)



under the 2002 Plan which related to services performed in 2008, exhausted the authorized shares under the Plan, and the Board of Directors in February 2009 suspended its operation. At
December 31, 2009, there are no shares available for future issuance pursuant to the 2002 Plan. The issuance of shares as partial payment of annual retainers resulted in expense being recognized based on the fair market value of such shares.
The Company recorded stock-based compensation expense of $0, $60,000 and $90,000 for the years ended December 31, 2009, 2008 and 2007, respectively, related to the 2002 Plan. In January 2009, the Company issued 18,270 shares of common stock to
the directors, which had a fair value of $60,000, related to directors fees earned in 2008, which were included in accrued liabilities at December 31, 2008. In January 2008, the Company issued 16,157 shares of common stock to the directors,
which had a fair value of $90,000, related to directors fees earned in 2007, which were included in accrued liabilities at December 31, 2007. In January 2007, the Company issued 7,511 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 liabilities at December 31, 2006.

NOTE
11INCOME TAXES

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



|         |  |                         |            |   |      |   |            |      |  |   |           |  
|-------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|         |  | Year Ended December 31, |           
|         |  | 2009                    |            |   | 2008 |   |            | 2007 | 
|Domestic |  | $                       | (2,261,000 | ) |      | $ | (5,137,000 | )    |  | $ | 7,872,000 |  
|Foreign  |  |                         | (685,000   | ) |      |   | (1,618,000 | )    |  |   | (239,000  | )
|         |  |                         |            |   |      |   |            |      |  |   |           |  
|         |  | $                       | (2,946,000 | ) |      | $ | (6,755,000 | )    |  | $ | 7,633,000 |  
|         |  |                         |            |   |      |   |            |      |  |   |           |  

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



|          |  |                         |          |   |      |   |           |  |   |            |  
|--------- |  | ----------------------- | -------- | - | ---- | - | --------- |  | - | ---------- | -
|          |  | Year Ended December 31, |         
|          |  | 2009                    |          |   | 2008 |   | 2007      | 
|Current:  |  |                         |          |   |      |   |           |  |   |            |  
|Federal   |  | $                       |         |   |      | $ | 65,000    |  | $ | 64,000     |  
|State     |  |                         | 50,000   |   |      |   | 66,000    |  |   | 44,000     |  
|          |  |                         |          |   |      |   |           |  |   |            |  
|          |  |                         | 50,000   |   |      |   | 131,000   |  |   | 108,000    |  
|          |  |                         |          |   |      |   |           |  |   |            |  
|Deferred: |  |                         |          |   |      |   |           |  |   |            |  
|Federal   |  |                         | (855,000 | ) |      |   | 2,013,000 |  |   | (2,657,000 | )
|State     |  |                         | 296,000  |   |      |   | 189,000   |  |   | 428,000    |  
|          |  |                         |          |   |      |   |           |  |   |            |  
|          |  |                         | (559,000 | ) |      |   | 2,202,000 |  |   | (2,229,000 | )
|          |  |                         |          |   |      |   |           |  |   |            |  
|          |  | $                       | (509,000 | ) |      | $ | 2,333,000 |  | $ | (2,121,000 | )
|          |  |                         |          |   |      |   |           |  |   |            |  



F-22



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 11INCOME TAXES (continued)



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, |           
|                                                                                        |  | 2009                    |            |   | 2008 |   |            | 2007 | 
|Tax (benefit) at statutory rate                                                         |  | $                       | (1,001,000 | ) |      | $ | (2,297,000 | )    |  | $ | 2,595,000  |  
|Impact of foreign taxes                                                                 |  |                         | 41,000     |   |      |   | 97,000     |      |  |   | 10,000     |  
|State income taxes, net                                                                 |  |                         | 220,000    |   |      |   | 169,000    |      |  |   | 435,000    |  
|Federal research and development tax credit                                             |  |                         | (121,000   | ) |      |   | (126,000   | )    |  |   |           |  
|Change in unrecognized tax benefits                                                     |  |                         | 156,000    |   |      |   | 109,000    |      |  |   | 45,000     |  
|Non-deductible goodwill impairment charge                                               |  |                         |           |   |      |   | 3,824,000  |      |  |   |           |  
|Other permanent differences, primarily meals and entertainment and stock option expense |  |                         | 173,000    |   |      |   | 19,000     |      |  |   | 171,000    |  
|Change in valuation allowance                                                           |  |                         | 23,000     |   |      |   | 538,000    |      |  |   | (5,377,000 | )
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|                                                                                        |  | $                       | (509,000   | ) |      | $ | 2,333,000  |      |  | $ | (2,121,000 | )
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  

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



|                                            |  |              |            |   |      |   |            |  
|------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                            |  | December 31, |           
|                                            |  | 2009         |            |   | 2008 |  
|Deferred tax assets (liabilities):          |  |              |            |   |      |   |            |  
|Net operating loss and credit carryforwards |  | $            | 9,036,000  |   |      | $ | 8,485,000  |  
|Warranty reserves                           |  |              | 1,545,000  |   |      |   | 1,618,000  |  
|Other accruals and reserves                 |  |              | 2,603,000  |   |      |   | 2,253,000  |  
|Bad debt and lease loss reserves            |  |              | 892,000    |   |      |   | 814,000    |  
|Intangibles                                 |  |              | 1,963,000  |   |      |   | 2,517,000  |  
|Other, net                                  |  |              | 674,000    |   |      |   | 1,014,000  |  
|                                            |  |              |            |   |      |   |            |  
|Total deferred tax assets                   |  |              | 16,713,000 |   |      |   | 16,701,000 |  
|Depreciation                                |  |              | (1,372,000 | ) |      |   | (1,652,000 | )
|Valuation allowance                         |  |              | (1,486,000 | ) |      |   | (1,666,000 | )
|                                            |  |              |            |   |      |   |            |  
|                                            |  | $            | 13,855,000 |   |      | $ | 13,383,000 |  
|                                            |  |              |            |   |      |   |            |  

At December 31, 2009, the Company had U.S. federal net operating loss carryforwards, which are
scheduled to expire as follows:



|                    |  |   |           
|------------------- |  | - | ----------
|2020                |  | $ | 4,870,000 
|2021                |  |   | 5,528,000 
|2022                |  |   | 4,354,000 
|2023 and thereafter |  |   | 2,736,000 
|                    |  |   |           
|                    |  | $ | 17,488,000
|                    |  |   |           

In addition, the Company has foreign net operating
loss carryforwards of $5,111,000, which have an unlimited life, federal alternative minimum tax credit carryforwards of $666,000, which do not expire, federal research and development tax credit carryforwards of $277,000, which began to expire in
2021 and various net operating loss and credit carryforwards for state tax purposes.



F-23



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 11INCOME TAXES (continued)



In 2002, the Company established a full valuation allowance against its net deferred tax
assets. Management, on a quarterly basis, revaluates the need for this valuation based upon the existence of various factors. Based on this re-evaluation, the Company reduced the valuation allowance by $5,377,000 in 2007.

Approximately $36,000,000 of income before income taxes is needed to fully realize the Companys recorded net deferred tax asset and
$39,000,000 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 cumulative book versus tax differences
related to various accruals.

The net deferred tax asset balance of $13,855,000 at December 31, 2009 represents the
amount that management believes is more-likely-than-not to be realized, and the remaining valuation allowance at December 31, 2009 is $1,486,000. Management will continue to assess the need for the remaining valuation allowance in future
periods.

The Company adopted the provisions of FASB ASC 740-10-15, Accounting for Uncertainty in Income Taxes on
January 1, 2007. There was no impact on the Companys financial position upon adoption, and the changes through December 31, 2009 are described below.

The Company files income tax returns in the U.S. federal jurisdiction, the United Kingdom and various state jurisdictions. The Company is no longer subject to U.S. federal, United Kingdom and state income
tax examinations by tax authorities for years before 2004.

The Company has evaluated any uncertain tax positions in its
federal income tax return, United Kingdom return and the state tax returns it is currently filing. The Company has also made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does
not currently consider itself liable. Based on this analysis, the Company has recorded an unrecognized tax liability.

A
reconciliation of the beginning and ending balance of the unrecognized tax liability is as follows:



|                                                                  |  |                        |         |   |      |   |         |      |  |   |        
|----------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------
|                                                                  |  | Year Ended December 31
|                                                                  |  | 2009                   |         |   | 2008 |   |         | 2007
|Balance as of January 1                                           |  | $                      | 249,000 |   |      | $ | 174,000 |      |  | $ |       
|Increases for tax positions related to the current year           |  |                        | 86,000  |   |      |   | 78,000  |      |  |   | 5,000  
|Increases (decreases) for tax positions related to the prior year |  |                        | (45,000 | ) |      |   | (3,000  | )    |  |   | 169,000
|                                                                  |  |                        |         |   |      |   |         |      |  |   |        
|Balance as of December 31                                         |  | $                      | 290,000 |   |      | $ | 249,000 |      |  | $ | 174,000
|                                                                  |  |                        |         |   |      |   |         |      |  |   |        

The entire amount of the unrecognized tax liability
for all years would impact the effective tax rate if recognized. Consistent with its current policy, the Company will include any interest and penalties related to uncertain tax positions as a component of selling, general and administrative
expense. There are no amounts accrued for interest or penalties through December 31, 2009.

NOTE 12RELATED PARTY TRANSACTIONS

For the years ended December 31, 2009, 2008 and 2007, the Company paid $402,000, $335,000 and $423,000, respectively,
to a law firm of which one of the directors of the Company is a member.



F-24



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 12RELATED PARTY TRANSACTIONS (continued)



John Aglialoro, Joan Carter, and UM Holdings Ltd. (UM) are related parties
which collectively own approximately 45% of the Companys common shares.

Mr. Aglialoro 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 $518,000, $536,000 and $486,000 for 2009, 2008 and 2007, respectively.

UM provides certain office support services for which the Company reimbursed UM at the rate of $145,000, $145,000 and $78,000 during 2009,
2008, and 2007, respectively. At December 31, 2009, the Company owed UM $15,000 for services. At December 31, 2008, the Company had a credit of $42,000 relating to the UM service fees.

NOTE 13GUARANTEES

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 guarantee 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 contingency reserve
in situations when collection of the lease payments is not probable. At December 31, 2009, the maximum contingent liability under all recourse and guarantee provisions was $6,386,000. A reserve for estimated losses under recourse provisions of
$1,030,000 and $885,000 has been recorded based on historical experience and review of specific leases in default, and is included in accrued liabilities at December 31, 2009 and 2008, respectively.

The Company as guarantor will recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken
in issuing such guarantees. The Company has recorded a net liability of $84,000 and $62,000 at December 31, 2009 and December 31, 2008, respectively, for the estimated fair value of the Companys guarantees. 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, 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.

NOTE 14COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has lease commitments expiring at various dates through 2014 for equipment and property under noncancelable operating leases. Future minimum payments under these leases at December 31, 2009 are as follows:



|      |  |           |        
|----- |  | --------- | -------
|      |  | Operating
|2010  |  | $         | 465,000
|2011  |  |           | 145,000
|2012  |  |           | 81,000 
|2013  |  |           | 24,000 
|2014  |  |           | 6,000  
|      |  |           |        
|Total |  | $         | 721,000
|      |  |           |        



F-25



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 14COMMITMENTS AND CONTINGENCIES (continued)



Rent expense under all operating leases for the years ended December 31, 2009, 2008
and 2007 was $582,000, $579,000 and $1,008,000, respectively.

Royalty Agreement

In connection with the settlement of a license dispute, the Company was required to make minimum royalty payments through November 2012. The
interest expense portion of the minimum royalty payments in the year ended December 31, 2007 was $141,000. On December 27, 2007, the Company entered into a patent purchase agreement pursuant to which it agreed to purchase the licensed
patents and all rights associated therewith, including the obligation to make future minimum royalty payments of $1,400,000, for a purchase price of $1,000,000. As a result of this transaction, all obligations of the Company under the license
agreement, including minimum royalty payments, were satisfied in full. The Company recorded a $400,000 gain in the fourth quarter of 2007 in connection with this transaction. This amount is recorded as a reduction to selling, general and
administrative expenses in the consolidated statement of operations.

Purchase Obligations

The Company is required to make purchases of goods and services, principally for purchase order obligations, an endorsement agreement and
capital expenditures, that are legally binding of $13,177,000 in 2010, $4,398,000 in 2011, $300,000 in 2012, $400,000 in 2013 and $500,000 in 2014.

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 on a claims made basis and currently provides an aggregate of $10,000,000 of annual coverage ($5,000,000 annual
coverage for claims made prior to December 1, 2008). These policies include a deductible of $250,000 on claims made after December 1, 2008 with an annual aggregate deductible of $1,000,000 (for claims made prior to December 1, 2008, a
$100,000 deductible with an annual aggregate deductible of $750,000). 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.

As of December 31, 2009 and 2008, the Company accrued $7,627,000 and $5,000,000, respectively, for product liability claims and a
corresponding receivable for the liability claims estimated to be recoverable under the Companys insurance policies. On a quarterly basis, the Company reviews and adjusts each product liability claim and corresponding receivable. This accrual
was included as a component of other liabilities and the insurance recoverable was included as a component of other assets at December 31, 2009 and 2008.

Litigation

United Leasing, Inc. v. Cybex International, Inc., et al.

The Company on February 25, 2009 was served with an Amended Complaint which added the Company and its wholly owned
subsidiary, Cybex Capital Corp. (collectively with the Company referred to herein as Cybex), as additional defendants in this action originally venued in the Circuit Court for Williamson County,



F-26



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 14COMMITMENTS AND CONTINGENCIES (continued)



State of Tennessee. The plaintiff, United Leasing, Inc., provided a series of lease financings for the sale of Cybex equipment to a purchaser/lessee which has since entered bankruptcy, many of
which sales were made by an independent dealer, also a defendant in the action. The plaintiff alleges that it was induced to finance in excess of the purchase price for certain of the equipment based primarily upon alleged rebates to the
purchaser/lessee made by the independent dealer. Cybex Capital assisted in the lease financing and the plaintiff now asserts that Cybex participated in the alleged scheme. The Amended Complaint included claims for breach of contract, conversion,
intentional/fraudulent misrepresentation, fraudulent concealment and civil conspiracy. The plaintiff seeks from Cybex an unspecified amount of compensatory and punitive damages, including repurchase of the leases; damages in the amount of the
alleged rebates, stated to be at least $350,000; payment of the lease guarantees, stated to be at least $365,000 plus one-half of the remaining balance of one lease; and interest, costs and counsel fees.

During March 2009, this action was removed to the United States District Court for the Middle District of Tennessee, and Cybex filed an
Answer denying all material allegations of the Amended Complaint, other than admitting limited guarantees of certain of the leases at issue had been provided. While Cybex has asserted that the plaintiffs acts and omissions have relieved Cybex
of liability under the lease guarantees, a reserve for the estimated amount of the guarantee obligation is included in accrued liabilities at December 31, 2009, should it be determined that Cybex remains responsible thereunder.

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 named 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 $2,795,000 as of
December 31, 2009.

NOTE 15BENEFIT PLANS

The Company has a 401(k) defined contribution retirement plan. The Company during 2008 and 2007 and a portion of 2009 matched 50% of the first 4% of the employees eligible compensation
contributions. Matching contributions by the Company to the plan were $57,000, $362,000, and $343,000 for the years ended December 31, 2009, 2008, and 2007, respectively. Effective March 1, 2009, the Company elected to suspend the Company
match. Additionally, the Company may make discretionary contributions to the plan. No discretionary contributions were made for the years ended December 31, 2009, 2008 or 2007.



F-27



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 16SUBSEQUENT EVENTS

As discussed in Note 2, Recent Accounting Pronouncements, the Company has evaluated subsequent events from December 31, 2009. There were
no subsequent events required to be recognized or disclosed in the financial statements.

NOTE 17QUARTERLY DATA (unaudited)

The following table presents unaudited quarterly financial information for the years ended December 31, 2009 and
2008:



|                                           |  |                    |            |   |         |   |            |              |  |             |            |  |   |             |     
|------------------------------------------ |  | ------------------ | ---------- | - | ------- | - | ---------- | ------------ |  | ----------- | ---------- |  | - | ----------- | ----
|                                           |  | 2009 Quarter Ended |           
|                                           |  | March 28           |            |   | June 27 |   |            | September 26 |  | December 31 |           
|Sales                                      |  | $                  | 28,922,000 |   |         | $ | 27,755,000 |              |  | $           | 28,986,000 |  | $ | 34,811,000  |     
|Gross profit                               |  |                    | 7,899,000  |   |         |   | 7,145,000  |              |  |             | 9,157,000  |  |   | 11,807,000  |     
|Net income (loss)                          |  |                    | (1,407,000 | ) |         |   | (2,104,000 | )            |  |             | 81,000     |  |   | 993,000     |     
|Basic net income (loss) per share          |  |                    | (0.08      | ) |         |   | (0.12      | )            |  |             | 0.00       |  |   | .06         |     
|Diluted net income (loss) per share        |  |                    | (0.08      | ) |         |   | (0.12      | )            |  |             | 0.00       |  |   | .06         |     
|                                           | 
|                                           |  | 2008 Quarter Ended |           
|                                           |  | March 29           |            |   | June 28 |   |            | September 27 |  | December 31 |           
|Sales                                      |  | $                  | 39,780,000 |   |         | $ | 33,136,000 |              |  | $           | 35,753,000 |  | $ | 39,260,000  |     
|Gross profit                               |  |                    | 14,172,000 |   |         |   | 10,656,000 |              |  |             | 11,551,000 |  |   | 11,610,000  |     
|Net income (loss)                          |  |                    | 1,318,000  |   |         |   | 128,000    |              |  |             | 340,000    |  |   | (10,874,000 | )(a)
|Basic net income (loss) per share (a)(b)   |  |                    | .08        |   |         |   | .01        |              |  |             | .02        |  |   | (.62        | )(a)
|Diluted net income (loss) per share (a)(b) |  |                    | .07        |   |         |   | .01        |              |  |             | .02        |  |   | (.62        | )(a)



|(a) | Includes a non-cash non-tax deductible goodwill impairment charge of $11,247,000 or $.64 per diluted share, triggered by declines in the Companys stock price in
the period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



F-28



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II



|                                     |  |                              |           |           |   |            |  |                         |         |  |   |          
|------------------------------------ |  | ---------------------------- | --------- | --------- | - | ---------- |  | ----------------------- | ------- |  | - | ---------
|Description                          |  | Balance atBeginningof Period |           | Additions |   | Write-offs |  | Balance atEnd of Period
|For the year ended December 31, 2009 |  |                              |           |           |   |            |  |                         |         |  |   |          
|Allowance for doubtful accounts      |  | $                            | 1,215,000 |           | $ | 328,000    |  | $                       | 181,000 |  | $ | 1,362,000
|                                     |  |                              |           |           |   |            |  |                         |         |  |   |          
|For the year ended December 31, 2008 |  |                              |           |           |   |            |  |                         |         |  |   |          
|Allowance for doubtful accounts      |  | $                            | 953,000   |           | $ | 506,000    |  | $                       | 244,000 |  | $ | 1,215,000
|                                     |  |                              |           |           |   |            |  |                         |         |  |   |          
|For the year ended December 31, 2007 |  |                              |           |           |   |            |  |                         |         |  |   |          
|Allowance for doubtful accounts      |  | $                            | 797,000   |           | $ | 482,000    |  | $                       | 326,000 |  | $ | 953,000  
|                                     |  |                              |           |           |   |            |  |                         |         |  |   |          



S-1



---

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

None.

ITEM 9A(T).CONTROLS AND PROCEDURES

Evaluation of Disclosure 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.

Managements Report on Internal Control Over Financial Reporting

Management of Cybex International, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Internal control over financial reporting is a
process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. A companys internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management evaluated the internal control over financial reporting of the Company as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal ControlIntegrated Framework (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2009, the Companys internal control
over financial reporting was effective.

This annual report does not include an attestation report of the Companys
independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys independent registered public accounting firm.



|                                     |  |  |  |                                                               
|------------------------------------ |  |  |  | --------------------------------------------------------------
|                                     |  | 
|/s/    JOHN
AGLIALORO                |  |  |  | /s/    ARTHUR W. HICKS,
JR.                                   
|Chairman and Chief Executive Officer |  |  |  | President, Chief Operating Officer and Chief Financial Officer

March 2, 2010



II-1



---

Changes in Internal Control Over Financial Reporting

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
|-------- | -----------------

None.

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 2010 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 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-2



---

PART IV



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

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



|    |  |                     |  |                                                                                                                                                                                                                                           
|--- |  | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | FinancialStatements |  |                                                                                                                                                                                                                                           
|    |  |                    
|(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            |  |                                                                                                                                                                                                                                           
|    |  |                    
|    |  | 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.                       
|    |  |                    
|    |  | 3(b)(1)             |  | By-Laws of the Company, as amended (the By-Laws), incorporated by reference to Exhibit 3(b) to the Annual Report on Form 10-K for the year ended December 31,
1987.                                                                     
|    |  |                    
|    |  | 3(b)(2)             |  | Amendment to the By-Laws, adopted November 7, 2007, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed November 7, 2007.                                                                                    
|    |  |                    
|    |  | 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
Form 10-K).*                                                       
|    |  |                    
|    |  | 10(b)(1)            |  | 2005 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 6, 2005 (the May 6, 2005 Form
8-K).*                                                                              
|    |  |                    
|    |  | 10(b)(2)            |  | Amendment No. 1 to the 2005 Omnibus Incentive Plan, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed May 9, 2007 (the May 9, 2007
Form 8-K).*                                                          
|    |  |                    
|    |  | 10(c)(1)            |  | 2002 Stock Retainer Plan for Non-employee Directors, incorporated by reference to Exhibit 10(k) to the 2001 Form 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.*                                                                   



II-3



---

| |  |       |  |                                                                                                                                                                                                                                                                                                      
| |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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) |  | 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(f) |  | 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.*                                                                                                                 
| |  |      
| |  | 10(g) |  | Management Employment Agreement between the Company and Edward Kurzontkowski, incorporated by reference to Exhibit 10(bb) to the Annual Report on Form 10-K for the year
ended December 31, 2006 (the 2006 Form 10-K).*                                                                            
| |  |      
| |  | 10(h) |  | Management Employment Agreement between the Company and Galen S. Lemar, incorporated by reference to Exhibit 10(x) to the Annual Report on Form 10-K for the year ended
December 31, 2008 (2008 Form 10-K).*                                                                                       
| |  |      
| |  | 10(i) |  | Management Employment Agreement between the Company and Ed Pryts, incorporated by reference to Exhibit 10(cc) to the 2006 Form 10-K.*                                                                                                                                                                
| |  |      
| |  | 10(j) |  | Management Employment Agreement between the Company and John Young, incorporated by reference to Exhibit 10(dd) to the 2006 Form 10-K.*                                                                                                                                                              
| |  |      
| |  | 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 Non-Qualified 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 Non-Assignable Incentive Stock Option Agreement pursuant to the 2005 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.2 to the May 6, 2005 Form 8-K.                                                                                                                          
| |  |      
| |  | 10(n) |  | Form of Non-Assignable Non-Qualified Stock Option Agreement pursuant to the 2005 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.3 to the May 6, 2005 Form
8-K.                                                                                                                      
| |  |      
| |  | 10(o) |  | Form of Restricted Stock Award Agreement for Newly-Elected Non-Employee Director, incorporated by reference to Exhibit 99.2 to the Current Report on the May 9, 2007 Form
8-K.*                                                                                                                      
| |  |      
| |  | 10(p) |  | Form of Notification of Participation - 2010 Management Incentive Compensation Bonus Program (CEO Level), incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed February 18, 2010 (the February 18, 2010 Form 8-K).*                                                   
| |  |      
| |  | 10(q) |  | Form of Notification of Participation - 2010 Management Incentive Compensation Bonus Program (President Level), incorporated by reference to Exhibit 10.2 to the February
18, 2010 Form 8-K.*                                                                                                        
| |  |      
| |  | 10(r) |  | Form of Notification of Participation - 2010 Management Incentive Compensation Bonus Program (Senior Vice-President Level), incorporated by reference to Exhibit 10.3 to
the February 18, 2010 Form 8-K.*                                                                                            
| |  |      
| |  | 10(s) |  | 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (the  September 2006 10-Q).



II-4



---

| |  |          |  |                                                                                                                                                                                                                                                                                    
| |  | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10(t)    |  | 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(u)(1) |  | 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(u)(2) |  | Credit Agreement, dated July 2, 2008, by and between RBS Citizens, National Association and the Company, incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q for the quarter ended June 28, 2008.                                                       
| |  |         
| |  | 10(u)(3) |  | Amendment No. 1 to Credit Agreement, dated August 31, 2008, by and between the Company and RBS Citizens, National Association, incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended September 27, 2008 (the September 2008 10-Q).
| |  |         
| |  | 10(u)(4) |  | Modification Agreement, dated May 4, 2009 between the Company and RBS Citizens, National Association, incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the
Quarterly Report on Form 10-Q for the quarter ended March 28, 2009.                                      
| |  |         
| |  | 10(u)(5) |  | Modification Agreement, dated August 13, 2009, between the Company and RBS Citizens, National Association, incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarter ended September 26, 2009 (the September 2009 10-Q).                    
| |  |         
| |  | 10(v)(1) |  | Loan Agreement, dated July 30, 2007, with Wachovia Bank, NA, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended June 30,
2007.                                                                                                   
| |  |         
| |  | 10(v)(2) |  | Loan Modification Agreement dated April 23, 2009, between Wachovia Bank, National Association and Cybex International, Inc., incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended March 28, 2009.                                  
| |  |         
| |  | 10(v)(3) |  | Loan Modification Agreement dated July 28, 2009, between Wachovia Bank, National Association and Cybex International, Inc., incorporated by reference to Exhibit 10.2 to
the September 2009 10-Q.                                                                                  
| |  |         
| |  | 10(v)(4) |  | Loan Modification Agreement dated September 24, 2009, between Wachovia Bank, National Association and Cybex International, Inc., incorporated by reference to Exhibit 10.3
to the September 2009 10-Q.                                                                             
| |  |         
| |  | 10(v)(5) |  | Loan Modification Agreement dated December 24, 2009, between the Company and Wachovia Bank, N.A. (Filed herewith).                                                                                                                                                                 
| |  |         
| |  | 10(w)    |  | Promissory Note dated March 25, 2008, in a principal amount of up to $3,000,000, from the Company to Wachovia Bank, N.A., incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended March 29, 2008 (the March 2008 10-Q).             
| |  |         
| |  | 10(x)    |  | Promissory Note dated March 2, 2009, in a principal amount of up to $1,000,000, from the Company to Wachovia Bank, N.A., incorporated by reference to Exhibit 10(u) to the
2008 Form 10-K.                                                                                         
| |  |         
| |  | 10(y)    |  | 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.                                                                               



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---

| |  |       |  |                                                                                                                                                                                                                      
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10(z) |  | Termination Agreement, dated September 8, 2008, among the Company, eNova Group Limited Liability Company, Stephen M. Williams and Roy Simonson, incorporated by reference
to Exhibit 10.2 to the September 2008 10-Q.
| |  |      
| |  | 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 President, Chief Operating and Chief Financial Officer (Filed herewith).                                                                                                                            
| |  |      
| |  | 32(a) |  | Certification of Chief Executive Officer pursuant to Section 1350 (Filed herewith).                                                                                                                                  
| |  |      
| |  | 32(b) |  | Certification of President, Chief Operating and Chief Financial Officer pursuant to Section 1350 (Filed herewith).                                                                                                   



II-6



---

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 2, 2010

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 2, 2010
|                                                         |  |                                                                                                       
|/S/    ARTHUR W. HICKS,
JR. Arthur W. Hicks, Jr.         |  | Director, President, Chief Operating Officer and Chief Financial Officer (principal financial officer) |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    JAMES M.
AHEARN James M. Ahearn                   |  | Treasurer (principal accounting officer)                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    JAMES H.
CARLL James H. Carll                     |  | Director                                                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    JOAN
CARTER Joan Carter                           |  | Director                                                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    JERRY
LEE Jerry Lee                               |  | Director                                                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    MILTON
LEONTIADES, PH.D. Milton Leontiades, Ph.D. |  | Director                                                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    JOHN
MCCARTHY John McCarthy                       |  | Director                                                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    HARVEY
MORGAN Harvey Morgan                       |  | Director                                                                                               |  | March 2, 2010
|                                                         |  |                                                                                                       
|/S/    ROBERT E.
SMYTH Robert E. Smyth                   |  | Director                                                                                               |  | March 2, 2010



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