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, 2008

Commission file number 0-4538

Cybex International, Inc.

(Exact
name of registrant as specified in its charter)



|                                                               |  |                                          
|-------------------------------------------------------------- |  | -----------------------------------------
|New York                                                       |  | 11-1731581                               
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)     
|                                                               | 
|10 Trotter Drive, Medway, Massachusetts                        |  | 02053                                    
|(Address of principal executive office)                        |  | (Zip Code)                               
|                                                               | 
|Registrants telephone number, including area code             |  | (508) 533-4300                           
|                                                              
|Securities registered pursuant to Section 12(b) of the Act:   
|Title of Each Class                                            |  | Name of each exchange on which registered
|Common Stock, $.10 Par Value                                   |  | NASDAQ Global Market                     

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

NONE

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 28, 2008 was $37,199,927.





The number of shares outstanding of the registrants classes of common stock, as of March 12, 2009

Common Stock, $.10 Par Value  17,301,231 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):



|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  
|--------------------------- |  | --------- | ----- | ------- | ---- | - | --------- | ---- | ------- |  | --- | --------- |  | ------- | ----- |  | --- | -
|                            |  | 2008      |       |         | 2007 |   |           | 2006 |        
|                            |  | Net Sales |       | Percent |      |   | Net Sales |      | Percent |  |     | Net Sales |  | Percent |      
|Cardiovascular products     |  | $         | 76.8  |         | 52   | % |           | $    | 78.9    |  | 54  | %         |  | $       | 67.8  |  | 53  | %
|Strength systems            |  |           | 58.2  |         | 39   |   |           |      | 55.2    |  | 38  |           |  |         | 46.3  |  | 36  |  
|Parts                       |  |           | 4.8   |         | 3    |   |           |      | 5.2     |  | 4   |           |  |         | 5.6   |  | 5   |  
|Freight and other sales (1) |  |           | 8.1   |         | 6    |   |           |      | 7.2     |  | 4   |           |  |         | 7.2   |  | 6   |  
|                            |  |           |       |         |      |   |           |      |         |  |     |           |  |         |       |  |     |  
|                            |  | $         | 147.9 |         | 100  | % |           | $    | 146.5   |  | 100 | %         |  | $       | 126.9 |  | 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 Cyclone-S, CX-445T, FT-360, FT-450, Home Arc, LCX-425T, Legacy, MG500, 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 $1,500.

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 620A/



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630A Arc Trainer products were discontinued in 2008 and replaced with the 750A and 750AT Arc Trainer products. These new models use a control console that is
based on the 750T treadmill console, facilitating cross-use of 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. For 2008 the
Home Arc Trainer was updated as the 360A. The Company also produces the 425A Arc Trainer for the light commercial and high-end consumer markets. The Arc Trainers list price ranges from $3,495 to $6,595.

Treadmills. The Company has four treadmill models, the Legacy 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 $7,495.

Bikes. The Companys Cyclone bikes were discontinued in 2008 and replaced by 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 $3,095 and the recumbent bike is $3,295.

Steppers. The Company has one model of steppers 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, 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. Five new dual function machines intended for use in
smaller facilities were added in 2008. 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 78 selectorized equipment products under the above lines with list prices between $2,645 and $6,595.



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Modular Multi-Station 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 multi-station units depends on configuration. The list price of a typical configuration is $11,095.

MG500 Multi-gym. The Companys MG500 multi-gym features over 30 biomechanically correct exercises. The multi-gym uses considerably less
space than multiple selectorized single station equipment. It contains three weight stacks to meet the needs of the commercial market, especially hotels, corporate fitness centers and other small-scale locations. This product has a list price
ranging from $7,895 to $8,095.

Functional Trainers. The FT-360s 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 FT-450 was introduced in late 2008. This product adds the ability to
vary the width of the cables and the ability to add stabilization in a progressive manner. This product is available in two versions. These products have a list price ranging from $4,895 to $5,195.

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. The Company currently offers 16 plate-loaded products, ranging in price from $1,245 to $3,945.

Free-Weight Equipment. The Company also sells free-weight benches and racks and compliments them with OEM supplied dumbbells,
barbells and plates. The Company offers 20 items of free-weight equipment with list prices ranging from $345 to $1,995.

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 2008 net sales. Typical commercial customers are health clubs, hotels,
resorts, spas, educational institutions, sports teams, sports medicine clinics, military installations and corporate fitness and community centers. Sales to Snap Fitness, Inc. or its franchisees represented 12.9%, 13.2% and 6.4% of the
Companys net sales for 2008, 2007 and 2006, respectively. Sales to Cutler-Owens International Ltd., an independent authorized dealer, represented 12.3%, 14.0% and 15.2% of the Companys net sales for 2008, 2007 and 2006, respectively.
Sales to Planet Fitness Equipment, LLC represented 10.4%, 5.6%, and 2.9% of the Companys net sales for 2008, 2007, and 2006, respectively. No other customer accounted for more than 10% of the Companys net sales for 2008, 2007 or 2006.

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

Independent authorized dealers operate independent stores specializing in fitness-related products and promote home and commercial sales of the
Companys products. The operations of the independent dealers are primarily local or regional in nature. In North America, the Company publishes dealer performance standards which are designed to assure that the Company brand is properly
positioned in the marketplace. In order to qualify as an authorized dealer, the dealer must, among other things, market and sell Cybex products in a defined territory, achieve sales objectives, have qualified sales personnel, and receive on-going
product and sales training. As of March 1, 2009, the Company has approximately 63 active dealers with 150 locations in North America. The Companys domestic sales force services this dealer network and sells direct in regions not covered
by a dealer. The domestic sales team includes 25 territory managers or reps, 8 regional or national account managers, three Vice Presidents, and one Senior Vice President.



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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 28%, 28% and 27% of the Companys net sales for 2008, 2007 and 2006, respectively. The
international sales force consists of one Senior Vice President, one Vice President of Europe Business Development, four 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 20 employees. The Company utilizes independent distributors for the balance of its international sales. There are
approximately 66 independent distributors in 77 countries currently representing Cybex. The Company enters into international distributor agreements with these distributors which define territories, performance standards and volume requirements.

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

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

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

Warranties

All products are warranted for 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. Warranty expense for the years ended December 31, 2008, 2007 and 2006 was $4,361,000, $5,220,000 and $3,323,000, respectively.

Competition

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

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

Product
Development

Research and development expense for the years ended December 31, 2008, 2007 and 2006 was $6,603,000, $6,673,000 and
$4,812,000, respectively. At December 31, 2008, the Company had the equivalent of 39 employees engaged in ongoing research and development programs. The Companys development efforts focus



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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 facilities which are 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 coverage on a
claims made basis ($5,000,000 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 ($100,000 deductible on
claims made prior to such date with an annual aggregate deductible of $750,000). Reserves for self insured retention are included in accrued expenses on the consolidated balance sheet.

Governmental Regulation

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

The Companys operations are subject to federal, state and local laws and regulations relating to the environment. The
Company regularly monitors and reviews its operations and practices for compliance with



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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 12, 2009, the Company employed 556 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 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. While our net sales for 2008 marginally increased over the prior year, our net sales in the fourth quarter of 2008 were more than 10%
below net sales for the corresponding period of 2007. 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 depend upon our ability to successfully develop, market and sell new or improved products. Our continued growth and ability to remain
competitive will substantially depend upon our development of new or improved products. A failure to develop new or improved products on a timely basis, or which are accepted in the marketplace, or which produce appropriate sales or margins, could
adversely affect our ability to generate future revenues and earnings and have a negative impact on our business prospects, liquidity and financial condition.

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



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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.

We rely on third party dealers and distributors to sell and service a significant portion of our products. In 2008, 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.

The loss of a major customer could adversely affect us. In 2008 sales to one independent authorized dealer represented 12.3% of our net sales, sales to an end user customer represented 10.4% of net sales and
sales to another end user customer or its franchisees represented 12.9% of net sales. These customers represented 8.5%, 7.6% and 1.0%, respectively, of our accounts receivable as of December 31, 2008. The concentration of customers may increase
our overall exposure to credit risk. The loss or significant reduction of a major customer, or a major customer experiencing financial difficulty, could significantly harm our operating results, financial condition, cash flows and prospects.



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We incurred a loss in 2008 and have a history of losses in fiscal years prior to 2004. We recorded
a goodwill impairment charge of $11,247,000 in 2008, resulting in a net loss for the year. We also experienced net losses from 2000 through 2003. If we are unable to maintain our profitability and we incur losses in the future, any such losses could
have a material adverse effect on our business prospects, liquidity, financial condition and cash flows.

Our major stockholders may
exercise control over us.John Aglialoro, Joan Carter and UM Holdings Ltd., who are related parties, collectively own approximately 44% 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. In particular, the incurrence
of losses in the future could result in the inability to meet the financial covenants pertaining to our indebtedness or to service our debt.

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

We may have a contingent
liability related to the arrangement of third party financing.We offer to our customers leasing and other financing of products by third party providers, for which we may receive a fee. While most of these financings are without recourse, in
certain cases we may offer a guaranty or other recourse provisions. At December 31, 2008, our maximum contingent liability under all recourse provisions was approximately $5,205,000. While we maintain a reserve for estimated losses under these
recourse provisions, it could have a material adverse effect on our business prospects, liquidity, financial condition and cash flows if actual losses were to materially exceed the related reserve.

Unfavorable international political or economic changes and/or currency fluctuations could negatively impact us.Approximately 28% of our sales in
each of 2008 and 2007 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



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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 44% 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.



|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 13 to the Companys consolidated
financial statements.



10



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|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 expenses 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 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 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 the equipment due to alleged rebates made by the independent dealer to the purchaser/lessee which has since entered bankruptcy. Cybex helped arrange the lease financing and also provided limited guarantees of certain of the
leases, and the plaintiff now asserts that Cybex participated in the alleged scheme. The Amended Complaint includes 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.

Cybex only recently was served
the Amended Complaint and has not yet made an appearance in the action. Cybex will deny all material allegations of the Amended Complaint and any liability to the plaintiff, other than its contractual obligation to the extent provided under the
terms of the limited guarantees. A reserve in the estimated amount of the limited guarantee obligation is included in accrued expense at December 31, 2008.

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



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

No matters were submitted to a vote of the Companys security holders during the fourth quarter of 2008.



|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 12, 2009 were as follows:



|                     |  |     |  |                                                               
|-------------------- |  | --- |  | --------------------------------------------------------------
|Name                 |  | Age |  | Position                                                      
|John Aglialoro       |  | 65  |  | Chairman and Chief Executive Officer                          
|Arthur W. Hicks, Jr. |  | 50  |  | President, Chief Operating Officer and Chief Financial Officer
|Edward Kurzontkowski |  | 45  |  | Senior Vice President of Manufacturing                        
|Raymond Giannelli    |  | 55  |  | Senior Vice President of Research and Development             
|Edward J. Pryts      |  | 48  |  | Senior Vice President of Sales  North America                
|John P. Young        |  | 46  |  | Senior Vice President of Sales  International                
|Galen S. Lemar       |  | 62  |  | Senior Vice President/President-Cybex Capital Corp.           



11



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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.

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.



12



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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:



|               |  |      |      |      |   |      |  |     |      |  |   |     
|-------------- |  | ---- | ---- | ---- | - | ---- |  | --- | ---- |  | - | ----
|               |  | 2008 |      | 2007
|Calendar       |  | High |      | Low  |   | High |  | Low
|First Quarter  |  | $    | 5.18 |      | $ | 3.75 |  | $   | 6.55 |  | $ | 4.92
|Second Quarter |  |      | 4.30 |      |   | 3.37 |  |     | 7.32 |  |   | 5.29
|Third Quarter  |  |      | 3.77 |      |   | 2.78 |  |     | 7.04 |  |   | 4.43
|Fourth Quarter |  |      | 3.14 |      |   | 1.10 |  |     | 5.22 |  |   | 4.07

As of March 12, 2009, there were approximately 448 common stockholders of record. This figure
does not include stockholders with shares held under beneficial ownership in nominee name.

On July 16, 2008, a warrant holder
exercised in full its warrant to purchase 189,640 shares of common stock of the Company. The Company issued this warrant in 2003 in connection with a financing. In issuing the shares of the Companys common stock underlying this warrant, the
Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, in that the 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.

The following table summarizes securities
authorized for issuance under equity compensation plans at December 31, 2008:

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     |  | 674,375                                                                                |  | $                                                                        | 2.80 |                                                                                          | 839,273 | (1)
|Equity compensation plans not approved by security holders |  |                                                                                       |  |                                                                          |     |                                                                                          |        |    
|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                          |         |    
|Total                                                      |  | 674,375                                                                                |  | $                                                                        | 2.80 |                                                                                          | 839,273 |    
|                                                           |  |                                                                                        |  |                                                                          |      |                                                                                          |         |    



|(1) | Includes 821,000 shares available for issuance under the Companys 2005 Omnibus Incentive Plan and 18,273 shares available for issuance under the Companys 2002 Stock
Retainer Plan for Nonemployee Directors. See Note 9 to the Companys consolidated financial statements for a description of these plans.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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The following table provides information with respect to repurchases by the Company of its common shares
during the fourth quarter of 2008:

Issuer Purchases of Equity Securities



|                    |  |                                    |  |                                |      |                                                                                     |         |                                                                           |        
|------------------- |  | ---------------------------------- |  | ------------------------------ | ---- | ----------------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------- | -------
|Period              |  | (a)Total Number ofShares Purchased |  | (b)Average PricePaid per Share |      | (c)Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs (1) |         | (d)Maximum Numberof Shares that MayYet be Purchasedunder
Plans orPrograms
|9/28/08  10/25/08  |  |                                   |  |                                |     |                                                                                     |        |                                                                           |       
|10/26/08  11/29/08 |  | 120,000                            |  | $                              | 2.10 |                                                                                     | 120,000 |                                                                           | 880,000
|11/30/08  12/31/08 |  |                                   |  |                                |     |                                                                                     |        |                                                                           |       
|                    |  |                                    |  |                                |      |                                                                                     |         |                                                                           |        
|                    |  | 120,000                            |  | $                              | 2.10 |                                                                                     | 120,000 |                                                                           | 880,000



|(1) | On November 3, 2008, the Companys Board of Directors authorized the repurchase of up to 1,000,000 shares of its common stock. This stock repurchase program does not have
an expiration date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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Performance Graph

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

LOGO

Comparison of 5-Year Cumulative Total Return of

Cybex International, Inc., NASDAQ Market Value Index

and the SIC Code Index (2)



|                          |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |       
|------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|                          |  | 2003 |        | 2004 |   | 2005   |  | 2006 |        | 2007 |   | 2008  
|Cybex International, Inc. |  | $    | 100.00 |      | $ | 335.25 |  | $    | 303.28 |      | $ | 491.80 |  | $ | 373.77 |  | $ | 150.82
|SIC Code Index            |  |      | 100.00 |      |   | 110.79 |  |      | 96.27  |      |   | 103.05 |  |   | 78.65  |  |   | 28.60 
|NASDAQ Market Value Index |  |      | 100.00 |      |   | 108.41 |  |      | 110.79 |      |   | 122.16 |  |   | 134.29 |  |   | 79.25 

(2) Assumes $100 invested on December 31, 2003 and dividends are reinvested. Source:
Morningstar, Inc.



15



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

The
following information has been extracted from the Companys consolidated financial statements for the five years ended December 31, 2008. 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                |        
|                                                      |  | 2008                                  |         |     | 2007 |   |         | 2006 |  |   | 2005    |      |  | 2004 |        
|                                                      |  | (in thousands, except per share data) |        
|Statement of Operations Data:                         |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Net sales                                             |  | $                                     | 147,929 |     |      | $ | 146,503 |      |  | $ | 126,924 |      |  | $    | 114,646 |     |  | $ | 103,421 |  
|Cost of sales                                         |  |                                       | 99,940  |     |      |   | 95,683  |      |  |   | 80,241  |      |  |      | 73,169  |     |  |   | 65,640  |  
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Gross profit                                          |  |                                       | 47,989  |     |      |   | 50,820  |      |  |   | 46,683  |      |  |      | 41,477  |     |  |   | 37,781  |  
|Selling, general and administrative expenses          |  |                                       | 42,321  |     |      |   | 42,224  |      |  |   | 36,757  |      |  |      | 33,908  |     |  |   | 30,900  |  
|Goodwill impairment charge                            |  |                                       | 11,247  | (a) |      |   |        |      |  |   |        |      |  |      |        |     |  |   |        |  
|Litigation charges                                    |  |                                       |        |     |      |   |        |      |  |   |        |      |  |      | 4,605   | (d) |  |   |        |  
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Operating income (loss)                               |  |                                       | (5,579  | )   |      |   | 8,596   |      |  |   | 9,926   |      |  |      | 2,964   |     |  |   | 6,881   |  
|Interest expense, net                                 |  |                                       | (1,176  | )   |      |   | (963    | )    |  |   | (1,839  | )    |  |      | (2,652  | )   |  |   | (3,525  | )
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Income (loss) before income taxes                     |  |                                       | (6,755  | )   |      |   | 7,633   |      |  |   | 8,087   |      |  |      | 312     |     |  |   | 3,356   |  
|Income tax expense (benefit)                          |  |                                       | 2,333   |     |      |   | (2,121  | )(b) |  |   | (11,967 | )(c) |  |      | 251     |     |  |   | 131     |  
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Net income (loss)                                     |  |                                       | (9,088  | )   |      |   | 9,754   |      |  |   | 20,054  |      |  |      | 61      |     |  |   | 3,225   |  
|Preferred stock dividends                             |  |                                       |        |     |      |   |        |      |  |   |        |      |  |      |        |     |  |   | (276    | )
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Net income (loss) attributable to common stockholders |  | $                                     | (9,088  | )   |      | $ | 9,754   |      |  | $ | 20,054  |      |  | $    | 61      |     |  | $ | 2,949   |  
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Basic earnings (loss) per share                       |  | $                                     | (0.52   | )   |      | $ | .56     |      |  | $ | 1.22    |      |  | $    | .00     |     |  | $ | .26     |  
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  
|Diluted earnings (loss) per share                     |  | $                                     | (0.52   | )   |      | $ | .55     |      |  | $ | 1.18    |      |  | $    | .00     |     |  | $ | .24     |  
|                                                      |  |                                       |         |     |      |   |         |      |  |   |         |      |  |      |         |     |  |   |         |  



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



|                                           |  |                |        |      |   |        |  |      |        |      |   |        |  |   |       
|------------------------------------------ |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                           |  | December 31   
|                                           |  | 2008           |        | 2007 |   | 2006   |  | 2005 |        | 2004
|                                           |  | (in thousands)
|Balance Sheet Data:                        |  |                |        |      |   |        |  |      |        |      |   |        |  |   |       
|Working capital                            |  | $              | 20,929 |      | $ | 18,186 |  | $    | 14,061 |      | $ | 4,478  |  | $ | 3,318 
|Total assets                               |  |                | 91,301 |      |   | 98,129 |  |      | 73,377 |      |   | 55,672 |  |   | 54,486
|Long-term debt (including current portion) |  |                | 18,488 |      |   | 18,950 |  |      | 3,762  |      |   | 13,659 |  |   | 20,605



16



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

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 investments and reduce their capital expenditures for items such as the fitness equipment offered by us.

While our net sales for 2008 marginally increased over the prior year, our net sales in the fourth quarter of 2008 were over 10% below net
sales in the corresponding period of 2007. 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, including a first quarter 2009 work force reduction of about 5%. We intend to monitor general economic conditions and our sales
performance and, if warranted, may effect further cost saving measures during the year.

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.



17



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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 |   
|                                             |  | 2008                   |    |  | 2007 |   |  | 2006 |  
|Net sales                                    |  | 100                    | %  |  | 100  | % |  | 100  | %
|Cost of sales                                |  | 68                     |    |  | 65   |   |  | 63   |  
|                                             |  |                        |    |  |      |   |  |      |  
|Gross profit                                 |  | 32                     |    |  | 35   |   |  | 37   |  
|Selling, general and administrative expenses |  | 28                     |    |  | 29   |   |  | 29   |  
|Goodwill impairment charge                   |  | 8                      |    |  |     |   |  |     |  
|                                             |  |                        |    |  |      |   |  |      |  
|Operating income (loss)                      |  | (4                     | )  |  | 6    |   |  | 8    |  
|Interest expense, net                        |  | 1                      |    |  | 1    |   |  | 2    |  
|                                             |  |                        |    |  |      |   |  |      |  
|Income (loss) before income taxes            |  | (5                     | )  |  | 5    |   |  | 6    |  
|Income tax expense (benefit)                 |  | 1                      |    |  | (2   | ) |  | (10  | )
|                                             |  |                        |    |  |      |   |  |      |  
|Net income (loss)                            |  | (6                     | )% |  | 7    | % |  | 16   | %
|                                             |  |                        |    |  |      |   |  |      |  

NET SALES

Our net sales increased $1,426,000, or 1%, to $147,929,000 in 2008 compared with a $19,579,000, or 15%, increase in 2007 compared to 2006.

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.

The increase in 2007 was attributable to an increase in sales of cardiovascular products of $11,106,000, or 16%, to $78,940,000, and increased sales of
strength training products of $8,836,000, or 19%, to $55,167,000, partially offset by decreased parts and other sales of $363,000, or 3%, to $12,396,000. The sales increase of cardiovascular products in 2007 was predominantly driven by sales of the
750T treadmill, first introduced in the third quarter of 2007 along with sales of the 445T treadmill, Cordless Arc Trainers and 425A Arc Trainer, first introduced in the third and fourth quarters of 2006. The sales increase of strength products in
2007 was primarily due to sales of VR1, the strength line introduced in the second quarter of 2007, and VR3, the strength line introduced at the end of 2005.

Sales outside of North America represented 28%, 28% and 27% of consolidated net sales in 2008, 2007 and 2006, respectively.

GROSS MARGIN

Gross margin was 32.4% in 2008, compared with 34.7% in 2007 and 36.8% in 2006. Margins decreased in 2008 due
to higher material costs caused by higher commodity prices (1.9%), higher outbound freight expense (.9%) and higher labor and overhead costs (.1%). These costs were offset by favorable warranty expense (.6%). Margins decreased in 2007 due to higher
warranty costs (.9%), start-up costs and higher fixed overhead associated with our new Owatonna facility (.8%) and product mix (.4%).



18



---

The price of steel, a major component of our products, fluctuates from time to time. The price for steel
and fuel costs increased significantly in 2008. While these costs have moderated in the first quarter of 2009, we are uncertain of the impact of steel prices and fuel costs on margins for 2009.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses, including bad debt expense, increased by $97,000, or .2%, in 2008 to $42,321,000 compared to an increase of $5,467,000, or 15%, in 2007. As a percentage of net sales, these expenses were 28%,
29% and 29% in 2008, 2007 and 2006, respectively.

The 2007 increase in selling, general and administrative expenses was predominantly due
to an increase in domestic and international selling and marketing expenses ($3,256,000) and an increase in product development costs ($1,861,000). The balance of the increase in these expenses is primarily comprised of smaller amounts including
higher salary levels. The increase in 2007 product development costs includes $1,260,000 of expenses related to a product development agreement.

GOODWILL IMPAIRMENT CHARGE

We test our goodwill annually for impairment. At December 31, 2008, we 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 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 $213,000, or 22%, in 2008 to $1,176,000
compared to a decrease of $876,000, or 48%, in 2007. 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. The decrease
in 2007 relates primarily to the interest rate swap expense of $506,000 in 2006 compared to $289,000 of interest income recognized in 2007 as well as lower deferred financing costs. We expect that net interest expense for 2009 will
approximate 2008.

INCOME TAXES

We
recorded an income tax expense of $2,333,000 for the year ended December 31, 2008. 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
in accordance with SFAS No. 109, Accounting for Income Taxes based upon the existence of various factors. Based on this reevaluation, we reduced the valuation allowance by $14,421,000 effective July 1, 2006. We further reduced
the valuation allowance by $5,377,000 in 2007. During the period from the establishment of the valuation allowance in 2002, to the July 1, 2006 reduction of the valuation allowance, our income tax provision was limited to state taxes and
federal alternative minimum taxes. The effective tax rate excluding changes in the valuation allowance was 41.6% in 2006 subsequent to July 1, 42.7% in 2007 and 51.9% in 2008 before the non-deductible goodwill impairment charge. The rate
increase in 2008 is primarily due to non-deductible foreign losses representing a higher percentage of our results for the year. Actual cash outlays for taxes, however, continue to be reduced by the available operating loss carryforwards, consistent
with prior periods.

As of December 31, 2008, U.S. federal operating loss carryforwards of approximately $16,009,000 were available to
us to offset future taxable income and, as of such date, we also had foreign net operating loss



19



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carryforwards of $4,426,000, federal alternative minimum tax credit carryforwards of $670,000 and federal research and development tax credit carryforwards
of $251,000. The net deferred tax asset balance of $13,383,000 at December 31, 2008 represents the amount that we believe is more-likely-than-not to be realized, and the remaining valuation allowance at December 31, 2008 is $1,666,000. We
will continue to assess the need for the remaining valuation allowance in future periods.

We adopted the provisions of FIN 48 on
January 1, 2007. There was no impact on our financial position upon adoption (see Note 10 to the consolidated financial statements).

FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2008, we had working capital of $20,929,000 compared to $18,186,000 at
December 31, 2007. The increase in working capital is primarily due to lower accrued expenses of $1,901,000 primarily relating to a royalty settlement and a product development agreement in 2007 along with a $746,000 decrease in the current
portion of long term debt, primarily due to the reduction of the revolver balance.

For the year ended December 31, 2008, we generated
$9,092,000 of cash from operating activities compared to $9,101,000 for the year ended December 31, 2007.

Cash used in investing
activities of $7,436,000 in 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. Cash used in investing activities of $24,947,000 during 2007 consisted of $15,812,000 for the purchase of our new Owatonna manufacturing facility, purchases and deposits on manufacturing tooling and equipment of $7,478,000, primarily
related to our new Owatonna facility, $825,000 of renovations to our Medway manufacturing facility and computer hardware and software of $832,000 including costs associated with an upgrade to our ERP system. Projected capital expenditures for 2009
relate mostly to manufacturing equipment and tooling for new products and computer hardware and infrastructure, and are expected to be approximately $5,000,000.

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. For the year ended December 31, 2007, cash provided by financing activities of $15,036,000 consisted primarily of the $13,000,000 real estate loan which financed in part the acquisition of
the Owatonna facility and a $4,775,000 term loan which financed certain manufacturing equipment offset by net working capital loan repayments of $2,587,000.

We have credit facilities with Citizens Bank of Massachusetts and RBS Citizens, National Association (collectively, Citizens) and Wachovia Bank, N.A. (Wachovia). Our Citizens Credit Agreement
provides a revolving line of credit of up to the lesser of $15,000,000 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 the 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 to provide an additional
term loan availability of up to $3,000,000 to finance the acquisition of machinery and equipment. A total of $6,975,000 was advanced under the Wachovia Loan Agreement through December 31, 2008. The Wachovia Loan Agreement was further
supplemented in March, 2009 to provide an additional term loan availability of up to $1,000,000 to finance the acquisition of machinery and equipment through December 31, 2009. 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 and matures on July 2, 2014. The Wachovia loans are secured by the equipment financed through the facility.
The first term loan matures on March 1, 2013, the second term loan matures on January 1, 2014 and the third term loan matures on December 31, 2009.



20



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At December 31, 2008, there were outstanding no revolving credit loans, a $12,263,000 real estate
loan and $6,225,000 in term loans. Availability under the revolving loan fluctuates daily. At December 31, 2008, there was $14,840,000 in unused availability under the working capital revolving loan facility. We are in compliance with all
financial covenants as of December 31, 2008 and expect to remain in compliance for the foreseeable future.

In November 2008, we
announced that our Board of Directors has 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. Through March 10, 2009, 321,900 shares had been repurchased under this program with an aggregate cost to us of $474,000.

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,
2008, we had approximately $20,435,000 in net operating loss carry forwards, 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                                                    |  | $     | 18,488,000 |                   | $ | 1,882,000         |  | $                 | 3,830,000  |                 | $ | 3,080,000 |  | $ | 9,696,000 
|Interest due including impact of interest rate swap (a) |  |       | 4,960,000  |                   |   | 1,152,000         |  |                   | 1,938,000  |                 |   | 1,486,000 |  |   | 384,000   
|Capital lease obligations (b)                           |  |       | 23,000     |                   |   | 23,000            |  |                   |           |                 |   |          |  |   |          
|Operating lease commitments                             |  |       | 904,000    |                   |   | 510,000           |  |                   | 357,000    |                 |   | 37,000    |  |   |          
|Purchase obligations                                    |  |       | 21,850,000 |                   |   | 17,474,000        |  |                   | 4,376,000  |                 |   |          |  |   |          
|                                                        |  |       |            |                   |   |                   |  |                   |            |                 |   |           |  |   |           
|                                                        |  | $     | 46,225,000 |                   | $ | 21,041,000        |  | $                 | 10,501,000 |                 | $ | 4,603,000 |  | $ | 10,080,000
|                                                        |  |       |            |                   |   |                   |  |                   |            |                 |   |           |  |   |           



|(a) | This includes fixed rates of 6.95% and 5.76% per the interest rate swap agreements.
|--- | -----------------------------------------------------------------------------------

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

We have agreements
with certain of 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 13, Employment Agreements, the maximum cash exposure under these agreements is $3,095,000 as of December 31, 2008. 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, 2008, the maximum



21



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contingent liability under all recourse provisions was approximately $5,205,000. A reserve for estimated losses under recourse provisions of $885,000 has
been recorded based upon historical experience, and is included in accrued liabilities at December 31, 2008.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 157 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit
fair value measurements, but does not require any new fair value measurements. This statement covers financial assets and liabilities, for which the statement is effective for fiscal years beginning after November 15, 2007, as well as
nonfinancial assets and liabilities, for which the statement is effective for fiscal years beginning after November 15, 2008. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-1, which amends SFAS
No. 157 to exclude SFAS No. 13, Accounting for Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classification under SFAS No. 13, except for assets acquired and
liabilities assumed in a business combination that are required to be measured at fair value under SFAS No. 141 Business Combinations or SFAS No. 141R (revised 2007) Business Combinations, regardless of whether
those assets and liabilities are related to leases. FSP SFAS No. 157-1 is effective upon initial adoption of SFAS No. 157. The Company adopted SFAS No. 157 for financial assets and liabilities on January 1, 2008 and there was no
impact on its financial position, results of operations or cash flows. The Company has not yet determined the impact that the implementation of SFAS No. 157 will have on its nonfinancial assets and liabilities.

In February 2007, the FASB issued SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain
other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS No. 159 became effective for the Company on January 1, 2008. The Company has
not elected to measure any eligible items at fair value. Accordingly, the adoption of this statement has had no impact on the Companys consolidated financial condition, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities. The new standard 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. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 will impact disclosures only and
will not have an impact on 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 liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments, including those related to the allowance for doubtful accounts, realizability of inventory, reserves for warranty obligations, reserves for legal matters and product liability, recoverability of goodwill and valuation of
deferred tax assets. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, which could materially impact the



22



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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 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 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 13 to the consolidated financial statements for further discussion on product liability.

Recoverability of goodwill. In assessing the recoverability of goodwill, management is required to make assumptions regarding estimated future
cash flows and other factors to determine whether the fair value of the business supports the carrying value of goodwill and net operating assets. This analysis includes assumptions and estimates about future sales, costs, working capital, capital
expenditures, and cost of capital. See Note 2 to the consolidated financial statements for discussion of the goodwill impairment charge in 2008.

Valuation of deferred tax assets.In 2002, the Company established a full valuation allowance against its net deferred tax assets. Effective July 1, 2006, management reevaluated the need for this valuation allowance in
accordance with SFAS No. 109, Accounting for Income Taxes, due to the existence of various factors. Based on this reevaluation, the Company reduced the valuation allowance by $15,361,000 in 2006 and $5,377,000 in 2007. The net
deferred tax asset balance of $13,383,000 at December 31, 2008 represents the amount that management believes is more-likely-than-not to be realized and the remaining valuation allowance at



23



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December 31, 2008 is $1,666,000. Management will continue to assess the need for the remaining valuation allowance in future periods.Approximately $34,000,000 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 carryforwards 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, 2008 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, 2008, the Company had variable rate debt with a carrying value of $2,164,000. A 100 basis point change in interest rates would have
impacted interest expense by $7,000 for the year ended December 31, 2008.

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.

Included in the variable rate debt are the Wachovia term loans, for which the Company entered into an interest rate swap agreement effective
March 3, 2008, which effectively converts the rate from a floating rate based on LIBOR to a fixed rate 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 $12,263,000 at December 31, 2008 from a floating rate to a fixed rate of 6.95% throughout the duration of the loan. See Note 7 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.At December 31, 2008, the Company had outstanding foreign currency forward contracts of 750,000 British Sterling
for the purchase of $1,544,000.



24



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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, 2008 and 2007                                                                   |  | F-2
|                                                                                                                               | 
|Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006                                     |  | F-3
|                                                                                                                               | 
|Consolidated Statements of Stockholders Equity and Comprehensive Income for the years ended December 
31, 2008, 2007 and 2006 |  | F-4
|                                                                                                                               | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006                                     |  | F-5
|                                                                                                                               | 
|Notes to Consolidated Financial Statements                                                                                     |  | F-6
|                                                                                                                               | 
|Financial Statement Schedule:                                                                                                  |  |    
|                                                                                                                               | 
|II. Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007 and 2006                                     |  | 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.



25



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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 as of December 31, 2008
and 2007, 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, 2008. 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, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, 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 12, 2009



F-1



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in
thousands, except per share data)



|                                                                                        |  |              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                        |  | December 31, |        
|                                                                                        |  | 2008         |         |   | 2007 |  
|ASSETS                                                                                  |  |              |         |   |      |   |         |  
|Current Assets:                                                                         |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                               |  | $            | 1,628   |   |      | $ | 609     |  
|Accounts receivable, net of allowance of $1,215 and $953                                |  |              | 18,735  |   |      |   | 21,015  |  
|Inventories                                                                             |  |              | 13,465  |   |      |   | 13,803  |  
|Prepaid expenses and other                                                              |  |              | 2,249   |   |      |   | 1,970   |  
|Deferred income taxes                                                                   |  |              | 4,685   |   |      |   | 4,325   |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total current assets                                                                    |  |              | 40,762  |   |      |   | 41,722  |  
|Property, plant and equipment, net                                                      |  |              | 36,551  |   |      |   | 34,089  |  
|Goodwill                                                                                |  |              |        |   |      |   | 11,247  |  
|Deferred income taxes                                                                   |  |              | 8,698   |   |      |   | 10,718  |  
|Other assets                                                                            |  |              | 5,290   |   |      |   | 353     |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  | $            | 91,301  |   |      | $ | 98,129  |  
|                                                                                        |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                    |  |              |         |   |      |   |         |  
|Current Liabilities:                                                                    |  |              |         |   |      |   |         |  
|Current portion of long-term debt                                                       |  | $            | 1,882   |   |      | $ | 2,628   |  
|Accounts payable                                                                        |  |              | 5,965   |   |      |   | 7,021   |  
|Accrued expenses                                                                        |  |              | 11,986  |   |      |   | 13,887  |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total current liabilities                                                               |  |              | 19,833  |   |      |   | 23,536  |  
|Long-term debt                                                                          |  |              | 16,606  |   |      |   | 16,322  |  
|Accrued warranty obligation                                                             |  |              | 1,378   |   |      |   | 1,355   |  
|Other liabilities                                                                       |  |              | 8,033   |   |      |   | 1,874   |  
|                                                                                        |  |              |         |   |      |   |         |  
|Total liabilities                                                                       |  |              | 45,850  |   |      |   | 43,087  |  
|                                                                                        |  |              |         |   |      |   |         |  
|Commitments and contingencies (Notes 12 and 13)                                         |  |              |         |   |      |   |         |  
|Stockholders Equity:                                                                   |  |              |         |   |      |   |         |  
|Common stock, $.10 par value, 30,000 shares authorized, 17,813 and 17,553 shares issued |  |              | 1,781   |   |      |   | 1,755   |  
|Additional paid-in capital                                                              |  |              | 68,426  |   |      |   | 68,049  |  
|Treasury stock, at cost (329 and 209 shares)                                            |  |              | (2,503  | ) |      |   | (2,251  | )
|Accumulated deficit                                                                     |  |              | (19,810 | ) |      |   | (10,722 | )
|Accumulated other comprehensive loss                                                    |  |              | (2,443  | ) |      |   | (1,789  | )
|                                                                                        |  |              |         |   |      |   |         |  
|Total stockholders equity                                                              |  |              | 45,451  |   |      |   | 55,042  |  
|                                                                                        |  |              |         |   |      |   |         |  
|                                                                                        |  | $            | 91,301  |   |      | $ | 98,129  |  
|                                                                                        |  |              |         |   |      |   |         |  

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, |        
|                                             |  | 2008                    |         |   | 2007 |   |         | 2006 | 
|Net sales                                    |  | $                       | 147,929 |   |      | $ | 146,503 |      |  | $ | 126,924 |  
|Cost of sales                                |  |                         | 99,940  |   |      |   | 95,683  |      |  |   | 80,241  |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                 |  |                         | 47,989  |   |      |   | 50,820  |      |  |   | 46,683  |  
|Selling, general and administrative expenses |  |                         | 42,321  |   |      |   | 42,224  |      |  |   | 36,757  |  
|Goodwill impairment charge                   |  |                         | 11,247  |   |      |   |        |      |  |   |        |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                     |  |                         | 53,568  |   |      |   | 42,224  |      |  |   | 36,757  |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating income (loss)                      |  |                         | (5,579  | ) |      |   | 8,596   |      |  |   | 9,926   |  
|Interest expense, net                        |  |                         | (1,176  | ) |      |   | (1,252  | )    |  |   | (1,333  | )
|Interest rate swap benefit (expense)         |  |                         |        |   |      |   | 289     |      |  |   | (506    | )
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes            |  |                         | (6,755  | ) |      |   | 7,633   |      |  |   | 8,087   |  
|Income tax expense (benefit)                 |  |                         | 2,333   |   |      |   | (2,121  | )    |  |   | (11,967 | )
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                            |  | $                       | (9,088  | ) |      | $ | 9,754   |      |  | $ | 20,054  |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic net income (loss) per share            |  | $                       | (0.52   | ) |      | $ | .56     |      |  | $ | 1.22    |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted net income (loss) per share          |  | $                       | (0.52   | ) |      | $ | .55     |      |  | $ | 1.18    |  
|                                             |  |                         |         |   |      |   |         |      |  |   |         |  

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, 2006                                                  |  | 15,340       |  | $                        | 1,534 |               | $ | 57,565 |                    | $ | (2,251 | )                                 |  | $ | (40,530                  | ) |  | $ | (130   | ) |  | $ | 16,188 |  
|Issuance of common stock                                                  |  | 1,954        |  |                          | 195   |               |   | 9,414  |                    |   |       |                                   |  |   |                         |   |  |   |       |   |  |   | 9,609  |  
|Common stock issued to Directors                                          |  | 15           |  |                          | 2     |               |   | 55     |                    |   |       |                                   |  |   |                         |   |  |   |       |   |  |   | 57     |  
|Exercise of warrants/options                                              |  | 102          |  |                          | 10    |               |   | 173    |                    |   |       |                                   |  |   |                         |   |  |   |       |   |  |   | 183    |  
|Employee stock compensation                                               |  |             |  |                          |      |               |   | 157    |                    |   |       |                                   |  |   |                         |   |  |   |       |   |  |   | 157    |  
|Income tax benefit from exercise of stock options                         |  |             |  |                          |      |               |   | 139    |                    |   |       |                                   |  |   |                         |   |  |   |       |   |  |   | 139    |  
|Comprehensive income:                                                     |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |   |  |   |        |  
|Cumulative translation adjustment                                         |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | (617   | ) |  |   | (617   | )
|Change in fair value of hedge                                             |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   |                         |   |  |   | (103   | ) |  |   | (103   | )
|Net income                                                                |  |             |  |                          |      |               |   |       |                    |   |       |                                   |  |   | 20,054                   |   |  |   |       |   |  |   | 20,054 |  
|                                                                          |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |   |  |   |        |  
|Comprehensive income                                                      |  |             |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |   |  |   | 19,334 |  
|                                                                          |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance, December 31, 2006                                                |  | 17,411       |  |                          | 1,741 |               |   | 67,503 |                    |   | (2,251 | )                                 |  |   | (20,476                  | ) |  |   | (850   | ) |  |   | 45,667 |  
|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 |  
|                                                                          |  |              |  |                          |       |               |   |        |                    |   |        |                                   |  |   |                          |   |  |   |        |   |  |   |        |  

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, |        
|                                                                                         |  | 2008                    |         |   | 2007 |   |          | 2006 | 
|OPERATING ACTIVITIES:                                                                    |  |                         |         |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                        |  | $                       | (9,088  | ) |      | $ | 9,754    |      |  | $ | 20,054   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                         |         |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                            |  |                         | 5,054   |   |      |   | 3,905    |      |  |   | 3,252    |  
|Amortization of deferred financing costs                                                 |  |                         | 38      |   |      |   | 153      |      |  |   | 296      |  
|Goodwill impairment charge                                                               |  |                         | 11,247  |   |      |   |         |      |  |   |         |  
|Deferred income taxes                                                                    |  |                         | 2,161   |   |      |   | (2,422   | )    |  |   | (12,143  | )
|Stock-based compensation                                                                 |  |                         | 235     |   |      |   | 182      |      |  |   | 300      |  
|Provisions for doubtful accounts                                                         |  |                         | 506     |   |      |   | 482      |      |  |   | 311      |  
|Change in fair value of interest rate swap                                               |  |                         | (31     | ) |      |   | (304     | )    |  |   | 506      |  
|Change in fair value of foreign currency contract                                        |  |                         | (309    | ) |      |   | (243     | )    |  |   | 162      |  
|Changes in operating assets and liabilities:                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Accounts receivable                                                                      |  |                         | 1,746   |   |      |   | (1,267   | )    |  |   | (2,287   | )
|Inventories                                                                              |  |                         | 308     |   |      |   | (4,254   | )    |  |   | (362     | )
|Prepaid expenses and other                                                               |  |                         | 129     |   |      |   | 3,371    |      |  |   | (2,272   | )
|Accounts payable, accrued liabilities and other liabilities                              |  |                         | (2,904  | ) |      |   | (256     | )    |  |   | (2,605   | )
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                |  |                         | 9,092   |   |      |   | 9,101    |      |  |   | 5,212    |  
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|INVESTING ACTIVITIES:                                                                    |  |                         |         |   |      |   |          |      |  |   |          |  
|Purchases of property, plant and equipment                                               |  |                         | (7,436  | ) |      |   | (24,947  | )    |  |   | (4,151   | )
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|NET CASH USED IN INVESTING ACTIVITIES                                                    |  |                         | (7,436  | ) |      |   | (24,947  | )    |  |   | (4,151   | )
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|FINANCING ACTIVITIES:                                                                    |  |                         |         |   |      |   |          |      |  |   |          |  
|Repayments of term loans                                                                 |  |                         | (1,270  | ) |      |   | (217     | )    |  |   | (12,320  | )
|Repayments under revolving loans                                                         |  |                         | (79,384 | ) |      |   | (150,852 | )    |  |   | (121,973 | )
|Borrowings under revolving loans                                                         |  |                         | 77,992  |   |      |   | 148,482  |      |  |   | 124,396  |  
|Borrowings under term loans                                                              |  |                         | 2,200   |   |      |   | 17,775   |      |  |   |         |  
|Deferred financing costs                                                                 |  |                         |        |   |      |   | (237     | )    |  |   |         |  
|Proceeds from issuance of common stock, net of costs                                     |  |                         |        |   |      |   |         |      |  |   | 9,609    |  
|Purchase of treasury stock through repurchase program                                    |  |                         | (252    | ) |      |   |         |      |  |   |         |  
|Proceeds from exercise of stock options                                                  |  |                         | 91      |   |      |   | 162      |      |  |   | 183      |  
|Tax benefit from employee stock options                                                  |  |                         | 46      |   |      |   | 171      |      |  |   | 139      |  
|Other financing activities payments                                                      |  |                         | (60     | ) |      |   | (248     | )    |  |   | (483     | )
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                      |  |                         | (637    | ) |      |   | 15,036   |      |  |   | (449     | )
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |                         | 1,019   |   |      |   | (810     | )    |  |   | 612      |  
|CASH AND CASH EQUIVALENTS, beginning of year                                             |  |                         | 609     |   |      |   | 1,419    |      |  |   | 807      |  
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS, end of year                                                   |  | $                       | 1,628   |   |      | $ | 609      |      |  | $ | 1,419    |  
|                                                                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL CASH FLOW DISCLOSURE:                                                       |  |                         |         |   |      |   |          |      |  |   |          |  
|Cash paid for interest                                                                   |  | $                       | 1,247   |   |      | $ | 1,059    |      |  | $ | 891      |  
|Cash paid for income taxes                                                               |  |                         | 294     |   |      |   | 131      |      |  |   | 339      |  
|Cash received from income taxes                                                          |  |                         | (55     | ) |      |   |         |      |  |   |         |  
|Common stock issued to directors earned in previous period                               |  |                         | 90      |   |      |   | 135      |      |  |   | 52       |  

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. Currently, most of the Companys products are sold under the brand
name Cybex. The Company operates in one business segment.

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Use of Estimates

The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for doubtful accounts, inventory
reserve, warranty reserve, reserves for legal and product liability matters, recoverability of goodwill and valuation of deferred tax assets are the items that are most susceptible to 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, 2008 and 2007, 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

Under the provisions of AICPA Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, the Company capitalizes certain costs associated with software for internal use. Capitalization of qualified costs incurred during the application development stage begins when the preliminary project stage is complete and ceases
when the project is substantially complete and ready for its intended purpose. Capitalized costs include hardware, software and services and payroll and payroll-related expenses for employees who were directly associated with developing and
implementing internal use software primarily associated with the Companys Enterprise Resource Planning system. Such costs are included within property, plant and equipment and are being amortized over 7 years. As of December 31, 2008 and
2007, the net carrying value of internal use software was $566,000 and $1,248,000, respectively.

Impairment of Long-Lived Assets

The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, and, accordingly, long-lived assets, including property, plant and equipment and amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets. 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, 2008 and 2007.

Goodwill

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

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 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.



F-7



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



At December 31, 2007 and 2006, based upon its annual evaluations, the Company determined that
the fair value of its reporting unit exceeded the carrying amount, resulting in no impairment.

The following table sets forth the change
in the carrying amount of goodwill for the years ended December 31, 2008 and 2007:



|                          |  |                         |             |   |      |   |           
|------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------
|                          |  | Year Ended December 31,
|                          |  | 2008                    |             |   | 2007
|Balance as of January 1   |  | $                       | 11,247,000  |   |      | $ | 11,247,000
|Impairment charge         |  |                         | (11,247,000 | ) |      |   |          
|                          |  |                         |             |   |      |   |           
|Balance as of December 31 |  | $                       |            |   |      | $ | 11,247,000
|                          |  |                         |             |   |      |   |           

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 $4,361,000, $5,220,000 and $3,323,000 for the years ended December 31, 2008, 2007 and 2006, 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 expenses.

The following table sets forth the changes in the liability for product warranties for the years ended December 31, 2008 and 2007:



|                                      |  |                         |            |   |      |   |            |  
|------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                      |  | Year Ended December 31, |           
|                                      |  | 2008                    |            |   | 2007 |  
|Balance as of January 1               |  | $                       | 4,213,000  |   |      | $ | 3,197,000  |  
|Payments made under warranty          |  |                         | (4,366,000 | ) |      |   | (4,204,000 | )
|Accrual for product warranties issued |  |                         | 4,361,000  |   |      |   | 5,220,000  |  
|                                      |  |                         |            |   |      |   |            |  
|Balance as of December 31             |  | $                       | 4,208,000  |   |      | $ | 4,213,000  |  
|                                      |  |                         |            |   |      |   |            |  

Derivatives

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

At December 31, 2008, derivative instruments include two interest rate swaps that hedge
variable rate interest payments and multiple forward currency contracts, of which 5 remain outstanding at December 31, 2008, that hedge the foreign currency exposure of sales made in the UK in British Sterling. The forward contracts are not
considered eligible for hedge accounting in accordance with SFAS No. 133.

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



F-8



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



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 (including the capital leases) that are outstanding as of December 31, 2008, the carrying values are considered to approximate their respective fair values. See Note 7 for the terms and carrying values of the
Companys various debt instruments.

Revenue Recognition

Revenue is recorded when products are shipped and the Company has no significant remaining obligations, persuasive evidence of an arrangement exists, the
price to the buyer is fixed or determinable, and collection of the relevant receivable is probable. The Company does not offer its customers a right of return, price protection or inventory rotation programs. In accordance with Emerging Issues Task
Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs, the Company classifies amounts billed to customers for shipping and handling as sales. Direct shipping and handling costs are classified as
cost of sales. Internal salaries and overhead related to shipping and handling are classified as selling, general and administrative expense. 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 2008, 2007 and 2006 were 12.3%, 14.0% and 15.2% of net sales,
respectively. Accounts receivable from that customer was $1,583,000 and $2,238,000 at December 31, 2008 and 2007, respectively. Sales to another customer in 2008, 2007, and 2006 were 10.4%, 5.6%, and 2.9% of sales, respectively. Accounts
receivable from that customer was $1,416,000 and $940,000 at December 31, 2008 and 2007, respectively. Sales to another customer or its franchisees in 2008, 2007 and 2006 were 12.9%, 13.2% and 6.4% of net sales, respectively. Accounts
receivable from that customer and its franchisees were less than $200,000 at December 31, 2008 and 2007. 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 28%, 28%
and 27% of total net sales for the years ended December 31, 2008, 2007 and 2006, respectively. Long-lived assets located in foreign countries totaled $51,000 and $85,000 at December 31, 2008 and 2007, 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



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)



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,
|                          |  | 2008                    |       | 2007 |   | 2006 
|Cardiovascular products   |  | $                       | 76.8  |      | $ | 78.9  |  | $ | 67.8 
|Strength systems          |  |                         | 58.2  |      |   | 55.2  |  |   | 46.3 
|Parts                     |  |                         | 4.8   |      |   | 5.2   |  |   | 5.6  
|Freight and other revenue |  |                         | 8.1   |      |   | 7.2   |  |   | 7.2  
|                          |  |                         |       |      |   |       |  |   |      
|                          |  | $                       | 147.9 |      | $ | 146.5 |  | $ | 126.9
|                          |  |                         |       |      |   |       |  |   |      

Advertising Costs

The Company charges advertising costs to expense as incurred. For the years ended December 31, 2008, 2007 and 2006, advertising expense was
$1,864,000, $2,105,000 and $2,150,000, 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 $6,603,000, $6,673,000, and
$4,812,000 for the years ended December 31, 2008, 2007 and 2006, 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.



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)



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,
|                                                             |  | 2008                    |            |   | 2007 |   | 2006      
|Net income (loss) attributable to common stockholders        |  | $                       | (9,088,000 | ) |      | $ | 9,754,000  |  | $ | 20,054,000
|                                                             |  |                         |            |   |      |   |            |  |   |           
|Shares used in computing basic net income (loss) per share   |  |                         | 17,465,000 |   |      |   | 17,304,000 |  |   | 16,397,000
|Dilutive effect of options and warrants                      |  |                         |           |   |      |   | 477,000    |  |   | 665,000   
|                                                             |  |                         |            |   |      |   |            |  |   |           
|Shares used in computing diluted net income (loss) per share |  |                         | 17,465,000 |   |      |   | 17,781,000 |  |   | 17,062,000
|                                                             |  |                         |            |   |      |   |            |  |   |           

For the years ended December 31, 2008, 2007 and 2006, options to purchase 674,000, 33,000 and
30,000 shares of common stock at exercise prices ranging from $1.22 to $7.37, $5.86 to $7.37 and $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

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R). SFAS No. 123R supersedes SFAS No. 123, Accounting for Stock-Based
Compensation, and Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations. SFAS No. 123R requires recognition in the financial statements of
the cost of employee services received in exchange for an award of equity instruments, with such cost recognized over the period that the employee is required to perform services in exchange for the award. SFAS No. 123R also requires
measurement of the cost of employee services received in exchange for an award based on the grant date fair value of the award. The Company adopted SFAS No. 123R using the modified prospective method. Under this method, the Company is required
to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. 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). For 2006, the Company recorded stock-based compensation expense of $300,000, consisting of expenses related to stock options ($157,000), stock to be issued to directors ($54,000) and
restricted stock to be issued to the executive officers with respect to 2006 performance ($89,000).



F-11



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)



The weighted average fair value of each stock option granted during the years ended December 31,
2008, 2007, and 2006 was $3.24, $3.26 and $5.68, 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 weighted-average assumptions:



|                        |  |                        |   |  |            |   |  |            |  
|----------------------- |  | ---------------------- | - |  | ---------- | - |  | ---------- | -
|                        |  | Year Ended December 31 |  
|                        |  | 2008                   |   |  | 2007       |   |  | 2006       |  
|Risk free interest rate |  | 3.70                   | % |  | 4.19       | % |  | 4.56       | %
|Expected dividend yield |  |                       |   |  |           |   |  |           |  
|Expected life           |  | 6.25 years             |   |  | 6.25 years |   |  | 6.25 years |  
|Expected volatility     |  | 79                     | % |  | 81         | % |  | 89         | %

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157 which defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements.
This statement covers financial assets and liabilities, for which the statement is effective for fiscal years beginning after November 15, 2007, as well as nonfinancial assets and liabilities, for which the statement is effective for fiscal
years beginning after November 15, 2008. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-1, which amends SFAS No. 157 to exclude SFAS No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements for purposes of lease classification under SFAS No. 13, except for assets acquired and liabilities assumed in a business combination that are required to be measured at fair value
under SFAS No. 141 Business Combinations of SFAS No. 141R (revised 2007) Business Combinations, regardless of whether those assets and liabilities are related to leases. FSP SFAS No. 157-1 is effective upon
initial adoption of SFAS No. 157. The Company adopted SFAS No. 157 for financial assets and liabilities on January 1, 2008 and there was no impact on its financial position, results of operations or cash flows. The Company has not yet
determined the impact that the implementation of SFAS No. 157 will have on its nonfinancial assets and liabilities.

In
February 2007, the FASB issued SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 became effective for the Company on January 1, 2008. The Company has not elected to measure any eligible items at fair value. Accordingly, the adoption of this
statement has had no impact on the Companys consolidated financial condition, results of operations or cash flows.

In March 2008,
the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard 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. It is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. SFAS No. 161 will impact disclosures only and will not have an impact on 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.



F-12



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 3INVENTORIES

Inventories consist of the following:



|                |  |              |            |      |   |           
|--------------- |  | ------------ | ---------- | ---- | - | ----------
|                |  | December 31,
|                |  | 2008         |            | 2007
|Raw materials   |  | $            | 7,434,000  |      | $ | 8,010,000 
|Work in process |  |              | 3,140,000  |      |   | 2,580,000 
|Finished goods  |  |              | 2,891,000  |      |   | 3,213,000 
|                |  |              |            |      |   |           
|                |  | $            | 13,465,000 |      | $ | 13,803,000
|                |  |              |            |      |   |           

NOTE 4PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:



|                                             |  |              |             |   |      |   |            |  
|-------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ---------- | -
|                                             |  | December 31, |            
|                                             |  | 2008         |             |   | 2007 |  
|Land                                         |  | $            | 3,121,000   |   |      | $ | 3,155,000  |  
|Building and improvements                    |  |              | 18,958,000  |   |      |   | 18,330,000 |  
|Equipment, computers, software and furniture |  |              | 25,886,000  |   |      |   | 21,533,000 |  
|                                             |  |              |             |   |      |   |            |  
|                                             |  |              | 47,965,000  |   |      |   | 43,018,000 |  
|Less-accumulated depreciation                |  |              | (11,414,000 | ) |      |   | (8,929,000 | )
|                                             |  |              |             |   |      |   |            |  
|                                             |  | $            | 36,551,000  |   |      | $ | 34,089,000 |  
|                                             |  |              |             |   |      |   |            |  

Depreciation expense was $5,049,000, $3,900,000 and $3,205,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.

NOTE 5OTHER ASSETS

Other assets consist of the following:



|                                   |  |              |           |      |   |        
|---------------------------------- |  | ------------ | --------- | ---- | - | -------
|                                   |  | December 31,
|                                   |  | 2008         |           | 2007
|Deferred financing costs, net      |  | $            | 223,000   |      | $ | 220,000
|Other amortizable intangibles, net |  |              | 14,000    |      |   | 19,000 
|Recoverable insurance claim        |  |              | 5,000,000 |      |   |       
|Other assets                       |  |              | 53,000    |      |   | 114,000
|                                   |  |              |           |      |   |        
|                                   |  | $            | 5,290,000 |      | $ | 353,000
|                                   |  |              |           |      |   |        

Amortization expense of other intangibles was $5,000, $5,000 and $47,000 for the years ended
December 31, 2008, 2007 and 2006, respectively. The remaining balance of other amortizable intangibles of $14,000 at December 31, 2008 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, 2008 and December 31, 2007, net of accumulated amortization. The Company is amortizing these costs on a straight-line basis, which



F-13



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 5OTHER ASSETS  (continued)



approximates the effective interest rate method, over the term of the related debt. Interest expense related to deferred financing costs was $38,000,
$153,000 and $296,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

As of December 31, 2008, the Company
accrued $5,000,000 (in other liabilities) for a product liability claim and a corresponding receivable for the liability claim estimated to be recoverable under the Companys insurance policies (see Note 13).

NOTE 6ACCRUED LIABILITIES

Accrued liabilities
consist of the following:



|                                         |  |              |            |      |   |           
|---------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                         |  | December 31,
|                                         |  | 2008         |            | 2007
|Current portion of warranty reserves     |  | $            | 2,830,000  |      | $ | 2,858,000 
|Self insurance reserves                  |  |              | 2,226,000  |      |   | 1,889,000 
|Litigation reserve and professional fees |  |              | 311,000    |      |   | 414,000   
|Payroll related and other                |  |              | 6,619,000  |      |   | 8,726,000 
|                                         |  |              |            |      |   |           
|                                         |  | $            | 11,986,000 |      | $ | 13,887,000
|                                         |  |              |            |      |   |           

NOTE 7LONG-TERM DEBT AND DERIVATIVES

Long-Term Debt

Long-term debt
consists of the following:



|                               |  |              |            |   |      |   |            |  
|------------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                               |  | December 31, |           
|                               |  | 2008         |            |   | 2007 |  
|Citizens revolving credit loan |  | $            |           |   |      | $ |           |  
|CIT working capital loan       |  |              |           |   |      |   | 1,392,000  |  
|Citizens real estate loan      |  |              | 12,263,000 |   |      |   | 12,783,000 |  
|Wachovia term loans            |  |              | 6,225,000  |   |      |   | 4,775,000  |  
|                               |  |              |            |   |      |   |            |  
|                               |  |              | 18,488,000 |   |      |   | 18,950,000 |  
|Lesscurrent portion           |  |              | (1,882,000 | ) |      |   | (2,628,000 | )
|                               |  |              |            |   |      |   |            |  
|                               |  | $            | 16,606,000 |   |      | $ | 16,322,000 |  
|                               |  |              |            |   |      |   |            |  

In 2004, the Company entered into an amendment of a financing agreement with The CIT
Group/Business Credit, Inc. (CIT), providing for a term loan and working capital revolving loans. The CIT term loan was repaid in full in 2006, and the CIT working capital revolving loan facility was terminated in July 2008. The CIT
working capital loans were classified as current in the accompanying consolidated balance sheet as required by EITF Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements that Include
both a Subjective Acceleration Clause and a Lockbox Arrangement.

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 Citizens Bank of Massachusetts (Citizens).



F-14



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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, and the loan is secured by this real estate.

In July 2007, the Company entered into a Loan
Agreement (the Wachovia Loan Agreement) with Wachovia Bank, NA (Wachovia), which was supplemented in March 2008 and March 2009. The Wachovia Loan Agreement as supplemented provides for three term loans, the proceeds of which
financed or will finance 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 up to $1,000,000 can be advanced through December 31,
2009 pursuant to the third term loan. The principal of the initial term loan is to be retired by sixty equal principal payments that commenced March 1, 2008 with a maturity date of March 1, 2013, and the principal of the second term loan
is to be retired by sixty equal principal payments commencing January 1, 2009 with a maturity date of January 1, 2014. The principal of the third term loan will be retired by a balloon payment at the maturity date of December 31,
2009.

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 $15,000,000 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.

At December 31,
2008, there were outstanding no revolving credit loans, a $12,263,000 real estate loan and $6,225,000 in term loans. Availability under the revolving loan fluctuates daily based on the borrowing base. At December 31, 2008, there was $14,840,000
unused availability under the revolving line of credit.

The Citizens revolving line of credit bears interest at a floating rate equal to
LIBOR plus 1.25% or the prime rate minus 1%. The Citizens real estate loan bears interest at a floating rate equal to LIBOR plus 1.2% per annum. The Wachovia initial and second term loans bear interest at LIBOR plus 1.2% to 1.45% based on a
performance grid. The third term loan from Wachovia will bear interest at LIBOR plus 2.25%. The CIT working capital revolving loan bore interest at rates ranging between LIBOR plus 1.75% to 2.50% or the prime rate less .25% to plus .50% based on a
performance grid. The prime rate was 3.25% and LIBOR was 0.45% at December 31, 2008.

The average outstanding revolving loan
balance during 2008, 2007 and 2006 was $468,000, $4,770,000 and $623,000, respectively, and the weighted average interest rate was 4.20%, 7.80% and 7.71%, respectively. Interest expense on the Citizens or CIT revolving loans was $83,000, $448,000,
and $106,000 for the years ended December 31, 2008, 2007 and 2006, respectively.Interest expense on the Wachovia term loans was $267,000 and $71,000 for the years ended December 31, 2008 and 2007.Interest expense on the
Citizens real estate loan was $883,000 and $467,000 for the years ended December 31, 2008 and 2007. Interest expense on the CIT term loans was $216,000 for the year ended December 31, 2006. Interest expense on the GMAC term loans was
$309,000 for the year ended December 31, 2006.

The Citizens and Wachovia credit facilities require the Company to maintain
certain financial covenants, such as maintaining a minimum fixed charge ratio and a maximum leverage ratio. The Company was in compliance with all financial covenants as of December 31, 2008 and expects to remain in compliance for the
foreseeable future. The Companys credit agreements contain cross default provisions to each other.



F-15



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



At December 31, 2008 long-term debt maturities are as follows:



|                                       |  |   |            |  
|-------------------------------------- |  | - | ---------- | -
|2009                                   |  | $ | 1,882,000  |  
|2010                                   |  |   | 1,915,000  |  
|2011                                   |  |   | 1,915,000  |  
|2012                                   |  |   | 1,915,000  |  
|2013                                   |  |   | 1,165,000  |  
|Thereafter                             |  |   | 9,696,000  |  
|                                       |  |   |            |  
|                                       |  |   | 18,488,000 |  
|Less current portion of long-term debt |  |   | (1,882,000 | )
|                                       |  |   |            |  
|                                       |  | $ | 16,606,000 |  
|                                       |  |   |            |  

In 2005, the Company sold its prior manufacturing, warehouse and office facility located in
Owatonna, Minnesota and simultaneously entered into a lease of the facility. This transaction was accounted for as a sale/leaseback subsequent to December 23, 2005 resulting in a deferred gain of $811,000 at December 31, 2005, which was
amortized through September 2007 at which time the lease was terminated in connection with the move to the Companys new Owatonna facility.

In February 2005, the Company entered into a series of 13 forward contracts with the final contract completed March 31, 2006, whereby Cybex paid a bank 140,212 British Sterling and the bank paid the Company $265,000 each month. In
February 2006, the Company entered into a series of 13 monthly forward contracts that began on April 1, 2006 with the final contract completed April 1, 2007, whereby the Company paid a bank 150,000 British Sterling and the bank paid the
Company $265,000 each month. 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 pays a bank 150,000 British Sterling and the bank pays the Company $309,000 each month. This agreement
was amended February 9, 2009 whereby the existing contract ends February 27, 2009. In February 2009, the Company entered into a series of 10 monthly forward contracts that will begin on March 31, 2009, whereby the Company will pay a
bank 130,000 British Sterling and the bank will pay the Company $213,512 each month. The purpose of these transactions is to hedge the foreign currency exposure on sales made in the UK in British Sterling. The Companys UK sales are denominated
in British Sterling while its purchases of inventory from the Company are paid in U.S. dollars. The change in fair value of these contracts resulted in gains of $309,000 and $243,000, and a loss of $162,000 for the years ended December 31,
2008, 2007 and 2006, respectively.

On June 29, 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 6.95% fixed rate throughout the duration of the loan. 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. Prior to June 27, 2007, the change in the fair value of the interest rate swap was included as a component of
interest expense. During 2006, the Company recorded $506,000 of expense related to the change in fair value associated with this 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,



F-16



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



2007, the Company designated the interest rate swap as a derivative 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. For the year ended December 31, 2008 and the period from June 27, 2007 through December 31, 2007, the change in the fair value of the interest rate swap was an
increase in the liability of $1,070,000 and $789,000, respectively. The fair value of the interest rate swap of $2,076,000 is included in other liabilities at December 31, 2008.

On November 6, 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 5.76% or 6.01% rate based on a performance grid throughout the duration of the swap. The swap and interest payments on the debt will
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. For 2008 and 2007, the change in the fair value of the interest rate swap was an increase in the liability of $161,000 and
$67,000, respectively. The fair value of the interest rate swap of $228,000 is included in other liabilities at December 31, 2008.

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 pretax earnings in 2009 is
$229,000. The timing of actual amounts reclassified into earnings is dependent on future movement in interest rates.

NOTE 8FAIR VALUE OF
FINANCIAL INSTRUMENTS

In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. This statement became effective for the Company for financial assets and liabilities on January 1, 2008, and will become effective for nonfinancial assets and
liabilities for the Companys 2009 fiscal year.

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, 2008
|                                         |  | Balance atDecember 31, 2008                  |           | Quoted Prices in ActiveMarkets for IdenticalAssets(Level 1) |   | Significant OtherObservableInputs(Level
2) |   | SignificantUnobservableInputs(Level 3)
|Foreign currency forward contract assets |  | $                                            | 462,000   |                                                             |  |                                            | $ | 462,000                                |  | 
|Interest rate swap liabilities           |  | $                                            | 2,304,000 |                                                             |  |                                            | $ | 2,304,000                              |  | 

The valuation of the foreign currency forward contracts and 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.



F-17



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 9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. The Company intends to purchase shares of its 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. Through December 31, 2008, the Company purchased 120,000 shares for $252,000 pursuant to this program. This stock repurchase is recorded in treasury stock on the consolidated balance sheet.

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

At
December 31, 2008, there are 1,503,625 shares of common stock reserved for future issuance pursuant to the exercise or issuance of stock options and warrants.

Warrants

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 in connection with the 2004 private placement.

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

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

At December 31, 2008, warrants to purchase 8,250 shares of common stock at $.10 per share were outstanding which will expire on August 4, 2009.



F-18



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 9STOCKHOLDERS EQUITY  (continued)



Comprehensive Income

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

The following summarizes the components of
accumulated other comprehensive loss at December 31, 2008 and 2007 (in thousands):



|                                           |  |              |        |   |      |   |        |  
|------------------------------------------ |  | ------------ | ------ | - | ---- | - | ------ | -
|                                           |  | December 31, |       
|                                           |  | 2008         |        |   | 2007 |  
|Cumulative translation adjustment          |  | $            | (1,151 | ) |      | $ | (1,257 | )
|Change in fair value of hedge (net of tax) |  |              | (1,292 | ) |      |   | (532   | )
|                                           |  |              |        |   |      |   |        |  
|Total                                      |  | $            | (2,443 | ) |      | $ | (1,789 | )
|                                           |  |              |        |   |      |   |        |  

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 individuals key to the success of the Company through direct or indirect ownership of the Companys common stock. The Omnibus Plan provides for the granting of stock options,
stock appreciation rights, stock awards, performance awards and bonus stock purchase awards. The Company has reserved 1,000,000 shares of common stock for issuance pursuant to the Omnibus Plan. A registration statement has been filed for the Omnibus
Plan and the Company anticipates providing newly-issued shares of registered common stock upon the exercise of options 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-19



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 9STOCKHOLDERS EQUITY  (continued)



A summary of the status of the Companys stock option plans as of December 31, 2008 is
presented below:



|                                                         |  |                 |   |  |                                |      |                                  |      |                 |   |        
|-------------------------------------------------------- |  | --------------- | - |  | ------------------------------ | ---- | -------------------------------- | ---- | --------------- | - | -------
|                                                         |  | Number ofShares |   |  | Weighted AverageExercise Price |      | RemainingContractual Term(years) |      | Intrinsic Value
|Outstanding at January 1, 2008                           |  | 734,625         |   |  | $                              | 2.70 |                                  |      |                 |   |        
|Granted                                                  |  | 2,500           |   |  |                                | 4.56 |                                  |      |                 |   |        
|Exercised                                                |  | (54,250         | ) |  |                                | 1.33 |                                  |      |                 |   |        
|Forfeited                                                |  | (8,500          | ) |  |                                | 3.96 |                                  |      |                 |   |        
|                                                         |  |                 |   |  |                                |      |                                  |      |                 |   |        
|Outstanding at December 31, 2008                         |  | 674,375         |   |  | $                              | 2.80 |                                  | 4.88 |                 | $ | 168,000
|                                                         |  |                 |   |  |                                |      |                                  |      |                 |   |        
|Options exercisable at December 31, 2008                 |  | 547,000         |   |  | $                              | 2.31 |                                  | 3.96 |                 | $ | 168,000
|                                                         |  |                 |   |  |                                |      |                                  |      |                 |   |        
|Options vested and expected to vest at December 31, 2008 |  | 663,770         |   |  | $                              | 2.77 |                                  | 4.81 |                 | $ | 168,000
|                                                         |  |                 |   |  |                                |      |                                  |      |                 |   |        

The intrinsic value of options exercised during the years ended December 31, 2008, 2007, and
2006 was $138,000, $527,000, and $354,000, respectively.

As of December 31, 2008, there was $458,000 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.8 years.

The options generally vest over a three to five year period (with some subject to cliff vesting). At December 31, 2008, there are 821,000 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, 2008 is as follows:



|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     
|------------------------ |  | ----------- |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ------ | ------- | ---------------------------- | - | ----
|                         |  | Outstanding |  | Exercisable                 
|Range of exercise prices |  | Shares      |  | Weightedaverageexerciseprice |      | Weightedaverageremainingcontractuallife (years) |      | Shares |         | Weightedaverageexerciseprice
|$1.22$1.51              |  | 277,375     |  | $                            | 1.26 |                                                 | 4.84 |        | 277,375 |                              | $ | 1.26
|1.701.90                |  | 77,000      |  |                              | 1.75 |                                                 | 2.81 |        | 77,000  |                              |   | 1.75
|3.003.70                |  | 113,000     |  |                              | 3.44 |                                                 | 1.18 |        | 113,000 |                              |   | 3.44
|4.064.56                |  | 174,500     |  |                              | 4.48 |                                                 | 7.68 |        | 64,000  |                              |   | 4.34
|5.867.37                |  | 32,500      |  |                              | 7.25 |                                                 | 7.90 |        | 15,625  |                              |   | 7.31
|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     
|                         |  | 674,375     |  | $                            | 2.80 |                                                 | 4.88 |        | 547,000 |                              | $ | 2.31
|                         |  |             |  |                              |      |                                                 |      |        |         |                              |   |     

Stock Retainer Plan for Nonemployee Directors

The Companys 2002 Stock Retainer Plan for Nonemployee Directors (2002 Plan) provides that each nonemployee director will receive 50% of
his annual retainer in shares of common stock of the Company. Up to 150,000 shares of common stock may be issued under the 2002 Plan. The issuance of shares as partial payment



F-20



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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 9STOCKHOLDERS EQUITY  (continued)



of annual retainers results in expense being recognized based on the fair market value of such shares. At December 31, 2008, there are 18,273 shares
available for future issuance pursuant to the 2002 Plan. The Company recorded stock-based compensation expense of $59,000, $90,000 and $54,000 for the years ended December 31, 2008, 2007 and 2006, 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 $59,000, related to directors fees earned in 2008, which were included in accrued expenses 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 expenses 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 expenses at December 31, 2006. The January 2009 issuance of shares under the 2002 Plan
exhausted the authorized shares under the Plan, and the Board of Directors in February 2009 suspended its operation.

NOTE 10INCOME TAXES

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



|         |  |                         |            |   |      |   |           |      |  |   |          
|-------- |  | ----------------------- | ---------- | - | ---- | - | --------- | ---- |  | - | ---------
|         |  | Year Ended December 31,
|         |  | 2008                    |            |   | 2007 |   |           | 2006
|Domestic |  | $                       | (5,137,000 | ) |      | $ | 7,872,000 |      |  | $ | 7,952,000
|Foreign  |  |                         | (1,618,000 | ) |      |   | (239,000  | )    |  |   | 135,000  
|         |  |                         |            |   |      |   |           |      |  |   |          
|         |  | $                       | (6,755,000 | ) |      | $ | 7,633,000 |      |  | $ | 8,087,000
|         |  |                         |            |   |      |   |           |      |  |   |          

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



|          |  |                         |           |      |   |            |      |  |   |             |  
|--------- |  | ----------------------- | --------- | ---- | - | ---------- | ---- |  | - | ----------- | -
|          |  | Year Ended December 31, |          
|          |  | 2008                    |           | 2007 |   |            | 2006 | 
|Current : |  |                         |           |      |   |            |      |  |   |             |  
|Federal   |  | $                       | 65,000    |      | $ | 64,000     |      |  | $ | 80,000      |  
|State     |  |                         | 66,000    |      |   | 44,000     |      |  |   | 96,000      |  
|          |  |                         |           |      |   |            |      |  |   |             |  
|          |  |                         | 131,000   |      |   | 108,000    |      |  |   | 176,000     |  
|          |  |                         |           |      |   |            |      |  |   |             |  
|Deferred: |  |                         |           |      |   |            |      |  |   |             |  
|Federal   |  |                         | 2,013,000 |      |   | (2,657,000 | )    |  |   | (10,508,000 | )
|State     |  |                         | 189,000   |      |   | 428,000    |      |  |   | (1,635,000  | )
|          |  |                         |           |      |   |            |      |  |   |             |  
|          |  |                         | 2,202,000 |      |   | (2,229,000 | )    |  |   | (12,143,000 | )
|          |  |                         |           |      |   |            |      |  |   |             |  
|          |  | $                       | 2,333,000 |      | $ | (2,121,000 | )    |  | $ | (11,967,000 | )
|          |  |                         |           |      |   |            |      |  |   |             |  



F-21



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 10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, |           
|                                                                                        |  | 2008                    |            |   | 2007 |   |            | 2006 | 
|Tax (benefit) at statutory rate                                                         |  | $                       | (2,297,000 | ) |      | $ | 2,595,000  |      |  | $ | 2,750,000   |  
|Impact of foreign taxes                                                                 |  |                         | 97,000     |   |      |   | 10,000     |      |  |   | (5,000      | )
|State income taxes, net                                                                 |  |                         | 169,000    |   |      |   | 435,000    |      |  |   | 426,000     |  
|Federal research and development tax credit                                             |  |                         | (126,000   | ) |      |   |           |      |  |   |            |  
|Non-deductible goodwill impairment charge                                               |  |                         | 3,824,000  |   |      |   |           |      |  |   |            |  
|Other permanent differences, primarily meals and entertainment and stock option expense |  |                         | 128,000    |   |      |   | 216,000    |      |  |   | 223,000     |  
|Change in valuation allowance                                                           |  |                         | 538,000    |   |      |   | (5,377,000 | )    |  |   | (15,361,000 | )
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |             |  
|                                                                                        |  | $                       | 2,333,000  |   |      | $ | (2,121,000 | )    |  | $ | (11,967,000 | )
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |             |  

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



|                                            |  |              |            |   |      |   |            |  
|------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                            |  | December 31, |           
|                                            |  | 2008         |            |   | 2007 |  
|Deferred tax assets (liabilities):          |  |              |            |   |      |   |            |  
|Net operating loss and credit carryforwards |  | $            | 8,485,000  |   |      | $ | 9,422,000  |  
|Warranty reserves                           |  |              | 1,618,000  |   |      |   | 1,661,000  |  
|Other accruals and reserves                 |  |              | 2,253,000  |   |      |   | 2,090,000  |  
|Bad debt and lease loss reserves            |  |              | 814,000    |   |      |   | 574,000    |  
|Intangibles                                 |  |              | 2,517,000  |   |      |   | 2,915,000  |  
|Other, net                                  |  |              | 1,014,000  |   |      |   | 1,094,000  |  
|                                            |  |              |            |   |      |   |            |  
|Total deferred tax assets                   |  |              | 16,701,000 |   |      |   | 17,756,000 |  
|Valuation allowance                         |  |              | (1,666,000 | ) |      |   | (1,222,000 | )
|Depreciation                                |  |              | (1,652,000 | ) |      |   | (1,491,000 | )
|                                            |  |              |            |   |      |   |            |  
|                                            |  | $            | 13,383,000 |   |      | $ | 15,043,000 |  
|                                            |  |              |            |   |      |   |            |  

At December 31, 2008, the Company had U.S. federal net operating loss carryforwards, which
are scheduled to expire as follows:



|                    |  |   |           
|------------------- |  | - | ----------
|2020                |  | $ | 4,212,000 
|2021                |  |   | 5,528,000 
|2022                |  |   | 4,354,000 
|2023 and thereafter |  |   | 1,915,000 
|                    |  |   |           
|                    |  | $ | 16,009,000
|                    |  |   |           

In addition, the Company has foreign net operating loss carryforwards of $4,426,000, which have an
unlimited life, federal alternative minimum tax credit carryforwards of $670,000, which do not expire, federal research and development tax credit carryforwards of $251,000, which began to expire in 2008 and various net operating loss and credit
carryforwards for state tax purposes.



F-22



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 10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 in accordance with SFAS No. 109, Accounting for Income Taxes, based upon the existence of various factors. Based on this re-evaluation, the Company reduced the
valuation allowance by $15,361,000 in 2006 (including $14,421,000 effective July 1, 2006) and by $5,377,000 in 2007 (including $5,244,000 effective September 29, 2007).

Approximately $34,000,000 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 book versus tax differences related to various accruals.

The net deferred tax asset balance of $13,383,000 at December 31, 2008 represents the amount that management believes is
more-likely-than-not to be realized, and the remaining valuation allowance at December 31, 2008 is $1,666,000. Management will continue to assess the need for the remaining valuation allowance in future periods.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a threshold of more-likely-than-not for recognition of tax benefits of
uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. The Company adopted the provisions of FIN 48 on
January 1, 2007. There was no impact on the Companys financial position upon adoption.

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 2003.

The Company does not believe it has included any uncertain tax positions in its federal income tax return, United Kingdom return or any of
the state tax returns it is currently filing. The Company has 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 does not anticipate that such additional taxes, if any, would result in a material change to its financial position; therefore there was no effect upon adoption.

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.

NOTE 11RELATED PARTY TRANSACTIONS

For the years ended December 31, 2008, 2007 and 2006, the Company paid $335,000, $423,000 and $451,000, respectively, to a law firm of which one of
the directors of the Company is a member.

John Aglialoro, Joan Carter, and UM Holdings Ltd. (UM) are related parties which
collectively own approximately 44% 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 $536,000, $486,000 and $425,000 for 2008, 2007 and 2006, respectively.



F-23



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 11RELATED PARTY TRANSACTIONS  (continued)



UM provides certain office support services for which the Company reimbursed UM at the rate of
$145,000, $78,000 and $78,000 during 2008, 2007, and 2006 respectively. At December 31, 2008, the Company had a credit of $42,000 relating to the UM service fees. At December 31, 2007, the Company owed UM $9,000 for services.

NOTE 12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 reserve under SFAS No. 5,
Accounting for Contingencies, in situations when collection of the lease payments is not probable. At December 31, 2008, the maximum contingent liability under all recourse and guarantee provisions was $5,205,000. A reserve for
estimated losses under recourse provisions of $885,000 and $555,000 has been recorded based on historical experience and is included in accrued expenses at December 31, 2008 and 2007, respectively.

FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantees. The Company has recorded a net liability of $62,000
and $68,000 at December 31, 2008 and December 31, 2007, respectively, in accordance with FIN 45 for the estimated fair value of the Companys guarantees issued after January 1, 2003. The fair value of the guarantees was
determined based on the estimated cost for a customer to obtain a letter of credit from a bank or similar institution. This liability is reduced on a straight-line basis over the term of each respective guarantee. In most cases, if the Company is
required to fulfill its obligations under the guarantee, 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 13COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has lease commitments expiring at various dates through 2013 for
equipment and property under noncancelable operating and capital leases. Future minimum payments under these leases at December 31, 2008 are as follows:



|                                   |  |           |         |         |   |         |  
|---------------------------------- |  | --------- | ------- | ------- | - | ------- | -
|                                   |  | Operating |         | Capital |  
|2009                               |  | $         | 510,000 |         | $ | 23,000  |  
|2010                               |  |           | 275,000 |         |   |        |  
|2011                               |  |           | 82,000  |         |   |        |  
|2012                               |  |           | 30,000  |         |   |        |  
|2013                               |  |           | 7,000   |         |   |        |  
|                                   |  |           |         |         |   |         |  
|                                   |  |           | 904,000 |         |   | 23,000  |  
|Less: amount representing interest |  |           |        |         |   | (1,000  | )
|                                   |  |           |         |         |   |         |  
|                                   |  | $         | 904,000 |         |   | 22,000  |  
|                                   |  |           |         |         |   |         |  
|Less: current portion              |  |           |         |         |   | (22,000 | )
|                                   |  |           |         |         |   |         |  
|                                   |  |           |         |         | $ |        |  
|                                   |  |           |         |         |   |         |  



F-24



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 13COMMITMENTS AND CONTINGENCIES  (continued)



Rent expense under all operating leases for the years ended December 31, 2008, 2007 and 2006 was
$579,000, $1,008,000 and $1,131,000, respectively. Interest expense related to capital leases was $2,000, $9,000 and $52,000 for the years ended December 31, 2008, 2007 and 2006, respectively. Assets subject to capital leases had a cost of
$268,000 and accumulated depreciation of $182,000 and $142,000 at December 31, 2008 and 2007, 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 years ended December 31, 2007 and 2006 was $141,000 and $172,000, respectively. 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 that are legally binding of $17,474,000 in 2009 and $4,376,000 in 2010.

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 coverage ($5,000,000 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 ($100,000 deductible on
claims made prior to such date with an annual aggregate deductible of $750,000). Reserves for self-insured retention, are included in accrued expenses 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, 2008, the Company accrued $5,000,000 for a product liability claim and a corresponding receivable for the liability claim estimated to be recoverable under the Companys insurance policies. This $5,000,000
accrual was included as a component of other liabilities and the $5,000,000 insurance recoverable was included as a component of other assets at December 31, 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



F-25



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

NOTE 13COMMITMENTS AND CONTINGENCIES  (continued)



Cybex), as additional defendants in this action 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 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 the equipment due to alleged
rebates made by the independent dealer to the purchaser/lessee which has since entered bankruptcy. Cybex helped arrange the lease financing and also provided limited guarantees of certain of the leases, and the plaintiff now asserts that Cybex
participated in the alleged scheme. The Amended Complaint includes 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.

Cybex only recently was served the Amended Complaint and has not yet made an
appearance in the action. Cybex will deny all material allegations of the Amended Complaint and any liability to the plaintiff, other than its contractual obligation to the extent provided under the terms of the limited guarantees. A reserve in the
estimated amount of the limited guarantee obligation is included in accrued expense at December 31, 2008.

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 $3,095,000 as of December 31, 2008.

NOTE 14BENEFIT PLANS

The Company has a 401(k) defined contribution retirement plan. The Company during 2008, 2007 and 2006 matched 50% of the first 4% of the employees
eligible compensation contributions. Matching contributions by the Company to the plan were $362,000, $343,000, and $307,000 for the years ended December 31, 2008, 2007, and 2006, 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, 2008, 2007 or 2006.



F-26



---

CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 15QUARTERLY DATA (unaudited)

The following table presents unaudited quarterly financial information for the years ended December 31, 2008 and 2007:



|                                           |  |                    |            |         |   |              |  |   |             |     |  |   |             |     
|------------------------------------------ |  | ------------------ | ---------- | ------- | - | ------------ |  | - | ----------- | --- |  | - | ----------- | ----
|                                           |  | 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)(c)   |  |                    | .08        |         |   | .01          |  |   | .02         |     |  |   | (.62        | )(a)
|Diluted net income (loss) per share (a)(c) |  |                    | .07        |         |   | .01          |  |   | .02         |     |  |   | (.62        | )(a)
|                                           | 
|                                           |  | 2007 Quarter Ended |           
|                                           |  | March 31           |            | June 30 |   | September 29 |  |   | December 31 |    
|Sales                                      |  | $                  | 34,676,000 |         | $ | 34,740,000   |  | $ | 32,601,000  |     |  | $ | 44,486,000  |     
|Gross profit                               |  |                    | 12,894,000 |         |   | 12,205,000   |  |   | 10,509,000  |     |  |   | 15,212,000  |     
|Net income                                 |  |                    | 1,104,000  |         |   | 1,095,000    |  |   | 4,563,000   | (b) |  |   | 2,992,000   |     
|Basic net income per share (b)(c)          |  |                    | .06        |         |   | .06          |  |   | .26         | (b) |  |   | .17         |     
|Diluted net income per share (b)(c)        |  |                    | .06        |         |   | .06          |  |   | .26         | (b) |  |   | .17         |     



|(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) | Includes a benefit of $5,244,000 ($.29 per share) resulting from a reduction in the valuation allowance for deferred income taxes.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(c) | 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-27



---

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, 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  
|                                     |  |                              |         |           |   |            |  |                         |         |  |   |          
|For the year ended December 31, 2006 |  |                              |         |           |   |            |  |                         |         |  |   |          
|Allowance for doubtful accounts      |  | $                            | 689,000 |           | $ | 311,000    |  | $                       | 203,000 |  | $ | 797,000  
|                                     |  |                              |         |           |   |            |  |                         |         |  |   |          



S-1



---

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

None.



|ITEM 9A. | 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, 2008. 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, 2008, the Companys internal control over financial reporting was effective.

This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.



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

March 12, 2009



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 2009 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 (the June 2005 10-Q).                                                            
|    |  |                    
|    |  | 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.                                                                                                                                                
|    |  |                    
|    |  | 4(a)                |  | Form of Warrant to Purchase Common Stock issued to Oppenheimer & Co. and affiliates, each dated August 5, 2004, for an aggregate of 25,000 shares, incorporated by reference to Exhibit 4.1
to the Quarterly Report on Form 10-Q for the quarter ended September 25, 2004 (the September 2004 10-Q).
|    |  |                    
|    |  | 10(a)               |  | 1995 Omnibus Incentive Plan, as amended, incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001
10-K).*                                                                                                                        
|    |  |                    
|    |  | 10(b)(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.*                                                                                                                                                                       
|    |  |                    
|    |  | 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).*                                                                                                                      



II-3



---

| |  |          |  |                                                                                                                                                                                                                                                                   
| |  | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10(c)(1) |  | 2002 Stock Retainer Plan for Non-employee Directors, incorporated by reference to Exhibit 10(k) to the 2001 10-K.*                                                                                                                                                
| |  |         
| |  | 10(c)(2) |  | Amendment to 2002 Stock Retainer Plan for Non-employee Directors, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed February 18, 2005.*                                                                                           
| |  |         
| |  | 10(d)    |  | Employment Agreement dated April 8, 2003, between the Company and John Aglialoro, incorporated by reference to Exhibit 10.4 to the June 2003 10-Q.*                                                                                                               
| |  |         
| |  | 10(e)    |  | 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 10-K).*                                              
| |  |         
| |  | 10(h)    |  | Management Employment Agreement between the Company and Ed Pryts, incorporated by reference to Exhibit 10(cc) to the 2006 10-K.*                                                                                                                                  
| |  |         
| |  | 10(i)    |  | Management Employment Agreement between the Company and John Young, incorporated by reference to Exhibit 10(dd) to the 2006 10-K.*                                                                                                                                
| |  |         
| |  | 10(j)    |  | 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(k)    |  | Form of Incentive Stock Option Agreement issued pursuant to the 1995 Omnibus Incentive Plan as Amended, incorporated by reference to Exhibit 10.5 to the September 2004 10-Q.*                                                                                    
| |  |         
| |  | 10(l)    |  | 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(m)    |  | Form of Notification of Participation - 2008 Management Incentive Compensation Bonus Program (CEO/President Level), incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed February 25, 2008 (the February 25, 2008 Form 8-K).*      
| |  |         
| |  | 10(n)    |  | Form of Notification of Participation - 2008 Management Incentive Compensation Bonus Program (Senior Vice President Level), incorporated by reference to Exhibit 10.2 to the February 25, 2008
Form 8-K.*                                                         
| |  |         
| |  | 10(o)    |  | Ultimate Net Loss Vendor Agreement with Portfolio Purchase, dated December 30, 1994, among the Company, Cybex Financial Corp. and C.I.T., incorporated by reference to Exhibit 10(x) to the
Annual Report on Form 10-K for the year ended December 31, 1994.      
| |  |         
| |  | 10(p)    |  | Tri-Party Agreement, dated August 22, 2006, among the Company, First Industrial Development Services, Inc. and the City of Owatonna, Minnesota, incorporated by reference to Exhibit 10.3 to
the September 2006 10-Q.                                             



II-4



---

| |  |          |  |                                                                                                                                                                                                                                                                                                    
| |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10(q)    |  | 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(r)    |  | 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(s)    |  | 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 September 29,
2007.                                                                                                              
| |  |         
| |  | 10(t)    |  | 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 10Q).                              
| |  |         
| |  | 10(u)    |  | Promissory Note dated March 2, 2009, in a principal amount of up to $1,000,000 from the Company to Wachovia Bank, N.A. (filed herewith).                                                                                                                                                           
| |  |         
| |  | 10(v)(1) |  | 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(v)(2) |  | 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 September 2008
10Q.                                                                                                
| |  |         
| |  | 10(w)    |  | Office Services Agreement, dated as of January 1, 2006, between the Company and UM Holdings Ltd., incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed January 4,
2006.                                                                                               
| |  |         
| |  | 10(x)    |  | Management Employment Agreement between the Company and Galen S. Lemar (filed herewith).*                                                                                                                                                                                                          
| |  |         
| |  | 10(y)    |  | Letter Agreement dated March 4, 2008, among the Company, eNova Group Limited Liability Company, Roy Simonson and Stephen M. Williams., incorporated by reference to Exhibit 10.2 to the March
2008 10Q.                                                                                            
| |  |         
| |  | 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 Quarterly Report on Form 10-Q for the quarter ended September 27, 2008 (the September 2008 10Q).
| |  |         
| |  | 21       |  | Subsidiaries of the Registrant (Filed herewith).                                                                                                                                                                                                                                                   
| |  |         
| |  | 23       |  | Consent of Independent Registered Public Accounting FirmKPMG LLP (Filed herewith).                                                                                                                                                                                                                
| |  |         
| |  | 31(a)    |  | Certification of Chief Executive Officer (Filed herewith).                                                                                                                                                                                                                                         
| |  |         
| |  | 31(b)    |  | Certification of Chief Operating and Chief Financial Officer (Filed herewith).                                                                                                                                                                                                                     
| |  |         
| |  | 32(a)    |  | Certification of Chief Executive Officer pursuant to Section 1350 (Filed herewith).                                                                                                                                                                                                                
| |  |         
| |  | 32(b)    |  | Certification of Chief Operating and Chief Financial Officer pursuant to Section 1350 (Filed herewith).                                                                                                                                                                                            



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



II-5



---

SIGNATURES

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



CYBEX INTERNATIONAL, INC. (Registrant)By:

/S/    JOHN
AGLIALOROJohn AglialoroChairman


March 12, 2009

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 12, 2009
|                                                         |  |                                                                                                       
|/S/    ARTHUR W. HICKS,
JR. Arthur W. Hicks, Jr.         |  | Director, President, Chief Operating Officer and Chief Financial Officer (principal financial officer) |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    JAMES M.
AHEARN James M. Ahearn                   |  | Treasurer (principal accounting officer)                                                               |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    JAMES H.
CARLL James H. Carll                     |  | Director                                                                                               |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    JOAN
CARTER Joan Carter                           |  | Director                                                                                               |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    JERRY
LEE Jerry Lee                               |  | Director                                                                                               |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    MILTON LEONTIADES,
PH.D. Milton Leontiades, Ph.D. |  | Director                                                                                               |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    JOHN
MCCARTHY John McCarthy                       |  | Director                                                                                               |  | March 12, 2009
|                                                         |  |                                                                                                       
|/S/    HARVEY
MORGAN Harvey Morgan                       |  | Director                                                                                               |  | March 12, 2009



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