UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 27, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to           
                  .


Commission file number 333-142188

DJO Finance LLC(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

20-5653965(I.R.S. Employer
Identification Number)1430 Decision Street
Vista, California(Address of principal executive offices)

92081(Zip Code)


Registrant's
telephone number, including area code:(800) 336-5690

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 ý    No o

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 the
definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


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

As of November 7, 2008, 100% of the issuer's membership interests were owned by DJO Holdings LLC.



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DJO FINANCE LLC  FORM 10-Q  TABLE OF CONTENTS

Page
No.PART IFinancial InformationItem 1.

Unaudited Condensed Consolidated Balance Sheets as of September 27, 2008 and December 31, 2007

3Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2008 and
September 29, 2007

4Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2008 and
September 29, 2007

5Notes to Unaudited Condensed Consolidated Financial Statements

6Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

40Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58Item 4T.

Controls and Procedures

59PART IIOther InformationItem 1.

Legal Proceedings

60Item 1A.

Risk Factors

61Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63Item 3.

Defaults Upon Senior Securities

63Item 4.

Submission of Matters to a Vote of Security Holders

63Item 5.

Other Information

63Item 6.

Exhibits

64SIGNATURES

65


2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DJO Finance LLC        Unaudited Condensed Consolidated Balance Sheets        (in thousands)

September 27,
2008

December 31,
2007AssetsCurrent assets:Cash and cash equivalents

$
46,372

$
63,471Accounts receivable, net


173,236


154,767Inventories, net


101,683


110,904Deferred tax assets, net


29,454


28,999Prepaid expenses and other current assets


21,417


17,319Total current assets


372,162


375,460Property and equipment, net


82,207


81,645Goodwill


1,197,000


1,201,282Intangible assets, net


1,304,134


1,360,361Other non-current assets


58,096


67,524Total assets

$
3,013,599

$
3,086,272Liabilities, Minority Interests, and Membership EquityCurrent liabilities:Accounts payable

$
35,749

$
43,576Accrued interest


43,832


10,131Long-term debt and capital leases, current portion


11,370


14,209Other current liabilities


88,813


93,636Total current liabilities


179,764


161,552Long-term debt and capital leases, net of current portion


1,813,038


1,818,598Deferred tax liabilities, net


362,849


386,659Other non-current liabilities


12,510


13,260Total liabilities


2,368,161


2,380,069Minority interests


1,963


1,215Commitments and contingenciesMembership equity:Additional paid-in capital


824,058


822,854Accumulated deficit


(183,445
)

(124,056
)Accumulated other comprehensive income


2,862


6,190Total membership equity


643,475


704,988Total liabilities, minority interests, and membership equity

$
3,013,599

$
3,086,272


See
accompanying notes to unaudited condensed consolidated financial statements.

3

---





DJO Finance LLC        Unaudited Condensed Consolidated Statements of Operations        (in thousands)

Three Months Ended

Nine Months EndedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Net sales

$
243,637

$
108,431

$
733,166

$
321,391Cost of sales


92,968


42,282


279,883


131,425Gross profit


150,669


66,149


453,283


189,966Operating expenses:Selling, general and administrative


105,385


51,835


332,534


154,090Research and development


6,773


4,372


20,679


12,113Amortization of acquired intangibles


19,159


7,142


57,415


20,320Operating income


19,352


2,800


42,655


3,443Other income (expense):Interest income


336


244


1,186


671Interest expense


(42,073
)

(15,052
)

(129,755
)

(43,125
)Other income (expense), net


(2,575
)

204


(909
)

262Loss before income taxes and minority interests


(24,960
)

(11,804
)

(86,823
)

(38,749
)Benefit for income taxes


(10,829
)

(5,978
)

(28,227
)

(13,923
)Minority interests


298


113


793


278Net loss

$
(14,429
)
$
(5,939
)
$
(59,389
)
$
(25,104
)


See
accompanying notes to unaudited condensed consolidated financial statements.

4

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DJO Finance LLC        Unaudited Condensed Consolidated Statements of Cash Flows        (in thousands)

Nine Months EndedSeptember 27,
2008

September 29,
2007OPERATING ACTIVITIES:Net loss

$
(59,389
)
$
(25,104
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation


17,432


9,586Amortization of intangibles


57,415


20,320Amortization of debt issuance costs


9,857


2,866Stock-based compensation


1,204


1,534Asset impairments and loss on disposal of assets


1,361


418Deferred income taxes


(18,767
)

(16,125
)Provision for doubtful accounts and sales returns


15,411


6,016Inventory reserves


4,540


825Minority interests


793


278Excess tax benefit associated with stock option exercises





(17
)Effect of discontinued operations, net of gain on disposal





378Changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable


(33,919
)

(11,404
)Inventories


4,360


2,071Prepaid expenses, other assets and liabilities


(4,904
)

(6,253
)Accrued interest


33,701


5,854Accounts payable and other current liabilities


(13,427
)

5,554Net cash provided by (used in) operating activities


15,668


(3,203
)INVESTING ACTIVITIES:Acquisition of businesses, net of cash acquired


(3,879
)

(64,401
)Acquisition of intangibles


(1,216
)

Purchases of property and equipment


(19,099
)

(9,683
)Proceeds from sale of assets


2


4,565Other, net


1,212


Net cash used in investing activities


(22,980
)

(69,519
)FINANCING ACTIVITIES:Proceeds from debt and revolving line of credit


12,000


89,828Payments on debt and revolving line of credit


(21,551
)

(16,633
)Excess tax benefit associated with stock option exercises





17Dividend paid to minority interests





(226
)Net cash (used in) provided by financing activities


(9,551
)

72,986Effect of exchange rate changes on cash and cash equivalents


(236
)

638Net (decrease) increase in cash and cash equivalents


(17,099
)

902Cash and cash equivalents at beginning of period


63,471


30,903Cash and cash equivalents at end of period

$
46,372

$
31,805Supplemental disclosures of cash flow information:Cash paid for interest

$
86,135

$
34,238Cash (received) paid for income taxes

$
1,603

$
(425
)


See accompanying notes to unaudited condensed consolidated financial statements.

5

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DJO Finance LLC        Notes to Unaudited Condensed Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Presentation and Principles of Consolidation.We are a global provider of high-quality, orthopedic devices, with a broad range of products
used for rehabilitation, pain management and physical therapy. We also develop, manufacture and distribute a broad range of surgical reconstructive implant products. We offer healthcare professionals
and patients a diverse range of orthopedic rehabilitation products addressing the complete spectrum of preventative, pre-operative, post-operative, clinical and home
rehabilitation care. Our products are used by orthopedic specialists, spine surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic
trainers and other healthcare professionals to treat patients with musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries. In
addition, many of our non-surgical medical devices and related accessories are used by athletes and patients for injury prevention and at-home physical therapy treatment.

We
currently market and distribute our products through three operating segments, Domestic Rehabilitation, International Rehabilitation, and Surgical Implant. Our Domestic and
International Rehabilitation Segments offer non-invasive medical products that are used before and after surgery to assist in the repair and rehabilitation of soft tissue and bone, and to
protect against further injury; electrotherapy devices and accessories used to treat pain and restore muscle function; iontophoretic devices and accessories used to deliver medication; clinical
therapy tables, traction equipment and other clinical therapy equipment; orthotic devices used to treat joint and spine conditions; orthopedic soft goods; rigid knee braces; and vascular systems which
include products intended to prevent deep vein thrombosis following surgery. Our Surgical Implant Segment offers a comprehensive suite of reconstructive joint products.

On
November 20, 2007, a subsidiary of ReAble Therapeutics, Inc. ("ReAble") was merged into DJO Opco Holdings, Inc. ("DJO Opco"), with DJO Opco continuing as the
surviving corporation (the "DJO
Merger"). As a result of the DJO Merger, DJO Opco became a subsidiary of ReAble Therapeutics Finance LLC, the entity filing this Quarterly Report on Form 10-Q, which was
itself a subsidiary of ReAble. Following the DJO Merger, ReAble was renamed DJO Incorporated ("DJO"), ReAble Therapeutics Finance LLC was renamed DJO Finance LLC ("DJOFL")
and ReAble Finance Corporation, the co-issuer of both the 10.875% senior notes and 11.75% senior subordinated notes (see Note 7), was renamed DJO Finance Corporation ("Finco").

Except
as otherwise indicated, references to "us", "we", "our", "DJO", or "our Company", refers to DJO and its consolidated subsidiaries.

DJOFL
directly or indirectly through its subsidiaries, owns all of the operating assets of DJO. Minority interests reflect the 50% separate ownership of Medireha GmbH ("Medireha")
not owned by us, which we have consolidated due to our controlling interest. Our controlling interest consists of our 50% ownership and our control of one of the two director seats, our rights to
prohibit certain business activities that are not consistent with our plans for the business and our exclusive distribution rights for products manufactured by Medireha. All significant intercompany
balances and transactions have been eliminated in consolidation.

The
accompanying unaudited condensed consolidated financial statements as of September 27, 2008 and for the three and nine months ended September 27, 2008 and
September 29, 2007 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of
the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.

6

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)

These
consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2007. The accompanying unaudited condensed consolidated financial statements as of September 27, 2008 and for the three and
nine months ended September 27, 2008 and September 29, 2007 have been prepared on the same basis as the audited consolidated financial statements and include all adjustments consisting
of normal recurring accruals which, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the interim date and interim
periods presented. Results for the interim periods are not necessarily indicative of the results to be achieved for the entire year or future periods.

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 certain estimates and assumptions that affect the reported amounts of assets and liabilities, 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,
including those related to contractual allowances, doubtful accounts, inventories, rebates, product returns, warranty obligations, income taxes, goodwill and intangible assets and stock-based
compensation. We base our estimates on historical experience and on various other assumptions that we believe are 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 could differ from those estimates.

Cash and Cash Equivalents.Cash consists of deposits with financial institutions. We consider all short-term, highly liquid investments and investments
in money market funds and commercial paper with original maturities of less than three months at the time of purchase to be cash equivalents. While our cash and cash equivalents are on deposit with
high-quality institutions, such deposits exceed Federal Deposit Insurance Corporation insured limits.

Financial Instruments.We utilize derivative instruments to manage our exposure to market risks such as changes in interest rates and foreign currency exchange
rates. In accordance with the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", we record derivative instruments as assets or liabilities in the condensed consolidated balance sheets, measured at fair value.

Foreign Currency Translation.The financial statements of our international subsidiaries, where the local currency is the functional currency, are translated into
U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates during the period for revenues and expenses. Cumulative translation gains and losses are
excluded from results of operations and recorded as a separate component of consolidated membership equity. Gains and losses resulting from foreign currency transactions (transactions denominated in a
currency other than the entity's local currency) are included in the condensed consolidated statements of operations as either a component of costs of goods sold or other income or expense, depending
on the nature of the transaction.

7

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)

Comprehensive
loss consists of the following components (in thousands):

Three Months Ended

Nine Months EndedSeptember 27, 2008

September 29, 2007

September 27, 2008

September 29, 2007Net loss, as reported

$
(14,429
)
$
(5,939
)
$
(59,389
)
$
(25,104
)Foreign currency translation adjustments


(5,476
)

2,697


(1,424
)

3,211Change in fair value of interest rate swap, net of tax


804


(2,156
)

(1,904
)

(1,623
)Comprehensive loss

$
(19,101
)
$
(5,398
)
$
(62,717
)
$
(23,516
)


Reclassifications.The condensed consolidated financial statements and accompanying footnotes reflect certain reclassifications, which have been made to prior
period condensed consolidated financial statements to conform to the current period presentation.

Recent Accounting Pronouncements.In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" which
requires entities to disclose the fair values of derivative instruments and their gains and losses in a tabular format and to disclose derivative features that are credit risk-related. The
statement is effective for fiscal years beginning after November 15, 2008. We will adopt this statement as of the beginning of 2009 and are currently assessing the potential impact of adoption.

In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements" which requires entities to report
non-controlling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. The statement is effective for fiscal years beginning after
December 15, 2008. We will adopt this statement as of the beginning of 2009 and are currently assessing the potential impact of adoption.

In
December 2007, the FASB issued SFAS No. 141 (Revised), "Business Combinations" which requires the acquiring entity in a business combination to recognize all the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires
the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The statement is
effective for fiscal years beginning after December 15, 2008. We will adopt this statement as of the beginning of 2009 and are currently assessing the potential impact of adoption.

2. ACQUISITIONS

We account for acquisitions in accordance with SFAS No. 141, "Business Combinations" ("SFAS 141") with the results of operations attributable to each acquisition included
in the condensed consolidated financial statements from the date of acquisition.

Acquisition of DJO Opco Holdings, Inc.

On July 15, 2007, we entered into an Agreement and Plan of Merger (the "DJO Merger Agreement") with DJO Opco, formerly known as
DJO Incorporated, providing for the DJO Merger

8

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

2. ACQUISITIONS (Continued)

pursuant
to which DJO Opco became a wholly owned subsidiary of DJOFL. The total purchase price for the DJO Merger, which was consummated on November 20, 2007, was approximately
$1.3 billion and consisted of $1.2 billion paid to former equity holders (or $50.25 in cash for each share of common
stock of DJO Opco they then held), $15.2 million related to the fair value of stock options held by DJO Opco management that were exchanged for options to purchase DJO common stock, and
$22.8 million in direct acquisition costs. The DJO Merger was financed through a combination of equity contributed by our primary shareholder, an affiliate of Blackstone Capital Partners
V, L.P. ("Blackstone"), borrowings under our senior secured credit facility (the "Senior Secured Credit Facility"), and proceeds from the newly issued 10.875% senior notes due 2014 (the
"10.875% Notes") (see Note 7 for further information). The purchase prices and the allocation of the purchase prices remains preliminary as of September 27, 2008 and may be subject to
adjustments as we finalize our estimates of certain items, including severance amounts for employees terminated, and accounts receivable and accruals for certain contingent liabilities that existed on
the acquisition date. We expect to finalize estimates by the fourth quarter of 2008.

Acquisition of IOMED, Inc.

On August 9, 2007, a subsidiary of DJOFL acquired IOMED, Inc. ("IOMED"), which develops, manufactures and markets active
drug delivery systems used primarily to treat acute local inflammation in the physical and occupational therapy and sports medicine markets. The purchase price was $23.3 million and consisted
of $21.1 million in cash payments to former IOMED equity holders at $2.75 per share, $0.8 million related to the fair value of vested stock options that were outstanding at the time of
the acquisition, and $1.4 million in direct acquisition costs. The IOMED acquisition was primarily financed with borrowings under our then existing revolving credit facility.

Acquisition of The Saunders Group, Inc.

On July 2, 2007, a subsidiary of DJOFL completed its purchase of substantially all of the assets of The Saunders
Group, Inc. ("Saunders") for total cash consideration of $40.9 million, including $0.9 million of acquisition costs (the "Saunders Acquisition"). Saunders is a supplier of
rehabilitation products to physical therapists, chiropractors, athletes, athletic trainers, physicians and patients, with a specialty in patented traction devices, back supports, and equipment for
neck and back disorders. The Saunders Acquisition was financed with funds borrowed under our then existing senior credit facilities.

The
fair values of the assets acquired and the liabilities assumed were estimated in accordance with SFAS 141. The purchase prices for our 2007 acquisitions were allocated as
follows to the fair

9

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

2. ACQUISITIONS (Continued)

values
of the net tangible and intangible assets acquired, including the cumulative impact of adjustments made to such allocations through September 27, 2008 (see Note 5):

DJO Opco

IOMED

Saunders

Wtd. Avg. Useful Lives(in thousands):Current assets

$
171,929

$
8,971

$
6,783Tangible non-current assets


67,519


853


273Liabilities assumed (see Note 11)


(684,258
)

(6,679
)

(628
)Acquired in-process research and development


3,000





Identifiable intangible assets:Technology-based


354,000


6,616


10,171

3 - 20 yearsCustomer-based


328,000


2,512


6,369

10 - 16 yearsTrademarks and tradenames


356,000


1,777


4,423

IndefiniteGoodwill


678,543


9,255


13,537

N/APurchase price

$
1,274,733

$
23,305

$
40,928


The
purchase price allocation for the DJO Merger included values assigned to certain specific identifiable intangible assets aggregating $1,038.0 million. An aggregate value of
$354.0 million was assigned to patents and existing technology, determined primarily by estimating the present value of future royalty costs that will be avoided due to our ownership of the
patents and technology acquired. An aggregate value of $328.0 million was assigned to certain DJO Opco customer relationships for group purchase organization ("GPO") customers and certain other
customers existing on the acquisition date based upon an estimate of the future discounted cash flows that would be derived from those GPOs and other customers. A value of $356.0 million
was assigned to tradenames and trademarks, determined primarily by estimating the present value of future royalty costs that will be avoided due to our ownership of the tradenames and trademarks
acquired.

Goodwill
represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. A value of
$678.5 million, representing the difference between the total purchase price and the aggregate fair values assigned to the net tangible assets acquired and liabilities assumed and the
identifiable intangible assets acquired, was assigned to goodwill. We acquired DJO Opco to expand our product offerings, increase our addressable market, increase the size of our international
business and increase our revenues. We also believe there are significant cost reduction synergies that may be realized as we integrate the acquired business. These are among the factors that
contributed to a purchase price for the DJO Merger acquisition that resulted in the recognition of goodwill.

10

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

3. ACCOUNTS RECEIVABLE RESERVES

A summary of activity in our accounts receivable reserves for doubtful accounts and sales returns is presented below (in thousands):

Nine Months EndedSeptember 27, 2008

September 29, 2007Balance, beginning of period

$
30,954

$
513Provision for doubtful accounts and sales returns


15,411


6,016Write-offs, net of recoveries


(17,662
)

(2,260
)Balance, end of period

$
28,703

$
4,269


4. INVENTORIES

Inventories consist of the following (in thousands):

September 27, 2008

December 31, 2007Components and raw materials

$
33,813

$
35,534Work in process


6,353


6,626Finished goods


49,139


54,411Inventory held on consignment


21,628


22,159110,933


118,730Lessinventory reserves


(9,250
)

(7,826
)$
101,683

$
110,904


A
summary of the activity in our reserves for estimated slow moving, excess, obsolete and otherwise impaired inventory is presented below (in thousands):

Nine Months EndedSeptember 27, 2008

September 29, 2007Balance, beginning of period

$
7,826

$
918Provision charged to cost of sales


4,540


825Recoveries (write-offs) charged to reserve


(3,116
)

(479
)Balance, end of period

$
9,250

$
1,264


The
write-offs charged to the reserve were principally related to the disposition of fully reserved inventory.

11

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

5. GOODWILL AND INTANGIBLE ASSETS

A summary of adjustments to our goodwill balance for the nine months ended September 27, 2008 is as follows (in thousands):

Balance, beginning of period

$
1,201,282Foreign currency translation adjustments


(1,069
)Adjustment to taxes payable (see Note 10)


(3,875
)Acquisition of a business


853Other


(191
)Balance, end of period

$
1,197,000


For
the nine months ended September 27, 2008, we recorded approximately $853,000 to goodwill related to our September 25, 2008 asset acquisition of Inland
Specialties, Inc. ("Inland"). The fair values of the assets acquired and the liabilities assumed were estimated in accordance with SFAS 141. Goodwill represents the excess of the
purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.

Identifiable
intangible assets consisted of the following as of September 27, 2008 (in thousands):

Gross Carrying
Amount

Accumulated
Amortization

Intangibles,
NetAmortizable intangible assets:Technology-based

$
458,612

$
(46,998
)
$
411,614Customer-based


478,387


(47,948
)

430,439$
936,999

$
(94,946
)

842,053Indefinite-lived intangible assets:Trademarks








457,714Accumulated foreign currency translation adjustments








4,367Total identifiable intangible assets







$
1,304,134


Identifiable
intangible assets consisted of the following as of December 31, 2007 (in thousands):

Gross Carrying Amount

Accumulated Amortization

Intangibles, NetAmortizable intangible assets:Technology-based

$
457,463

$
(18,484
)
$
438,979Customer-based


477,942


(19,047
)

458,895$
935,405

$
(37,531
)

897,874Indefinite-lived intangible assets:Trademarks








457,686Accumulated foreign currency translation adjustments








4,801Total identifiable intangible assets







$
1,360,361


12

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

5. GOODWILL AND INTANGIBLE ASSETS (Continued)

Our
amortizable intangible assets are being amortized over the estimated useful lives ranging from two to 20 years.

Future
estimated amortization expense related to acquired intangible assets is as follows (in thousands):

Remaining 2008

$
19,0772009


76,0942010


75,1552011


73,7882012


72,387Thereafter


525,552$
842,053


Our
goodwill and intangible assets are allocated by segment as follows (in thousands):

September 27, 2008:

Goodwill

Intangible
Assets, NetDomestic Rehabilitation Segment

$
1,074,050

$
1,242,487International Rehabilitation Segment


75,544


34,177Surgical Implant Segment


47,406


27,470Total

$
1,197,000

$
1,304,134




December 31, 2007:

Goodwill

Intangibles, NetDomestic Rehabilitation Segment

$
1,084,982

$
1,294,765International Rehabilitation Segment


68,894


36,170Surgical Implant Segment


47,406


29,426Total

$
1,201,282

$
1,360,361


13

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

6. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

September 27, 2008

December 31, 2007Wages and related expenses

$
22,915

$
31,232Commissions and royalties


14,170


13,114Taxes


6,825


6,119Restructuring costs (see Note 11)


2,578


9,563Professional fees


3,719


6,693Other accrued liabilities


38,606


26,915$
88,813

$
93,636


7. LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt (including capital lease obligations) consists of the following (in thousands):

September 27, 2008

December 31, 2007Term loan under Senior Secured Credit Facility, net of unamortized original issue discount ($11.3 million and $12.5 million at
September 27, 2008 and December 31, 2007, respectively)

$
1,048,332

$
1,052,51410.875% Senior notes


575,000


575,00011.75% Senior subordinated notes


200,000


200,000Loans and revolving credit facilities at various European banks


707


4,239Capital lease obligations and other


369


1,0541,824,408


1,832,807Less current portion


(11,370
)

(14,209
)Long-term debt and capital leases, net of current portion

$
1,813,038

$
1,818,598


Senior Secured Credit Facility

On November 20, 2007, in connection with the DJO Merger, DJOFL and DJO Holdings LLC ("Holdings") entered into the Senior
Secured Credit Facility. The Senior Secured Credit Facility consists of a six and a half-year $1,065.0 million term loan facility and a six-year $100.0 million
revolving credit facility. We issued the term loan facility of the Senior Secured Credit Facility at a 1.2% discount, resulting in net proceeds of $1,052.4 million. The $12.6 million
discount is being amortized as additional interest expense over the term of the term loan facility and increases the reported outstanding balance accordingly. As of September 27, 2008, no
amounts were drawn related to our revolving credit facility.

Interest Rate and Fees.Borrowings under the Senior Secured Credit Facility bear interest at a rate equal to an applicable margin plus, at our option, either
(a) a base rate determined by reference to the higher of (1) the prime rate of Credit Suisse and (2) the federal funds rate plus 0.50% or (b) the

14

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

7. LONG-TERM DEBT AND CAPITAL LEASES (Continued)

Eurodollar
rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to each borrowing adjusted for required reserves. The initial applicable
margin for borrowings under the term loan facility and the revolving credit facility is 2.00% with respect to base rate borrowings and 3.00% with respect to Eurodollar borrowings. The applicable
margin for borrowings under the term loan facility and the revolving credit facility may be reduced subject to us attaining certain leverage ratios.

On
November 20, 2007, we entered into an interest rate swap agreement for a notional amount of $515.0 million in an effort to hedge our exposure to fluctuating interest
rates related to a portion of our Senior Secured Credit Facility (see Note 14). The swap agreement amortizes through a date in 2009. As of September 27, 2008, the remaining notional
amount of the swap was $490.0 million. As of September 27, 2008, our weighted average interest rate for all borrowings under the Senior Secured Credit Facility was 5.54%.

In
addition to paying interest on outstanding principal under the Senior Secured Credit Facility, we are required to pay a commitment fee to the lenders under the revolving credit
facility with respect to the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate may be reduced subject to us attaining certain leverage
ratios. We must also pay customary letter of credit fees.

Principal Payments.We are required to pay annual payments in equal quarterly installments on the loans under the term loan facility in an amount equal to 1.00% of
the funded total principal amount during the first six years and three months following the closing of the Senior Secured Credit Facility, with any remaining amount payable at maturity. Principal
amounts outstanding under the revolving credit facility are due and payable in full at maturity.

Prepayments.The Senior Secured Credit Facility requires us to prepay outstanding term loans, subject to certain exceptions, with (1) 50% (which percentage
can be reduced to 25% or 0% upon our attaining certain leverage ratios) of our annual excess cash flow, as defined; (2) 100% of the net cash proceeds above an annual amount to be agreed from
non-ordinary course asset sales (including insurance and condemnation proceeds) by DJOFL and its restricted subsidiaries, subject to exceptions to be agreed upon, including a 100%
reinvestment right if reinvested or committed to reinvest within
15 months of such sale or disposition so long as reinvestment is completed within 180 days thereafter; and (3) 100% of the net cash proceeds from issuances or incurrences of debt
by DJOFL and its restricted subsidiaries, other than proceeds from debt permitted to be incurred under the Senior Secured Credit Agreement. The foregoing mandatory prepayments will be applied to the
term loan facilities in direct order of maturity. We may voluntarily prepay outstanding loans under the Senior Secured Credit Facility at any time without premium or penalty, provided that voluntary
prepayments of Eurodollar loans made on a date other than the last day of an interest period applicable thereto shall be subject to customary breakage costs.

Guarantee and Security.All obligations under the Senior Secured Credit Facility are unconditionally guaranteed by Holdings and each existing and future direct and
indirect wholly-owned domestic subsidiary of DJOFL other than immaterial subsidiaries, unrestricted subsidiaries and subsidiaries that are precluded by law or regulation from guaranteeing the
obligations (collectively, the "Guarantors").

15

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

7. LONG-TERM DEBT AND CAPITAL LEASES (Continued)

All
obligations under the Senior Secured Credit Facility, and the guarantees of those obligations, are secured by pledges of 100% of the capital stock of DJOFL, 100% of the capital stock
of each wholly owned domestic subsidiary and 65% of the capital stock of each wholly owned foreign subsidiary that is, in each case, directly owned by DJOFL or one of the Guarantors; and a security
interest in, and mortgages on, substantially all tangible and intangible assets of Holdings, DJOFL and each Guarantor.

Certain Covenants and Events of Default.The Senior Secured Credit Facility contains a number of covenants that, among other things, restrict, subject to certain
exceptions, our and our subsidiaries' ability to:



In
addition, the Senior Secured Credit Facility requires us to maintain a declining maximum senior secured leverage ratio of 5.1:1 as of the twelve months ended September 27, 2008
and stepping down over time to 3.25:1 by the end of 2011. The Senior Secured Credit Facility also contains certain customary affirmative covenants and events of default. Our maximum senior secured
leverage ratio was within the covenant level as of September 27, 2008.

10.875% Senior Notes Payable

On November 20, 2007, DJOFL and Finco (collectively, the "Issuers") issued $575.0 million aggregate principal amount of
10.875% Notes under an agreement dated as of November 20, 2007 (the "10.875% Indenture") among the Issuers, the guarantors party thereto and The Bank of New York Mellon (formerly known as The
Bank of New York), as trustee. On July 2, 2008, our amended registration statement, filed in June 2008 on Form S-4 with the Securities and Exchange Commission

16

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

7. LONG-TERM DEBT AND CAPITAL LEASES (Continued)

(the
"Commission") relating to an offer to exchange these privately issued 10.875% Notes, for registered 10.875% Notes was declared effective. The exchange offer was completed July 31, 2008.

The
10.875% Notes require semi-annual interest payments of approximately $31.3 million each May 15 and November 15 and are due November 15, 2014.
The market value of the 10.875% Notes was approximately $557.8 million as of September 27, 2008 and was determined using trading prices for the 10.875% Notes on or near that date. We
believe the trading prices reflect certain differences between prevailing market terms and conditions and the actual terms of our 10.875% Notes.

Optional Redemption.Under the 10.875% Indenture, prior to November 15, 2011, the Issuers have the
option to redeem some or all of the 10.875% Notes for cash at a redemption price equal to 100% of the then outstanding principal balance plus an applicable make-whole premium plus accrued
and unpaid interest. Beginning on November 15, 2011, the Issuers may redeem some or all of the 10.875% Notes at a redemption price of 105.438% of the then outstanding principal balance plus
accrued and unpaid interest. The redemption price decreases to 102.719% and 100% of the then outstanding principal balance at November 2012 and November 2013, respectively. Additionally, from time to
time, before November 15, 2010, the Issuers may redeem up to 35% of the 10.875% Notes at a redemption price equal to 110.875% of the principal amount then outstanding, in each case, with
proceeds we raise, or a direct or indirect parent company raises, in certain offerings of equity of DJOFL or its direct or indirect parent companies, as long as at least 65% of the aggregate principal
amount of the notes issued remains outstanding.

Change of Control.Upon the occurrence of a change of control, unless DJOFL has previously sent or concurrently sends a notice exercising its optional redemption
rights with respect to all of the then-outstanding 10.875% Notes, DJOFL will be required to make an offer to repurchase all of the then-outstanding 10.875% Notes at 101% of
their principal amount, plus accrued and unpaid interest.

Covenants.The 10.875% Indenture contains covenants limiting, among other things, our and our restricted subsidiaries' ability to incur additional indebtedness or
issue certain preferred and convertible shares, pay dividends on, redeem, repurchase or make distributions in respect of the capital stock of DJO or make other restricted payments, make certain
investments, sell certain assets, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets, enter into certain
transactions with affiliates, and designate our subsidiaries as unrestricted subsidiaries. As of September 27, 2008, we were in compliance with all applicable covenants.

11.75% Senior Subordinated Notes Payable

The Issuers issued $200.0 million aggregate principal amount of 11.75% senior subordinated notes in November 2006 (the "11.75%
Notes"). The 11.75% Notes require semi-annual interest payments of approximately $11.8 million each May 15 and November 15 and are due November 15, 2014.

The
market value of the 11.75% Notes was approximately $181.5 million as of September 27, 2008 and was determined using trading prices for the 11.75% Notes on or near that
date. We believe the trading prices reflect certain differences between prevailing market terms and conditions and the actual terms of our 11.75% Notes.

The
11.75% Notes contain similar provisions as the 10.875% Notes with respect to change of control and covenant requirements. Under the Indenture governing the 11.75% Notes (the "11.75%

17

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

7. LONG-TERM DEBT AND CAPITAL LEASES (Continued)

Indenture"),
prior to November 15, 2010, the Issuers have the option to redeem some or all of the 11.75% Notes for cash at a redemption price equal to 100% of the then outstanding principal
balance plus an applicable make-whole premium plus accrued and unpaid interest. Beginning on November 15, 2010, the Issuers may redeem some or all of the 11.75% Notes at a
redemption price of 105.875% of the then outstanding principal balance plus accrued and unpaid interest on the 11.75% Notes. The redemption price decreases to 102.938% and 100% of the then outstanding
principal balance at November 2011 and November 2012, respectively. Additionally, from time to time, before November 15, 2009, the Issuers may redeem up to 35% of the 11.75% Notes at a
redemption price equal to 111.75% of the principal amount then outstanding, in each case, with proceeds we raise, or a direct or indirect parent company raises, in certain offerings of equity of DJOFL
or its direct or indirect parent companies, as long as at least 65% of the aggregate principal amount of the notes issued remains outstanding.

Our
ability to continue to meet the covenants related to our indebtedness specified above in future periods will depend, in part, on events beyond our control, and we may not continue to
meet those ratios. A breach of any of these covenants in the future could result in a default under the Senior Secured Credit Facility, the 11.75% Indenture and the 10.875% Indenture (collectively,
the "Indentures"), at which time the lenders could elect to declare all amounts outstanding under the Senior Secured Credit Facility to be immediately due and payable. Any such acceleration would also
result in a default under the Indentures.

Debt Issue Costs

We incurred $30.7 million, $24.5 million, and $10.2 million of debt issue costs in connection with the Senior
Secured Credit Facility, the 10.875% Notes, and the 11.75% Notes, respectively. These costs have been capitalized and are included in other non-current assets in the condensed consolidated
balance sheets at September 27, 2008 and December 31, 2007. Debt issue costs are being amortized over the terms of the respective debt instruments through November 2014.

8. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION

2007 Incentive Stock Plan

In connection with the Prior Transaction, we adopted the 2006 Stock Incentive Plan (the "2006 Plan"). In connection with the DJO
Merger, we terminated the 2006 Plan and adopted the DJO Incorporated 2007 Incentive Stock Plan (the "2007 Plan"), which provides for the grant of stock options and other stock-based awards to key
employees, directors and consultants. Outstanding options to purchase ReAble common stock originally issued under the 2006 Plan are now governed by the terms of the 2007 Plan. The total number of
shares of common stock of DJO that may be issued under the 2007 Plan is 7,500,000 shares, subject to adjustment in certain events. Options issued under the 2007 Plan can be either incentive stock
options or non-qualified stock options. The exercise price of stock options granted under the 2007 Plan will not be less than 100% of the fair market value of the underlying shares on the
date of grant, as determined under the 2007 Plan, and will expire no more than ten years from the date of grant.

18

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

8. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION (Continued)

Employee Stock Options

During the nine months ended September 27, 2008 we have granted 4,481,114 stock options under the 2007 Plan to our executive
officers, senior management, and certain other employees. DJO adopted a form of non-statutory stock option agreement (the "DJO Form Option Agreement") for employee stock option awards
under the 2007 Plan. Under the DJO Form Option Agreement, one-third of stock options will vest over a specified period of time (typically five years) contingent solely upon the awardees'
continued employment with us ("Time-Based Tranche"). Another one-third of stock options will vest over a specified performance period (typically four to five years) from the
date of grant upon the achievement of certain pre-determined performance targets based on Adjusted EBITDA and free cash flow on an annual basis ("Performance-Based Tranche"), as defined in
the DJO Form Option Agreement, while the final one-third vests based upon achieving enhanced pre-determined performance targets based on Adjusted EBITDA and free cash flow
("Enhanced Performance-Based Tranche"). The DJO Form Option Agreement includes certain forfeiture provisions upon an awardees' separation from service with us.

In
addition, in an effort to align our objectives following the DJO Merger with vesting requirements for previously issued stock options under the 2006 Plan, we cancelled all stock
options originally granted under the 2006 Plan, except for 63,806 vested Time-Based Tranche options held by 72 employees, and concurrently issued the same or a greater number of options to
each 2006 Plan participant under the 2007 Plan (the "Replacement Options"). These Replacement Options were valued in accordance with the modification provisions pursuant to SFAS No. 123(R),
"Share-Based Payment" ("SFAS 123(R)"), whereby the fair value of the options immediately prior to the date of modification is compared to the fair value of the options at the date of
modification, with the incremental fair value, if any, being recognized as future compensation expense. However, under no circumstances can compensation expense be reduced to an amount lower than the
original fair value at the date of grant. Replacement Options have an exercise price of $16.46 per share, vest ratably over a predefined period as further described below, and have a contractual term
of ten years from the date of modification. The assumptions utilized to determine fair value for Replacement Options were the same as those used to compute the fair value of new options granted during
the current year. We did not recognize any additional compensation expense for the three or nine months ended September 27, 2008 as a result of the modification.

Both
new options granted and Replacement Options contain change-in-control provisions that cause the vesting of a portion of the tranches upon the occurrence of a
change-in-control, as follows: 1) the option shares in the Time-Based Tranche will become immediately exercisable upon the occurrence of a
change-in-control if the optionee remains in continuous employment of the Company until the consummation of the change-in-control and 2) the
option shares of the Performance-Based Tranche and the Enhanced Performance-Based Tranche for the year in which such change-in-control is consummated and for any subsequent
performance periods will become immediately exercisable if the optionee remains in continuous employment of the Company until the consummation of the change-in-control.

We
record compensation expense for awards with a performance condition only to the extent deemed probable of achievement, with the exception of expense related to market-based options
originally issued under the 2006 Plan which were exchanged for performance based options during the first quarter of 2008, which is recognized ratably over the expected term regardless of the
probability of

19

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

8. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION (Continued)

achieving
the performance conditions. We reassess at each reporting period whether achievement of the pre-determined performance targets based on Adjusted EBITDA and free cash flow is
probable for the options related to the Performance Based Tranche to vest. During the first half of 2008, the achievement of these targets was deemed probable and we recorded compensation expense of
approximately $0.4 million associated with these performance based options under the 2007 Incentive Plan. Based on actual year to date results achieved through September 27, 2008, we no
longer believe it is probable that the Company will meet the 2008 performance targets and therefore we do not believe these options will vest. Accordingly, in the three months ended
September 27, 2008, we reversed the related compensation expense previously recorded. To date, no amount has been recorded related to the Enhanced Performance Based Tranche, as achievement of
the performance criteria for that tranche is not deemed probable at this time.

For
the three months ended September 27, 2008, we recorded a net reversal of non-cash compensation expense of approximately $22,000. For the nine months ended
September 27, 2008 we recognized approximately $1.2 million of non-cash compensation expense. For the three and nine months ended September 29, 2007, we recorded
non-cash compensation expense of $0.5 million and $1.5 million, respectively, associated with stock options issued under the 2006 Stock Incentive Plan.

The
fair value of each option award is estimated on the date of grant, or modification, using the Black-Scholes-Merton option pricing model for service and performance based awards, and
a binomial model for market based awards. In estimating fair value for both new options issued under the 2007 Plan and Replacement Options, expected volatility was based completely on implied
volatility of comparable publicly-traded companies. Expected life assumptions were derived from a review of annual historical employee exercise behavior of option grants with similar vesting periods,
modified to consider our current status as a privately-owned company. Expected life is calculated in two tranches based on the employment level defined as executive or employee. The
risk-free rate used in calculating fair value of service and performance-based stock options for periods within the expected term of the option is based on the U.S. Treasury yield bond
curve in effect at the time of grant.

The
assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience. The following table presents the
assumptions we used in calculating the fair value of employee stock options for the nine months ended September 27, 2008 and September 29, 2007:

Nine Months EndedSeptember 27, 2008

September 29, 2007Expected dividends


0.0%


0.0%Expected volatility


27.4% - 60.0%


56.0% - 60.0%Risk-free rate


3.21% - 4.7%


4.6% - 4.7%Expected term (in years)


4.7 - 7.1 years


5.2 - 7.1 years


Non-Employee Stock Options

On May 22, 2008, we granted 37,800 stock options under the 2007 Plan to non-employees ("non-employee
options"). The non-statutory stock option agreement for the non-employees states that

20

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

8. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION (Continued)

the
options have an exercise price of $16.46 per share, which was equal to 100% of the estimated fair market value of the stock and will become effective upon the defined effective date and expire ten
years from that date. A number of shares equal to 25% of the options granted become vested and exercisable at the end of each of the first four years subsequent to the effective date, provided the
optionee is still affiliated with and providing services to the Company. The non-employee option agreement does not include any performance requirements on the optionee's part in order to
vest in the options granted.

Non-employee
options are accounted for in accordance with the guidance in Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF 96-18"). In accordance with
EITF 96-18, the fair value of each option will be re-measured at the end of each reporting period until vested, when the final fair value of the vesting of the option is
determined.

In
estimating fair value for options issued, expected volatility was based completely on implied volatility of comparable publicly-traded companies. A contractual life of ten years was
used in place of the expected term. The risk-free rate used in calculating the fair value of the non-employee stock options for periods within the contractual life is based on
the U.S. Treasury yield bond curve in effect at the time of grant.

The
assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience. The following table presents the
assumptions we used in calculating the fair value of the non-employee stock options for the nine months ended September 27, 2008:

Nine Months Ended
September 27, 2008Expected dividends


0.0
%Expected volatility


27.41
%Risk-free rate


3.92
%Contractual term (in years)


10 years


We
recorded non-cash compensation expense of approximately $37,000 and $52,000 for the three and nine months ended September 27, 2008, respectively, associated with
non-employee stock options issued under the 2007 Incentive Stock Plan.

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

8. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION (Continued)

Summary of Activity for Employee & Non-Employee Stock Options

A summary of option activity under the 2007 Plan for the nine months ended September 27, 2008 is presented below:

Number of
Shares

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual Term
(Years)

Aggregate Intrinsic
ValueOutstanding at January 1, 2008


3,550,627

$
12.97Granted, including Replacement Options


4,518,914

$
16.46Exercised





Forfeited, including options cancelled


(1,967,419
)
$
16.34Outstanding at September 27, 2008


6,102,122

$
14.47


8.47

$
12,221,730Exercisable at September 27, 2008


2,388,061

$
11.37


7.16

$
12,221,730


For
the three and nine months ended September 27, 2008 and September 29, 2007, the weighted-average grant-date fair value of stock options granted was $4.82,
$5.36, $9.12 and $9.17, respectively.

Total
unrecognized stock-based compensation expense, related to nonvested stock options under the 2007 Plan, net of expected forfeitures, was $14.8 million as of
September 27, 2008. We anticipate this expense to be recognized over a weighted-average period of approximately 4.25 years. However, compensation expense associated with
performance-based options under the 2007 Plan, with the
exception of those that were issued in connection with a modification, will be recognized only to the extent achievement of certain performance targets are deemed probable.

Restricted Stock

On March 13, 2007, we granted 15,189 shares of restricted stock options to an executive officer pursuant to the terms of a
restricted stock agreement under the 2006 Plan. The shares were subject to a vesting schedule over a period of three years with the final vesting on November 3, 2009. On November 20,
2007, we granted 24,300 shares of restricted stock awards to the same executive officer pursuant to the terms of a restricted stock agreement under the 2007 Incentive Stock Plan, which would vest on
January 1, 2009. On August 14, 2008, we entered into a Separation of Employment Agreement and General Release with this executive officer which waived any and all of his rights to any
stock option or equity grants, including but not limited to restricted stock (refer to Note 12 for more detail). As such, all restricted stock options were cancelled during the third quarter
and we reversed approximately $244,000 of previously recorded compensation expense related to unvested options.

9. SEGMENT AND GEOGRAPHIC INFORMATION

We classify our operations, pursuant to SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", into three operating segments further described below.

22

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

9. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

Domestic Rehabilitation Segment

Our Domestic Rehabilitation Segment, which generates most of its revenues in the United States, is divided into three main
businesses:



International Rehabilitation Segment

Our International Rehabilitation Segment, which generates most of its revenues in Europe, is divided into three main
businesses:



Surgical Implant Segment

Our Surgical Implant Segment develops, manufactures and markets a wide variety of knee, hip and shoulder implant products that serve
the orthopedic reconstructive joint implant market.

Information
regarding our reportable business segments is presented below (in thousands). This information excludes the impact of certain expenses not allocated to segments, primarily
general

23

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

9. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

corporate
expenses. Information for the three and nine months ended September 29, 2007 has been restated to reflect our current reportable segments.

Three Months Ended

Nine Months EndedSeptember 27, 2008

September 29, 2007

September 27, 2008

September 29, 2007Net sales:Domestic Rehabilitation Segment

$
178,389

$
74,132

$
518,670

$
212,788International Rehabilitation Segment


54,427


23,627


176,121


73,416Surgical Implant Segment


17,225


15,658


55,124


49,103Intersegment revenues


(6,404
)

(4,986
)

(16,749
)

(13,916
)Consolidated net sales

$
243,637

$
108,431

$
733,166

$
321,391Gross profit:Domestic Rehabilitation Segment

$
107,031

$
41,702

$
308,641

$
120,172International Rehabilitation Segment


32,275


12,123


105,004


36,679Surgical Implant Segment


12,730


11,818


41,214


33,930Expenses not allocated to segments/Eliminations


(1,367
)

506


(1,576
)

(815
)Consolidated gross profit

$
150,669

$
66,149

$
453,283

$
189,966Operating income:Domestic Rehabilitation Segment

$
19,716

$
2,811

$
49,407

$
12,385International Rehabilitation Segment


7,865


587


23,660


1,302Surgical Implant Segment


1,572


1,824


5,557


2,890Expenses not allocated to segments/Eliminations


(9,801
)

(2,422
)

(35,969
)

(13,134
)Consolidated operating income

$
19,352

$
2,800

$
42,655

$
3,443


The
accounting policies of the reportable segments are the same as the accounting policies of the Company. We allocate resources and evaluate the performance of segments based on net
sales, gross profit, operating income and other non-GAAP measures. We do not allocate assets to reportable segments because a significant portion of assets are shared by the segments.

24

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

9. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

Geographic Area

Following are our net sales by geographic area, based on location of customer (in thousands):

Three Months Ended

Nine Months EndedSeptember 27, 2008

September 29, 2007

September 27, 2008

September 29, 2007Net sales:United States

$
187,352

$
86,301

$
548,885

$
248,509Germany


12,259


9,398


55,254


28,766Other Europe, Middle East, & Africa


39,221


13,866


113,164


46,225Asia Pacific


3,678


1,927


10,196


5,250Other


7,531


1,925


22,416


6,557Intersegment revenues


(6,404
)

(4,986
)

(16,749
)

(13,916
)$
243,637

$
108,431

$
733,166

$
321,391


Following
are our long-lived assets by geographic area (in thousands):

September 27, 2008

December 31, 2007United States

$
2,464,452

$
2,537,968International


176,985


172,844$
2,641,437

$
2,710,812


10. INCOME TAXES

Income taxes for the interim periods presented have been included in the accompanying unaudited condensed consolidated financial statements on the basis of an estimated annual effective
tax rate, adjusted for discrete items. The tax benefit for these periods differed from the amount which would have been recorded using the U.S. statutory tax rate due primarily to the impact of
foreign taxes and deferred taxes on the assumed repatriation of foreign earnings.

For
the three and nine months ended September 27, 2008, we recorded income tax benefits of approximately $10.8 million and $28.2 million, respectively, on
pre-tax losses of approximately $25.0 million and $86.8 million, respectively, net of offsetting tax expense for foreign taxes, deferred taxes on the assumed repatriation of
foreign earnings, and other non-deductible items. For the three and nine months ended September 29, 2007, we recorded income tax benefits of approximately $6.0 million and
$13.9 million, respectively, on pre-tax losses of approximately $11.8 million and $38.7 million, respectively, net of offsetting tax expense for foreign taxes,
deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items.

In
June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109" ("FIN 48"). We adopted the
provisions of FIN 48 on January 1, 2007. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance
with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax

25

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

10. INCOME TAXES (Continued)

position
taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition. For the nine months ended September 27, 2008, our gross unrecognized tax benefit of $16.2 million as recorded on December 31, 2007 was reduced by
$4.1 million due to the expiration of the
statute of limitations of previously recorded gross unrecognized tax benefits, of which $3.9 million was recorded as a reduction of previously recorded goodwill.

11. RESTRUCTURING AND RELATED CHARGES

We have implemented several restructuring and reorganization programs, including workforce reductions and the exit and consolidation of facilities, related primarily to the integration
of businesses we have acquired. At present, our restructuring efforts are primarily related to the integration of DJO Opco following the DJO Merger. As of September 27, 2008, these
restructuring activities are ongoing and additional expenses are expected to be incurred in future periods.

At
the time of the DJO Merger, management had begun to assess and formulate plans to restructure the operations of DJO to eliminate certain duplicative activities, reduce the cost
structure and better align product and operating expenses with the existing markets in which we compete. The plan was approved and initiated after the consummation of the DJO Merger. In the fourth
quarter of 2007, we announced the relocation of our headquarters to Vista, California. Activities were also initiated with respect to the relocation of certain manufacturing operations from our
Chattanooga, Tennessee location to Tijuana, Mexico. We also announced the future termination of certain employees related to the move of certain activities of our Bone Growth Stimulation ("BGS")
product line operations from Vista, California to St. Paul, Minnesota. Internationally, we closed a facility in Germany and anticipate facility closures in certain other locations in an effort
to integrate and realize cost synergies in our international operations. As of September 27, 2008, approximately $2.4 million was accrued related to severance and facility exit costs not
yet paid. Additionally, approximately $0.2 million has been accrued as of September 27, 2008 related to purchase of rights to distributor territories in connection with the DJO Merger.
We also assumed $1.9 million of severance due to a former executive officer of a business acquired by DJO Opco prior to the DJO Merger, which was paid in the first quarter of 2008.

In
certain cases, estimated severance and facility exit costs have been accrued as a liability with a corresponding increase to goodwill in accordance with the guidance specified in
Emerging Issues Task Force Issue Number 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination" ("EITF 95-3"). However, not all of
our restructuring costs meet
the accrual requirements of EITF 95-3, and certain integration costs are expensed as incurred.

26

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

11. RESTRUCTURING AND RELATED CHARGES (Continued)

A
summary of the activity relating to the restructuring for the nine months ended September 27, 2008 is as follows (in thousands):

Lease
Termination
Costs

Severance

Purchase of
Rights to
Distributor
Territories

TotalBalance, beginning of period

$
1,349

$
6,087

$
2,127

$
9,563Expensed during period





3,611





3,611Adjustments to goodwill


625


(769
)

(458
)

(602
)Payments made during period


(536
)

(6,934
)

(1,346
)

(8,816
)Adjustments to estimated costs





(987
)

(123
)

(1,110
)Foreign currency translation


(1
)

(67
)




(68
)Balance, September 27, 2008

$
1,437

$
941

$
200

$
2,578


12. COMMITMENTS AND CONTINGENCIES

In December 2006, we recorded approximately $1.1 million as a contingent liability with an offsetting adjustment to goodwill relating to litigation against Compex
Technologies, Inc. ("Compex") regarding a dispute over custom duties and VAT on imported goods as part of the purchase accounting of Compex. In February 2007, a judgment in the dispute with the
custom officials was issued by the court which resulted in partial unfavorable rulings for each side. In June 2008, the Appeal Court of Paris announced a preliminary judgment in our favor. In August
2008, we received written notice that the French custom would not appeal the ruling. As such, we have reversed our contingent liability previously accrued for and recorded it as a reduction to expense
within the condensed consolidated statements of operations.

In
August 2007 and September 2007, two purported shareholder class action lawsuits were filed in California Superior Court, in the County of San Diego, on behalf of DJO Opco's public
stockholders, challenging DJO Opco's proposed merger with ReAble. The court ordered the two lawsuits consolidated for all purposes in September 2007.

The
two original complaints named DJO Opco, ReAble and the current members of DJO Opco's board of directors as defendants. One of the original complaints also named Blackstone as a
defendant. The two substantially similar original complaints alleged, among other things, that the individual defendants breached their fiduciary duties of care, good faith and loyalty by approving
the proposed merger with an allegedly inadequate price, without adequately informing themselves of DJO Opco's highest transactional value, and without adequately marketing DJO Opco to other potential
buyers. The original complaints also alleged that the individual defendants and DJO Opco failed to make full and adequate disclosures in the preliminary proxy statement regarding the proposed merger.
The original complaints request, among other things, class certification, declaratory relief, an injunction of the proposed merger or a rescission order, corrective disclosures to the proxy statement,
damages, interest, attorneys' fees, expert fees and other costs; and such other relief as the court may find just and proper.

In
November 2007, the parties entered into a memorandum of understanding, pursuant to which the parties agreed to settle the consolidated action subject to court approval. In March 2008,
the parties entered into a settlement agreement which provided for dismissal of the consolidated action

27

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

12. COMMITMENTS AND CONTINGENCIES (Continued)

with
prejudice upon approval of a stipulation by the court. Pursuant to the terms of the settlement agreement, the defendants acknowledged that the consolidated action resulted in a decision to
provide additional information to DJO Opco's shareholders in the definitive proxy statement concerning the proposed merger and to modify certain terms in the merger agreement and to pay certain
attorneys' fees, costs, and expenses incurred by the plaintiffs. As stated in the settlement agreement, defendants denied all allegations of wrongdoing, fault, liability or damage to the plaintiffs
and the putative class in the consolidated action and denied that they were engaged in any wrongdoing or violation of law or breach of duty. Defendants also did not make any admission that the
supplemental disclosures were material. On June 13, 2008, the court entered an order granting final approval of the settlement after providing notice and opportunity to be heard to the members
of the class. The order and settlement became final and not subject to appeal on August 20, 2008.

The
manufacturing and sale of orthopedic devices and related products exposes us to significant risks of product liability claims, lawsuits and product recalls. From time to time, we
have been, and we are currently, the subject of a number of product liability claims and lawsuits relating to our products. We are currently defendants in 25 product liability cases related to a
disposable drug infusion pump product manufactured by a third party manufacturer that we distribute through our Bracing and Supports division of our Domestic Rehabilitation segment. These cases have
been brought against the manufacturers and certain distributors of these pumps, the manufacturers of the anesthetics used in these pumps, and the healthcare professionals involved in providing the
pumps to their patients. All of these lawsuits allege that the use of these pumps with certain anesthetics in certain shoulder surgeries over prolonged periods have resulted in cartilage damage to the
plaintiffs. We have tendered the defense of these cases both to the manufacturers who have supplied these pumps to us and to our product liability carrier. One of the two manufacturers of the pumps
supplied to us has accepted our tender of defense in several of the cases involving that manufacturer, subject to certain reservation of rights, and we continue to press for indemnity and defense in
the other cases and from the other manufacturer. Our product liability carrier has accepted coverage of these cases, subject to customary reservations, and is providing the Company with the defense.
The lawsuits allege damages ranging from unspecified amounts to claims between $1.0 million and $10.0 million. These cases are in the early stages of discovery.

We
currently carry product liability insurance up to a limit of $25.0 million, subject to a deductible of $50,000 on non-invasive products and a deductible of $250,000
on invasive products and an aggregate deductible of $750,000 for all product liability claims. Our insurance policy is subject to annual renewal. We believe our current product liability insurance
coverage is adequate. If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance coverage, our business could suffer materially. In
addition, in certain instances a product liability claim could also result in our having to recall some of our products, which could result in significant costs to us. As of September 27, 2008
and December 31, 2007, we have accrued approximately $2.1 million and $1.9 million, respectively, for product liability claims expense based upon previous claim experience in part
due to the fact that we have exceeded the coverage limits on certain historical product liability claims involving our Surgical Implant Segment.

13. RELATED PARTY TRANSACTIONS

In connection with the DJO Merger, Blackstone Management Partners V L.L.C. ("BMP") has agreed to provide certain monitoring, advisory and consulting services to us for an annual
monitoring

28

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

13. RELATED PARTY TRANSACTIONS (Continued)

fee
equal to the greater of $7.0 million and 2% of consolidated EBITDA as defined in the Transaction and Monitoring Fee Agreement, payable in the first quarter of each year. Prior to the DJO
Merger, the annual BMP monitoring fee was equal to $3.0 million. At any time in connection with or in anticipation of a change of control of DJOFL, a sale of all or substantially all of
DJOFL's assets or an initial public offering of common stock of DJOFL, BMP may elect to receive, in lieu of remaining annual monitoring fee payments, a single lump sum cash payment
equal to the then-present value of all then-current and future annual monitoring fees payable under the transaction and monitoring fee agreement, assuming a hypothetical
termination date of the agreement to be the twelfth anniversary of such election. The monitoring fee agreement will continue until the earlier of the twelfth anniversary of the date of the agreement
or such date as DJOFL and BMP may mutually determine. DJOFL will agree to indemnify BMP and its affiliates, directors, officers, employees, agents and representatives from and against all liabilities
relating to the services contemplated by the transaction and monitoring fee agreement and the engagement of BMP pursuant to, and the performance of BMP and its affiliates of the services contemplated
by, the transaction and monitoring fee agreement. For the nine months ended September 27, 2008 and September 29, 2007, we expensed $5.3 million and $2.3 million,
respectively, related to the monitoring fee. This is recorded as a component of selling, general and administrative expense in the unaudited condensed consolidated statements of operations.

14. DERIVATIVE INSTRUMENTS

We make use of debt financing as a source of funds and are therefore exposed to interest rate fluctuations in the normal course of our business. We operate internationally and are
therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Mexican Peso due to our Mexico-based manufacturing operations
that incur costs that are largely denominated in Mexican Pesos. As part of our risk management strategy, we use derivative instruments to hedge portions of our exposure. Before acquiring a derivative
instrument to hedge a specific risk, potential natural hedges are evaluated. Derivative instruments are only utilized to manage underlying exposures that arise from our business operations. Factors
considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, and the availability, effectiveness and
cost of derivative instruments. As of September 27, 2008, we had outstanding hedges in the form of forward contracts to purchase Mexican Pesos aggregating a U.S. dollar equivalent of
$16.4 million. For the three and nine months ended September 27, 2008, we recognized a gain on Mexico Peso forward contracts of approximately $163,000 and $914,000, respectively.

Our
credit facilities are subject to floating interest rates. We manage the risk of unfavorable movements in interest rates by hedging a portion of the outstanding loan balance, thereby
locking in a fixed rate on a portion of the principal, reducing the effect of possible rising interest rates and making interest expense more predictable. In February 2007, we swapped variable rates
for fixed rates on $175.0 million of the borrowings under the then existing revolving credit facility. We had two agreements in place for a notional amount of $100.0 million and
$75.0 million, expiring in 2010 and 2012, respectively. Under these agreements, we paid a fixed rate of 5.17% and received a variable rate equal to the then current three month LIBOR rate. On
November 19, 2007, in anticipation of the DJO Merger and incurrence of new indebtedness, we terminated these swaps and recognized $4.8 million of related interest expense. On
November 20, 2007, we entered into a new interest rate swap agreement

29

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

14. DERIVATIVE INSTRUMENTS (Continued)

for
a notional amount of $515.0 million at a fixed LIBOR rate of 4.205% amortizing through an expiration date in 2009 (the notional amount was $490.0 million as of September 27,
2008).

The
fair value of our interest rate swap agreement recorded in the accompanying condensed consolidated balance sheets as of September 27, 2008 and December 31, 2007 was a
loss of approximately $7.0 million and $3.9 million, respectively, and is recorded in other non-current liabilities. For these derivatives, we report the
after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) and reclassify it into earnings in the same period or periods
in which the hedged transaction affects earnings, and within the same income statement line item as the impact of the hedged transaction Derivative net losses on our interest rate swap agreement of
$1.7 million and $2.8 million, on a pre-tax basis, were included in interest expense in the three and nine months ended September 27, 2008, respectively. Derivative
net gains on our interest rate swap agreement of $80,000 and $210,000, on a pre-tax basis, were included in interest expense in the three and nine months ended September 29, 2007,
respectively.

In
accordance with SFAS No. 157, "Fair Value Measurement", we follow the three levels of the fair value hierarchy for disclosure of the inputs to valuation. This hierarchy
prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted
prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the
full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability's
classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. At September 27, 2008, the fair value of our interest rate
swap agreement was determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are
classified as Level 2 in the valuation hierarchy.

30

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

On November 20, 2007, in connection with the DJO Merger, DJOFL and its direct wholly-owned subsidiary, Finco, issued the 10.875% Notes with an aggregate principal amount of
$575.0 million. On November 3, 2006, DJOFL and Finco issued the 11.75% Notes with an aggregate principal amount of $200.0 million. Finco was formed solely to act as a
co-issuer of the notes, has only nominal assets and does not conduct any operations. The Indentures generally prohibit Finco from holding any assets, becoming liable for any obligations,
or engaging in any business activity. The 10.875% Notes are jointly and severally, fully and unconditionally guaranteed, on an unsecured senior basis by all of the DJOFL's domestic
subsidiaries (other than the co-issuer) that are 100% owned, directly or indirectly, by DJOFL (the "Guarantors"). The 11.75% Notes are jointly and severally, fully and unconditionally
guaranteed, on an unsecured senior subordinated basis by the
Guarantors. Our foreign subsidiaries (the "Non-Guarantors") do not guarantee the notes. The Guarantors also unconditionally guarantee the Senior Secured Credit Facility.

The
following tables present the financial position, results of operations and cash flows of DJOFL, the Guarantors, the Non-Guarantors and certain eliminations as of
September 27, 2008 and December 31, 2007 and for the three and nine months ended September 27, 2008 and September 29, 2007, respectively.

31

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Balance Sheets  As of September 27, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$


$
28,979

$
17,393

$


$
46,372Accounts receivable, net





136,714


36,522





173,236Inventories, net





86,118


20,408


(4,843
)

101,683Deferred tax assets, net





29,853


(253
)

(146
)

29,454Prepaid expenses and other current assets





19,091


2,580


(254
)

21,417Total current assets





300,755


76,650


(5,243
)

372,162Property and equipment, net





71,528


12,428


(1,749
)

82,207Goodwill





1,121,456


75,544





1,197,000Intangible assets, net





1,269,957


34,177





1,304,134Investment in subsidiaries


1,173,662


1,044,061


54,392


(2,272,115
)

Intercompany receivable


1,291,126








(1,291,126
)

Other non-current assets


52,873


4,779


444





58,096Total assets

$
2,517,661

$
3,812,536

$
253,635

$
(3,570,233
)
$
3,013,599Liabilities, Minority Interests and Membership EquityCurrent liabilities:Accounts payable

$


$
27,148

$
8,601

$


$
35,749Long-term debt and capital leases, current portion


10,651


216


503





11,370Other current liabilities


43,813


63,106


25,980


(254
)

132,645Total current liabilities


54,464


90,470


35,084


(254
)

179,764Long-term debt and capital leases, net of current portion


1,812,682


140


216





1,813,038Deferred tax liabilities, net





352,942


9,248


659


362,849Intercompany payable, net





1,209,321


81,805


(1,291,126
)

Other non-current liabilities


7,040


5,371


99





12,510Total liabilities


1,874,186


1,658,244


126,452


(1,290,721
)

2,368,161Minority interests








1,963





1,963Membership equity


643,475


2,154,292


125,220


(2,279,512
)

643,475Total liabilities, minority interests and membership equity

$
2,517,661

$
3,812,536

$
253,635

$
(3,570,233
)
$
3,013,599


32

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DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Balance Sheets  As of December 31, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$
519

$
44,694

$
18,258

$


$
63,471Accounts receivable, net





120,949


33,818





154,767Inventories, net





94,908


22,868


(6,872
)

110,904Deferred tax assets, net





29,145





(146
)

28,999Prepaid expenses and other current assets


9


13,669


3,641





17,319Total current assets


528


303,365


78,585


(7,018
)

375,460Property and equipment, net





70,413


12,949


(1,717
)

81,645Goodwill





1,132,388


68,894





1,201,282Intangible assets, net





1,324,191


36,170





1,360,361Investment in subsidiaries


1,140,111


184,420


53,114


(1,377,645
)

Intercompany receivable


1,344,358








(1,344,358
)

Other non-current assets


61,587


4,220


1,717





67,524Total assets

$
2,546,584

$
3,018,997

$
251,429

$
(2,730,738
)
$
3,086,272Liabilities, Minority Interests and Membership EquityCurrent liabilities:Accounts payable

$
54

$
34,722

$
8,800

$


$
43,576Long-term debt and capital leases, current portion


10,650


752


2,807





14,209Other current liabilities


10,116


66,985


26,666





103,767Total current liabilities


20,820


102,459


38,273





161,552Long-term debt and capital leases, net of current portion


1,816,864


287


1,447





1,818,598Deferred tax liabilities, net





376,778


9,881





386,659Intercompany payable





1,255,008


89,350


(1,344,358
)

Other non-current liabilities


3,912


9,348








13,260Total liabilities


1,841,596


1,743,880


138,951


(1,344,358
)

2,380,069Minority interests








1,215





1,215Membership equity


704,988


1,275,117


111,263


(1,386,380
)

704,988Total liabilities, minority interests and membership equity

$
2,546,584

$
3,018,997

$
251,429

$
(2,730,738
)
$
3,086,272


33

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Statements of Operations  For the Three Months Ended September 27, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
204,802

$
61,320

$
(22,485
)
$
243,637Cost of sales





81,828


35,734


(24,594
)

92,968Gross profit





122,974


25,586


2,109


150,669Operating expenses:Selling, general and administrative





86,356


19,030


(1
)

105,385Research and development





5,947


826





6,773Amortization of acquired intangibles





18,629


530





19,159Operating income





12,042


5,200


2,110


19,352Other income (expense):Interest income


10,534


921


219


(11,338
)

336Interest expense


(41,848
)

(10,577
)

(986
)

11,338


(42,073
)Other income (expense), net


16,885


(840
)

(1,739
)

(16,881
)

(2,575
)Income (loss) before income taxes and minority interests


(14,429
)

1,546


2,694


(14,771
)

(24,960
)Provision (benefit) for income taxes





(12,696
)

1,208


659


(10,829
)Minority interests








298





298Net income (loss)

$
(14,429
)
$
14,242

$
1,188

$
(15,430
)
$
(14,429
)


34

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Statements of Operations  For the Nine Months Ended September 27, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
605,456

$
196,647

$
(68,937
)
$
733,166Cost of sales





238,822


112,369


(71,308
)

279,883Gross profit





366,634


84,278


2,371


453,283Operating expenses:Selling, general and administrative





266,867


65,674


(7
)

332,534Research and development





18,431


2,248





20,679Amortization of acquired intangibles





55,809


1,606





57,415Operating income





25,527


14,750


2,378


42,655Other income (expense):Interest income


36,855


3,343


566


(39,578
)

1,186Interest expense


(129,153
)

(37,108
)

(3,058
)

39,564


(129,755
)Other income (expense), net


32,909


36


(950
)

(32,904
)

(909
)Income (loss) before income taxes and minority interests


(59,389
)

(8,202
)

11,308


(30,540
)

(86,823
)Provision (benefit) for income taxes





(32,098
)

3,212


659


(28,227
)Minority interests








793





793Net income (loss)

$
(59,389
)
$
23,896

$
7,303

$
(31,199
)
$
(59,389
)


35

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Statements of Operations  For the Three Months Ended September 29, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
87,331

$
22,473

$
(1,373
)
$
108,431Cost of sales





32,864


10,750


(1,332
)

42,282Gross profit





54,467


11,723


(41
)

66,149Operating expenses:Selling, general and administrative





42,148


9,687





51,835Research and development





3,279


1,093





4,372Amortization of acquired intangibles





6,415


727





7,142Operating income





2,625


216


(41
)

2,800Other income (expense):Interest income


3,936


1,149


58


(4,899
)

244Interest expense


(15,038
)

(4,023
)

(890
)

4,899


(15,052
)Other income (expense), net


5,163


72


132


(5,163
)

204Income (loss) before income taxes and minority interests


(5,939
)

(177
)

(484
)

(5,204
)

(11,804
)Provision (benefit) for income taxes





(6,467
)

489





(5,978
)Minority interests








113





113Net income (loss)

$
(5,939
)
$
6,290

$
(1,086
)
$
(5,204
)
$
(5,939
)


36

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Statements of Operations  For the Nine Months Ended September 29, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
255,007

$
70,083

$
(3,699
)
$
321,391Cost of sales





101,718


33,403


(3,696
)

131,425Gross profit





153,289


36,680


(3
)

189,966Operating expenses:Selling, general and administrative





123,874


30,216





154,090Research and development





9,037


3,076





12,113Amortization of acquired intangibles





18,234


2,086





20,320Operating income (loss)





2,144


1,302


(3
)

3,443Other income (expense):Interest income


11,810


3,893


192


(15,224
)

671Interest expense


(42,968
)

(12,375
)

(3,006
)

15,224


(43,125
)Other income (expense), net


6,054


71


191


(6,054
)

262Loss before income taxes and minority interest


(25,104
)

(6,267
)

(1,321
)

(6,057
)

(38,749
)Provision (benefit) for income taxes





(14,941
)

1,018





(13,923
)Minority interests








278





278Net income (loss)

$
(25,104
)
$
8,674

$
(2,617
)
$
(6,057
)
$
(25,104
)


37

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Statements of Cash Flows  For the Nine Months Ended September 27, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedOPERATING ACTIVITIES:Net income (loss)

$
(59,389
)
$
23,896

$
7,303

$
(31,199
)
$
(59,389
)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation





14,568


3,459


(595
)

17,432Amortization of intangibles





55,809


1,606





57,415Amortization of debt issuance costs


9,857











9,857Stock-based compensation





1,204








1,204Asset impairments and loss on disposal of assets





1,046


380


(65
)

1,361Deferred income taxes





(19,096
)

(330
)

659


(18,767
)Non-cash income from subsidiaries


(32,908
)

(9
)




32,917Provision for doubtful accounts and sales returns





15,026


385





15,411Inventory reserves





4,118


422





4,540Minority interests








793





793Changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable





(30,702
)

(3,217
)




(33,919
)Inventories





5,114


1,603


(2,357
)

4,360Prepaid expenses, other assets and liabilities


9


(7,045
)

2,221


(89
)

(4,904
)Accounts payable and other current liabilities


33,642


(14,582
)

1,125


89


20,274Net cash (used in) provided by operating activities


(48,789
)

49,347


15,750


(640
)

15,668INVESTING ACTIVITIES:Acquisition of intangible assets





(1,170
)

(46
)




(1,216
)Acquisition of businesses, net cash acquired





(2,062
)

(1,817
)




(3,879
)Purchases of property and equipment





(16,385
)

(3,354
)

640


(19,099
)Proceeds from sale of assets





2








2Other, net





1,212








1,212Net cash (used in) provided by investing activities





(18,403
)

(5,217
)

640


(22,980
)FINANCING ACTIVITIES:Intercompany


53,595


(45,976
)

(7,619
)




Proceeds from debt and revolving line of credit


12,000











12,000Payments on debt and revolving line of credit


(17,325
)

(683
)

(3,543
)




(21,551
)Net cash (used in) financing activities


48,270


(46,659
)

(11,162
)




(9,551
)Effect of exchange rate changes on cash and cash equivalents








(236
)




(236
)Net decrease in cash and cash equivalents


(519
)

(15,715
)

(865
)




(17,099
)Cash and cash equivalents at beginning of period


519


44,694


18,258





63,471Cash and cash equivalents at end of period

$


$
28,979

$
17,393

$


$
46,372


38

---



DJO Finance LLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

DJO Finance LLC and Subsidiaries

Unaudited Condensed Consolidating Statements of Cash Flows  For the Nine Months Ended September 29, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedOPERATING ACTIVITIES:Net income (loss)

$
(25,104
)
$
8,674

$
(2,617
)
$
(6,057
)
$
(25,104
)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation





7,442


2,677


(533
)

9,586Amortization of intangibles





18,234


2,086





20,320Amortization of debt issuance costs


2,866











2,866Stock-based compensation





1,534








1,534Asset impairments and loss on disposal of assets





121


410


(113
)

418Deferred income taxes





(15,070
)

(1,055
)




(16,125
)Non-cash income from subsidiaries


(6,053
)







6,053


Provision for doubtful accounts and sales returns





5,713


303





6,016Inventory reserves





756


69





825Minority interests








278





278Excess tax benefit associated with stock option exercises





(17
)







(17
)Net effect of discontinued operations, net of gain on disposal





378








378Changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable





(11,202
)

(202
)




(11,404
)Inventories





522


1,369


180


2,071Prepaid expenses, other assets and liabilities


(208
)

(5,217
)

(828
)




(6,253
)Accounts payable and other current liabilities


6,049


6,392


(1,033
)




11,408Net cash provided by (used in) operating activities


(22,450
)

18,260


1,457


(470
)

(3,203
)INVESTING ACTIVITIES:Acquisition of businesses, net of cash acquired





(64,010
)

(391
)




(64,401
)Proceeds from sale of assets





4,500


65





4,565Purchases of property and equipment





(7,752
)

(2,401
)

470


(9,683
)Net cash used in investing activities





(67,262
)

(2,727
)

470


(69,519
)FINANCING ACTIVITIES:Intercompany


(50,642
)

48,240


2,402





Payments on long-term obligations


(15,263
)

(307
)

66





(15,504
)Payment of debt issuance costs


(1,129
)










(1,129
)Proceeds on long-term obligations


89,500


294


34





89,828Excess tax benefit associated with stock option exercises





17








17Dividend paid to minority interests








(226
)




(226
)Net cash provided by financing activities


22,466


48,244


2,276





72,986Effect of exchange rate changes on cash and cash equivalents








638





638Net increase (decrease) in cash and cash equivalents


16


(758
)

1,644





902Cash and cash equivalents at beginning of period


12


22,650


8,241





30,903Cash and cash equivalents at end of period

$
28

$
21,892

$
9,885

$


$
31,805


39

---





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

Forward Looking Statements

The following management's discussion and analysis contains "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act") that represent our expectations or beliefs concerning future events, including, but not
limited to, statements regarding growth in sales of our products, profit margins and the sufficiency of our cash flow for future liquidity and capital resource needs. These forward-looking statements
are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. Some of these factors are described under the heading
"Risk Factors" below. The section entitled "Risk Factors" contained in Part II, Item 1A of this report, and similar discussions in our other SEC filings including our 2007 Annual Report
on Form 10-K filed with the Commission on March 28, 2008, describe some important risk factors that may affect our business, financial condition, results of operations,
and/or liquidity. Results actually achieved may differ materially from expected results included in these statements as a result of these or other factors.

Introduction

This management's discussion and analysis of financial condition and results of operations is intended to provide an understanding of
our results of operations, financial condition and where appropriate, factors that may affect future performance.

The
following discussion should be read in conjunction with the condensed consolidated financial statements and related notes to those financial statements as well as the other financial
data included elsewhere in this Form 10-Q.

Overview of Business

We are a leading global provider of high-quality, orthopedic devices, with a broad range of products used for
rehabilitation, pain management and physical therapy. We also develop, manufacture and distribute a broad range of surgical reconstructive implant products. We are the largest non-surgical
orthopedic rehabilitation device company in the United States and among the largest globally, as measured by revenues. Many of our products have leading market positions. We believe that our strong
brand names, comprehensive range of products, focus on quality, innovation and customer service, extensive distribution network, and our strong relationships with orthopedic and physical therapy
professionals have contributed to our leading market positions. We believe that we are one of only a few orthopedic device companies that offer healthcare professionals and patients a diverse range of
orthopedic rehabilitation products addressing the complete spectrum of preventative, pre-operative, post-operative, clinical and home rehabilitation care. Our products are used
by orthopedic specialists, spine surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals
to treat patients with musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries. In addition, many of our non-surgical
medical devices and related accessories are used by athletes and patients for injury prevention and at-home physical therapy treatment.

We
have complemented our internal growth initiatives with strategic business acquisitions, including the DJO Merger and our acquisitions of IOMED and Saunders, which expanded our product

40

---



and
service offerings. We currently develop, manufacture and distribute our products through the following three operating segments:

Domestic Rehabilitation Segment

We market our domestic rehabilitation segment products through the three operating segments described below.



International Rehabilitation Segment

Our International Rehabilitation Segment, which generates most of its revenues in Europe, is divided into three main
businesses:



Surgical Implant Segment

Our Surgical Implant Segment develops, manufactures and markets a wide variety of knee, hip and shoulder implant products that serve
the orthopedic reconstructive joint implant market.

Our
three operating segments enable us to reach a diverse customer base through multiple distribution channels and give us the opportunity to provide a wide range of orthopedic devices
and related products to orthopedic specialists operating in a variety of patient treatment settings. These three segments constitute our three reportable segments. See Note 9 to our unaudited
condensed consolidated financial statements for additional information regarding our segments.

Set
forth below is net revenue, gross profit and operating income information for our reporting segments for the three and nine months ended September 27, 2008 and
September 29, 2007, respectively. This information excludes the impact of certain expenses not allocated to segments, which

41

---



are
primarily comprised of general corporate expenses for all periods presented. The segment information includes the impact of purchase accounting and related amortization of acquired intangible
assets related to our recent acquisitions as described in Note 2 to our unaudited condensed consolidated financial statements, as well as certain integration costs and restructuring costs as
described in Note 11
to our unaudited condensed consolidated financial statements. All prior periods presented have been restated to reflect our current reportable segments.

Three Months Ended

Nine Months Ended($ in thousands)

September 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Domestic Rehabilitation:Net sales

$
178,389

$
74,132

$
518,670

$
212,788Gross profit

$
107,031

$
41,702

$
308,641

$
120,172Gross profit margin


60.0
%

56.3
%

59.5
%

56.5
%Operating income

$
19,716

$
2,811

$
49,407

$
12,385Operating income as a percent of net segment sales


11.1
%

3.8
%

9.5
%

5.8
%International Rehabilitation:Net sales

$
54,427

$
23,627

$
176,121

$
73,416Gross profit

$
32,275

$
12,123

$
105,004

$
36,679Gross profit margin


59.3
%

51.3
%

59.6
%

50.0
%Operating income

$
7,865

$
587

$
23,660

$
1,302Operating income as a percent of net segment sales


14.5
%

2.5
%

13.4
%

1.8
%Surgical Implant:Net sales

$
17,225

$
15,658

$
55,124

$
49,103Gross profit

$
12,730

$
11,818

$
41,214

$
33,930Gross profit margin


73.9
%

75.5
%

74.8
%

69.1
%Operating income

$
1,572

$
1,824

$
5,557

$
2,890Operating income as a percent of net segment sales


9.1
%

11.6
%

10.1
%

5.9
%


DJO Merger

On July 15, 2007, we entered into the DJO Merger Agreement with DJO Opco providing for a merger transaction pursuant to which
DJO Opco became a wholly owned subsidiary of DJOFL, the entity filing this Quarterly Report on Form 10-Q. The total purchase price for the DJO Merger, which was consummated on
November 20, 2007, was approximately $1.3 billion and consisted of $1.2 billion (at $50.25 a share) paid to former equity holders of DJO Opco, $15.2 million related to the
fair value of stock options held by DJO Opco management that were exchanged for options to purchase DJO common stock, and $22.8 million in direct acquisition costs. The DJO Merger was financed
through a combination of equity contributed by Blackstone, borrowings under the Senior Secured Credit Facility, and proceeds from the newly issued 10.875% Notes (see Note 2 to our unaudited
condensed consolidated financial statements for further information).

IOMED, Inc.

On August 9, 2007, a subsidiary of DJOFL acquired IOMED, which develops, manufactures and markets active drug delivery systems
used primarily to treat acute local inflammation in the physical and occupational therapy and sports medicine markets. The purchase price was $23.3 million and consisted of $21.1 million
in cash payments to former IOMED equity holders at $2.75 per share, $0.8 million related to the fair value of vested stock options that were outstanding at the time of the

42

---



acquisition,
and $1.4 million in direct acquisition costs. The acquisition was primarily financed with borrowings under our then existing revolving credit facility.

The Saunders Group

On July 2, 2007, a subsidiary of DJOFL completed its purchase of substantially all of the assets of Saunders for total cash
consideration of $40.9 million, including $0.9 million of acquisition costs. Saunders is a supplier of rehabilitation products to physical therapists, chiropractors, athletes, athletic
trainers, physicians and patients, with a specialty in patented traction devices, back supports, and equipment for neck and back disorders. The Saunders Acquisition was financed with funds borrowed
under our then existing credit facilities.

Results of Operations

The following table sets forth our statements of operations as a percentage of sales for the periods indicated:

Three Months Ended

Nine Months EndedSeptember 27, 2008

September 29, 2007

September 27, 2008

September 29, 2007Net sales

$
243,637


100.0
%
$
108,431


100.0
%
$
733,166


100.0
%
$
321,391


100.0
%Cost of sales


92,968


38.2


42,282


39.0


279,883


38.2


131,425


40.9Gross profit


150,669


61.8


66,149


61.0


453,283


61.8


189,966


59.1Operating expenses:Selling, general and administrative


105,385


43.3


51,835


47.8


332,534


45.4


154,090


47.9Research and development


6,773


2.8


4,372


4.0


20,679


2.8


12,113


3.8Amortization of acquired intangibles


19,159


7.9


7,142


6.6


57,415


7.8


20,320


6.3Operating income


19,352


7.9


2,800


2.6


42,655


5.8


3,443


1.1Other income (expense):Interest income


336


0.1


244


0.2


1,186


0.2


671


0.2Interest expense


(42,073
)

(17.3
)

(15,052
)

(13.9
)

(129,755
)

(17.7
)

(43,125
)

(13.4
)Other income (expense), net


(2,575
)

(1.1
)

204


(0.2
)

(909
)

(0.1
)

262


0.1Loss before income taxes and minority interests


(24,960
)

(10.2
)

(11,804
)

(10.9
)

(86,823
)

(11.8
)

(38,749
)

(12.1
)Benefit for income taxes


(10,829
)

(4.4
)

(5,978
)

(5.5
)

(28,227
)

(3.9
)

(13,923
)

(4.3
)Minority interests


298


0.1


113


0.1


793


0.1


278


0.1Net loss

$
(14,429
)

(5.9
)%
$
(5,939
)

(5.5
)%
$
(59,389
)

(8.1
)%
$
(25,104
)

(7.8
)%


Three Months Ended September 27, 2008 compared to Three Months Ended September 29, 2007

Net Sales.Our net sales for the three months ended September 27, 2008 were $243.6 million, representing an increase of 124.7% from net sales of
$108.4 million for the three months ended September 29, 2007. The increase was primarily driven by business acquisitions, including the DJO Merger (November 2007), IOMED (August 2007)
and Saunders (July 2007). Revenues associated with these business acquisitions were approximately $128.3 million for the three months ended September 27, 2008. For the three months ended
September 27, 2008, we generated 25.1% of our net sales from customers outside the United States as compared to 23.9% for the three months ended September 29, 2007. Net sales were also
positively impacted for the three months ended September 27, 2008 by $3.6 million due to favorable changes in foreign exchange rates compared to rates in effect for the three months
ended September 29, 2007.

43

---



Sales
of new products, which include products that have been on the market less than one year, were $16.7 million for the three months ended September 27, 2008, compared to
new product sales of $12.6 million for the three months ended September 29, 2007.

The
following table sets forth the mix of our net sales for the three months ended September 27, 2008 compared to the three months ended September 29, 2007:

Three Months Ended($ in thousands)

September 27,
2008

% of Net
Revenues

September 29,
2007

% of Net
Revenues

Increase

% IncreaseDomestic Rehabilitation Segment

$
178,389


73.2
%
$
74,132


68.4
%
$
104,257


140.6
%International Rehabilitation Segment


54,427


22.3


23,627


21.8


30,800


130.4Surgical Implant Segment


17,225


7.1


15,658


14.4


1,567


10.0Intersegment revenues


(6,404
)

(2.6
)

(4,986
)

(4.6
)

(1,418
)

28.4Consolidated net sales

$
243,637


100.0
%
$
108,431


100.0
%
$
135,206


124.7
%


Net
sales in our Domestic Rehabilitation Segment were $178.4 million for the three months ended September 27, 2008, reflecting an increase of 140.6% over net sales of
$74.1 million for the three months ended September 29, 2007. The increase was driven primarily by the addition of sales from the DJO Merger and the IOMED and Saunders acquisitions as
discussed above and growth from our core product lines including electrotherapy and catalog.

Net
sales in our International Rehabilitation Segment for the three months ended September 27, 2008 were $54.4 million, reflecting an increase of 130.4% from net sales of
$23.6 million for the three months ended September 29, 2007. The increase was driven primarily by the addition of sales from the DJO Merger and continued growth in our core international
markets. Net sales were also positively impacted by $3.6 million for the three months ended September 27, 2008 due to favorable changes in foreign exchange rates compared to rates in
effect for the three months ended September 29, 2007.

Net
sales in our Surgical Implant Segment increased to $17.2 million from $15.7 million for the three months ended September 27, 2008, representing a 10.0% increase
over the same period in the prior year. The increase was driven primarily by growth in our knee, shoulder, and hip implant product lines.

Gross Profit.Consolidated gross profit as a percentage of net sales increased to 61.8% for the three months ended September 27, 2008 from 61.0% for the
three months ended September 29, 2007. The increase in our gross profit margin is primarily attributable to cost improvement initiatives implemented in the past year, favorable changes in the
mix of products we sell as a result of our recent acquisitions of businesses with higher margin products, and favorable changes in foreign exchange rates of approximately $2.3 million.
Additionally, the increase in gross profit was driven by reduced amortization of purchased inventory fair value adjustments related to prior year acquisitions of $347,000.

Gross
profit in our Domestic Rehabilitation Segment as a percentage of net sales increased to 60.0% for the three months ended September 27, 2008 from 56.3% for the three months
ended September 29, 2007. The increase was primarily driven by cost improvement initiatives implemented in the past year and favorable changes in the mix of products we sell as a result of our
recent acquisitions of businesses with higher margin products. Additionally, the increase in gross profit was driven by reduced amortization of purchased inventory fair value adjustments related to
prior year acquisitions of $347,000.

Gross
profit in our International Rehabilitation Segment as a percentage of net sales increased to 59.3% for the three months ended September 27, 2008 from 51.3% for the three
months ended September 29, 2007. The increase was primarily driven by cost improvement initiatives implemented in

44

---



the
past year, favorable changes in the mix of products we sell as a result of our recent acquisitions of businesses with higher margin products, and favorable changes in foreign exchange rates of
approximately $2.3 million.

Gross
profit in our Surgical Implant Segment as a percentage of gross sales decreased to 73.9% for the three months ended September 27, 2008 from 75.5% for the three months ended
September 29, 2007. The decrease was primarily driven by an increase in international sales as a percentage of total sales which sell at a lower margin.

Selling, General and Administrative.Our selling, general and administrative expenses increased to $105.4 million for the three months ended
September 27, 2008 from $51.8 million for the three months ended September 29, 2007 due to additional expenses associated with the operating activities of our recent acquisitions,
including certain incremental costs related to the integration of the acquired businesses, partially offset by a settlement of a litigation contingency related to one of our foreign subsidiaries of
approximately $1.1 million. The following table sets forth certain non-recurring costs associated with the integration of our recent acquisitions:

Three Months Ended($ in thousands)

September 27,
2008

September 29,
2007Severance and relocation expenses

$
2,602

$
615Integration expenses


6,444


2,435Other





(204
)$
9,046

$
2,846


Severance
and relocation expenses for the three months ended September 27, 2008 consisted of $2.2 million of severance expenses related to employees in connection with the
DJO Merger and $0.4 million of severance payments made to employees in connection with other recent acquisitions. Severance expense for the three months ended September 29, 2007 included
severance payments to employees in connection with other acquisitions. Integration expenses for the three months ended September 27, 2008 included $3.9 million of integration costs
incurred in connection with the DJO Merger, $2.2 million related to the implementation of our new global ERP system and $0.4 million of integration costs related to other recent
acquisitions. Integration expenses for the three months ended September 29, 2007 included $1.9 million and $0.5 million of integration costs incurred in connection with recent
acquisitions and the Prior Transaction, respectively.

Research and Development.Our research and development expense increased to $6.8 million for the three months ended September 27, 2008 from
$4.4 million for the three months ended September 29, 2007. The increase was primarily due to increased wages, facility, and project costs incurred as a result of our acquisitions. As a
percentage of net sales, research and development expense decreased to 2.8% compared to 4.0% in the three months ended September 29, 2007.

Amortization of Acquired Intangibles.Amortization of acquired intangibles includes amortization expense related to intangible assets acquired in connection with
our acquisitions. The intangible assets are being amortized over the estimated lives ranging from two to twenty years. Our amortization of acquired intangibles increased to $19.2 million for
the three months ended September 27, 2008 compared to $7.1 million for the three months ended September 29, 2007. At September 27, 2008, we expect the future amortization
of intangibles to be approximately $19.1 million for the remainder of 2008, $76.1 million in 2009, $75.2 million in 2010, $73.8 million in 2011, $72.4 million in
2012, and $525.6 million for the periods thereafter. Future acquisitions of businesses or intangible assets may cause these estimates to differ materially.

45

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Interest Expense.Our interest expense increased to $42.1 million for the three months ended September 27, 2008 compared to interest expense of
$15.1 million for the three months ended September 29, 2007. The increase was principally driven by incremental borrowings of $1,209.0 million to fund the DJO Merger and
$77.0 million to fund the IOMED and Saunders acquisitions.

Other Expense.Our other expense increased to $2.6 million for the three months ended September 27, 2008 compared to other income of
$0.2 million for the three months ended September 29, 2007. The increase was principally driven by losses on foreign currency exchange.

Benefit for Income Taxes.For the three months ended September 27, 2008, we recorded $10.8 million of income tax benefit on a pre-tax
loss of $25.0 million, net of offsetting tax expense related to foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items. For
the three months ended September 29, 2007, we recorded $6.0 million of income tax benefit on a pre-tax loss of $11.8 million, net of offsetting tax expense related to
foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items.

Nine Months Ended September 27, 2008 compared to Nine Months Ended September 29, 2007

Net Sales.Our net sales for the nine months ended September 27, 2008 were $733.2 million, representing an increase of 128.1% from net sales of
$321.4 million for the nine months ended September 29, 2007. The increase was primarily driven by business acquisitions, including the DJO Merger (November 2007), IOMED (August 2007) and
Saunders (July 2007) and continued growth across our product lines. Revenues associated with business acquisitions were approximately $383.7 million for nine months ended September 27,
2008. For the nine months ended September 27, 2008 and September 29, 2007, we generated 26.8% and 25.9% of our net sales from customers outside the United States, respectively. Net sales
were also positively impacted for the nine months ended September 27, 2008 by $17.7 million due to favorable changes in foreign exchange rates compared to rates in effect for the nine
months ended September 29, 2007.

Sales
of new products, which include products that have been on the market less than one year, were $28.4 million for the nine months ended September 27, 2008, compared to
new product sales of $23.2 million for the nine months ended September 29, 2007.

The
following table sets forth the mix of our net sales for the nine months ended September 27, 2008 compared to the nine months ended September 29, 2007:

Nine Months Ended($ in thousands)

September 27,
2008

% of Net
Revenues

September 29,
2007

% of Net
Revenues

Increase

% IncreaseDomestic Rehabilitation Segment

$
518,670


70.7
%
$
212,788


66.2
%
$
305,882


143.7
%International Rehabilitation Segment


176,121


24.0


73,416


22.8


102,705


139.9Surgical Implant Segment


55,124


7.5


49,103


15.3


6,021


12.3Intersegment revenues


(16,749
)

(2.2
)

(13,916
)

(4.3
)

(2,833
)

20.4Consolidated net sales

$
733,166


100.0
%
$
321,391


100.0
%
$
411,775


128.1
%


Net
sales in our Domestic Rehabilitation Segment were $518.7 million for the nine months ended September 27, 2008, reflecting an increase of 143.7% over net sales of
$212.8 million for the nine months ended September 29, 2007. The increase was driven primarily by the addition of sales from the DJO Merger and the IOMED and Saunders acquisitions as
discussed above and growth from our core product lines including electrotherapy and catalog.

Net
sales in our International Rehabilitation Segment for the nine months ended September 27, 2008 were $176.1 million, reflecting an increase of 139.9% from net sales of
$73.4 million for the nine months ended September 29, 2007. The increase was driven primarily by the addition of sales from the

46

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DJO
Merger and continued growth in our core international markets. Net sales were also positively impacted by $17.7 million for the nine months ended September 27, 2008 due to favorable
changes in foreign exchange rates compared to rates in effect for the nine months ended September 29, 2007.

Net
sales in our Surgical Implant Segment increased to $55.1 million from $49.1 million for the nine months ended September 27, 2008, representing a 12.3% increase
over the same period in the prior year. The increase was driven primarily by growth in our knee, shoulder and hip implant product lines.

Gross Profit.Consolidated gross profit as a percentage of net sales increased to 61.8% for the nine months ended September 27, 2008 from 59.1% for the nine
months ended September 29, 2007. The increase in our gross profit margin is primarily attributable to cost improvement initiatives implemented in the past year, favorable changes in the mix of
products we sell as a result of our recent acquisitions of businesses with higher margin products, and favorable changes in foreign exchange rates of approximately $12.4 million. Additionally,
the increase in consolidated gross profit was driven by reduced amortization of purchased inventory fair value adjustments related to prior year acquisitions of $2.7 million. The amortization
of purchased inventory fair value adjustments included in cost of sales was $4.7 million and $7.4 million for the nine months ended September 27, 2008 and September 29,
2007, respectively.

Gross
profit in our Domestic Rehabilitation Segment as a percentage of net sales increased to 59.5% for the nine months ended September 27, 2008 from 56.5% for the nine months
ended September 29, 2007. The increase in our gross margin was primarily attributable to cost improvement initiatives implemented in the past year and favorable changes in the mix of products
we sell as a result of our recent acquisitions of businesses with higher margin products. Additionally, the increase in gross profit included $2.7 million of higher amortization of purchased
inventory fair value adjustments related to prior year acquisitions. The amortization of purchased inventory fair value adjustments included in cost of sales was $4.7 million and
$2.0 million for the nine months ended September 27, 2008 and September 29, 2007, respectively.

Gross
profit in our International Rehabilitation Segment as a percentage of net sales increased to 59.6% for the nine months ended September 27, 2008 from 50.0% for the nine
months ended September 29, 2007. The increase was primarily driven by cost improvement initiatives implemented in the past year, favorable changes in the mix of products we sell as a result of
our recent acquisitions of businesses with higher margin products, and favorable changes in foreign exchange rates of approximately $12.4 million. Additionally, the increase in consolidated
gross profit was driven by reduced amortization of purchased inventory fair value adjustments related to prior year acquisitions of $2.1 million. The amortization of purchased inventory fair
value adjustments included in cost of sales was $2.1 million for the nine months ended September 29, 2007.

Gross
profit in our Surgical Implant Segment as a percentage of gross sales increased to 74.8% for the nine months ended September 27, 2008 from 69.1% for the nine months ended
September 29, 2007. The increase was primarily driven by cost improvement initiatives implemented in the past year and reduced amortization of purchased inventory fair value adjustments related
to prior year acquisitions of $3.3 million. The amortization of purchased inventory fair value adjustments included in cost of sales was $3.3 million for the nine months ended
September 29, 2007.

Selling, General and Administrative.Our selling, general and administrative expenses increased to $332.5 million for the nine months ended
September 27, 2008 from $154.1 million for the nine months ended September 29, 2007 due to additional expenses wages, commissions and professional fees associated with our
acquisitions, including certain incremental costs related to the integration of the acquired businesses, partially offset by a settlement of a litigation contingency related to one of our

47

---



foreign
subsidiaries of approximately $1.1 million. The following table sets forth certain non-recurring costs associated with the integration of our recent acquisitions:

Nine Months Ended($ in thousands)

September 27,
2008

September 29,
2007Severance and relocation expenses

$
8,970

$
832Integration expenses


22,800


6,388Other





(357
)$
31,770

$
6,863


Severance
and relocation expenses for the nine months ended September 27, 2008 consisted of $5.0 million of severance expenses related to the DJO Merger,
$1.2 million of severance payments to employees in connection with other acquisitions, and $2.8 million of separation expense in connection with the termination of one of the Company's
executive officers. Integration expenses for the nine months ended September 29, 2008 included $17.2 million, $1.6 million and $1.8 million of integration costs incurred in
connection with the DJO Merger, the IOMED acquisition and other recent acquisitions, respectively. Also included within Integration expense for the nine months ended September 27, 2008 is
$2.2 million related to the implementation of our new global ERP system. Integration expenses for the nine months ended September 29, 2007 included $4.8 million and
$1.6 million of integration costs incurred in connection with recent acquisitions and the Prior Transaction, respectively.

Research and Development.Our research and development expense increased to $20.7 million for the nine months ended September 27, 2008 from
$12.1 million for the nine months ended September 29, 2007. The increase was primarily due to increased wages, facility and project costs incurred as a result of our acquisitions. As a
percentage of net sales, research and development expense decreased to 2.8% compared to 3.8% in the nine months ended September 29, 2007.

Amortization of Acquired Intangibles.Amortization of acquired intangibles includes amortization expense related to intangible assets acquired in connection with
our acquisitions. The intangible assets are being amortized over the estimated lives ranging from two to twenty years. Our amortization of acquired intangibles increased to $57.4 million for
the nine months ended September 27, 2008 compared to $20.3 million for the nine months ended September 29, 2007.

Interest Expense.Our interest expense increased to $129.8 million for the nine months ended September 27, 2008 compared to interest expense of
$43.1 million for the nine months ended September 29, 2007. The increase was principally driven by incremental borrowings of $1,209.0 million to fund the DJO Merger and
$77.0 million to fund the IOMED and Saunders acquisitions.

Other Expense.Our other expense increased to $0.9 million for the nine months ended September 27, 2008 compared to other income of
$0.3 million for the nine months ended September 29, 2007. The increase was principally driven by increased losses in the third quarter of 2008 on foreign currency exchange.

Benefit for Income Taxes.For the nine months ended September 27, 2008, we recorded $28.2 million of income tax benefit on a pre-tax loss
of $86.8 million, net of offsetting tax expense related to foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items. For the
nine months ended September 29, 2007, we recorded $13.9 million of income tax benefit on a pre-tax loss of $38.8 million, net of offsetting tax expense related to
foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items.

48

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Liquidity and Capital Resources

As of September 27, 2008 our primary source of liquidity consisted of cash and cash equivalents totaling $46.4 million
and $100.0 million of available borrowings under our revolving credit facility, described below. Working capital at September 27, 2008 was $192.4 million. We believe that our
existing cash, plus the amounts we expect to generate from operations and amounts available through our revolving credit facility, will be sufficient to meet our operating needs for the next twelve
months, including working capital requirements, capital expenditures, and debt repayment obligations. While we currently believe that we will be able to meet all of our financial covenants imposed by
our Senior Secured Credit Facility, there is no assurance that we will in fact be able to do so or that, if we do not, we will be able to obtain from our lenders waivers of default or amendments to
the Senior Secured Credit Facility in the future. We and our subsidiaries, affiliates or significant shareholders (including Blackstone and its affiliates) may from time to time, in our or their sole
discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities (including any publicly issued debt securities), in privately negotiated or open market transactions, by
tender offer or otherwise.

A
summary of our changes in cash and cash equivalents for the nine months ended September 27, 2008 and September 29, 2007 is as follows:

Nine Months EndedSeptember 27,
2008

September 29,
2007Cash provided by (used in) operating activities

$
15,668

$
(3,203
)Cash used in investing activities


(22,980
)

(69,519
)Cash (used in) provided by financing activities


(9,551
)

72,986Effect of exchange rate changes on cash and cash equivalents


(236
)

638Net (decrease) increase in cash and cash equivalents

$
(17,099
)
$
902


Cash Flows

Operating activities provided cash of $15.7 million for the nine months ended September 27, 2008 and used cash of
$3.2 million for the nine months ended September 29, 2007. Cash provided by operating activities for the nine months ended September 27, 2008 primarily reflected our net income
after adjustment for non-cash charges partially offset by a slightly unfavorable net change in operating assets and liabilities. Cash used in operating activities for the nine months ended
September 29, 2007 primarily reflected our net loss and a negative net change in operating assets and liabilities. Cash paid for interest was $86.1 million for the nine months ended
September 27, 2008 and $34.2 million for the nine months ended September 29, 2007.

Investing
activities used $23.0 million of cash for the nine months ended September 27, 2008, compared to $69.5 million for the nine months ended
September 29, 2007. Cash used in investing activities for the nine months ended September 27, 2008 primarily consisted of purchases of property and equipment totaling
$19.1 million and the acquisition of businesses for a total of $3.9 million. Included within purchases of property and equipment is approximately $3.0 million related to our new
global ERP system. Cash used in investing activities for the nine months ended September 29, 2007 included acquisition of businesses for $64.4 million and purchases of property and
equipment amounting to $9.7 million, slightly offset by proceeds from a sale of assets amounting to $4.6 million.

Financing
activities used $9.6 million of cash for the nine months ended September 27, 2008, compared to cash provided by financing activities of $73.0 million for
the nine months September 29, 2007. Cash used in financing activities for the nine months ended September 27, 2008 represented a net payment of $9.6 million on
long-term debt and revolving lines of credit as compared to cash provided by financing activities for the nine months ended September 29, 2007, which included net proceeds of
$73.2 million from long-term debt and revolving credit lines.

49

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For the remainder of 2008, we expect to spend total cash of approximately $107.4 million for the following:



In
addition, we expect to spend up to an additional $36 million implementing our new ERP system capital project over approximately the next two years.

Indebtedness

As of September 27, 2008, we had approximately $1,824.4 million in aggregate indebtedness outstanding.

Senior Secured Credit Facility

Overview.The Senior Secured Credit Facility provides senior secured financing of $1,165.0 million, consisting of a $1,065.0 million term loan
facility and a $100.0 million revolving credit facility. We issued the term loan facility of the Senior Secured Credit Facility at a 1.2% discount, resulting in net proceeds of
$1,052.4 million. In addition, we are permitted, subject to receipt of additional commitments from participating lenders and certain other conditions, to incur up to an additional
$150.0 million of borrowings under the Senior Secured Credit Facility.

Interest Rate and Fees.Borrowings under the Senior Secured Credit Facility bear interest at a rate equal to an applicable margin plus, at our option, either
(a) a base rate determined by reference to the higher of (1) the prime rate of Credit Suisse and (2) the federal funds rate plus 0.50% or (b) the Eurodollar rate determined
by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to each borrowing adjusted for required reserves. The initial applicable margins for borrowings under
the term loan facility and the revolving credit facility is 2.00% with respect to base rate borrowings and 3.00% with respect to Eurodollar borrowings. The applicable margin for borrowings under the
term loan facility and the revolving credit facility may be reduced subject to us attaining certain leverage ratios.

Historically,
we have used derivative instruments to hedge portions of our exposure related to variable interest rates on our outstanding indebtedness. On November 20, 2007, we
entered into an interest rate swap agreement for a notional amount of $515.0 million at a fixed LIBOR rate of 4.205% expiring in 2009. The swap agreement amortizes through a date in 2009. As of
September 27, 2008, the remaining notional amount of the swap was $490.0 million. As of September 27, 2008, our weighted average interest rate for all borrowings under the Senior
Secured Credit Facility was 5.54%.

In
addition to paying interest on outstanding principal under the Senior Secured Credit Facility, we are required to pay a commitment fee to the lenders under the revolving credit
facility in respect of the unutilized commitments there under. The initial commitment fee rate is 0.50% per annum. The commitment fee rate may be reduced subject to us attaining certain leverage
ratios. We must also pay customary letter of credit fees.

Amortization.We are required to pay annual amortization (payable in equal quarterly installments) on the loans under the term loan facility in an amount equal to
1.00% of the funded total principal amount during the first six years and three months following the closing of the Senior Secured Credit Facility, with the remaining amount payable at maturity, which
is six and one-half years from the

50

---



date
of the closing of the Senior Secured Credit Facility. Principal amounts outstanding under the revolving credit facility are due and payable in full at maturity, which is six years from the date
of the closing of the Senior Secured Credit Facility.

Certain Covenants and Events of Default.The Senior Secured Credit Facility contains a number of covenants that, among other things, restrict, subject to certain
exceptions, our and our subsidiaries' ability to:



Pursuant
to the terms of the credit agreement relating to the Senior Secured Credit Facility, we are required to maintain a ratio of consolidated senior debt to Adjusted EBITDA (or
senior leverage ratio) starting at a maximum of 5.1:1 and stepping down over time to 3.25:1 by the end of 2011. Adjusted EBITDA represents net income (loss) plus interest expense, net, provision
(benefit) for income taxes and depreciation and amortization, further adjusted for non-cash items, non-recurring items and other adjustment items permitted in calculating
covenant compliance under our Senior Secured Credit Facility and the Indentures ("Adjusted EBITDA"). As of September 27, 2008, we were required to maintain a senior leverage ratio not to exceed
5.1:1. At September 27, 2008 our senior leverage ratio was 4.03:1.

10.875% Senior Notes and 11.75% Senior Subordinated Notes

The Indentures governing the $575.0 million principal amount of 10.875% Notes and the $200.0 million principal amount of
11.75% Notes limit our (and most or all of our subsidiaries') ability to:



51

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Under
the Indentures governing our 10.875% Notes and our 11.75% Notes, our ability to incur additional debt, subject to specified exceptions, is tied to improving our Adjusted EBITDA to
fixed charges ratio or having a ratio of at least 2.00:1 on a pro forma basis after giving effect to such incurrence. Additionally, our ability to make certain restricted payments is also tied to
having an Adjusted EBITDA to fixed charge ratio of at least 2.00:1 on a pro forma basis. Our ratio of Adjusted EBITDA to fixed charges for the twelve months ended September 27, 2008, measured
on that date, was 1.83:1. Notwithstanding these limitations, the aggregate amount of term loan increases and revolving commitment increases shall not exceed the greater of
(i) $150.0 million and (ii) the additional aggregate amount of secured indebtedness which would be permitted to be incurred as of any date of determination (assuming for this
purpose that the full amount of any revolving credit increase had been utilized as of such date) such that, after giving pro forma effect to such incurrence (and any other transactions consummated on
such date), the senior secured leverage ratio for the immediately preceding test period would not be greater than 4.0:1. Fixed charges is defined in the Indentures as consolidated interest expense
plus all cash dividends or other distributions paid on any series of preferred stock of any restricted subsidiary and all dividends or other distributions accrued on any series of disqualified stock.

Covenant Compliance

As described above, our Senior Secured Credit Facility consisting of a $1,065.0 million term loan facility and a
$100.0 million revolving credit facility and the Indentures governing the $575.0 million of senior notes and the $200.0 million of senior subordinated notes represent significant
components of our capital structure. Under our Senior Secured Credit Facility, we are required to maintain specified senior secured leverage ratios, which become more restrictive over time, and which
are determined based on our Adjusted EBITDA. If we fail to comply with the senior secured leverage ratio under our Senior Secured Credit Facility, we would be in default under the credit facility.
Upon the occurrence of an event of default under the Senior Secured Credit Facility, the lenders could elect to declare all amounts outstanding under the Senior Secured Credit Facility to be
immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the Senior Secured Credit Facility could proceed against
the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the Senior Secured Credit Facility. Any acceleration under the
Senior Secured Credit Facility would also result in a default under the Indentures governing the notes, which could lead to the noteholders electing to declare the principal, premium, if any, and
interest on the then outstanding notes immediately due and payable. In addition, under the Indentures governing the notes, our ability to engage in activities such as incurring additional
indebtedness, making investments, refinancing subordinated indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on
Adjusted EBITDA.

Adjusted
EBITDA is defined as net income (loss) plus interest expense, net, provision (benefit) for income taxes and depreciation and amortization, further adjusted for
non-cash items, non-recurring items and other adjustment items permitted in calculating covenant compliance under our Senior Secured Credit Facility and Indentures. We believe
that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants in our Senior Secured
Credit Facility and the Indentures. Adjusted EBITDA is a material component of these covenants.

52

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Adjusted
EBITDA should not be considered as an alternative to net income or other performance measures presented in accordance with GAAP, or as an alternative to cash flow from
operations as a measure of our liquidity. Adjusted EBITDA does not represent net loss or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash
flows will be sufficient to fund cash needs. In particular, the definition of Adjusted EBITDA in the Indentures and our Senior Secured Credit Facility allows us to add back certain
non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net loss. However, these are expenses that may recur, vary greatly and are difficult
to predict. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service
requirements, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

Our
ability to meet the covenants specified above will depend on future events, many of which are beyond our control, and we cannot assure you that we will meet those covenants. A breach
of any of these covenants in the future could result in a default under our Senior Secured Credit Facility and the Indentures, at which time the lenders could elect to declare all amounts outstanding
under our Senior Secured Credit Facility to be immediately due and payable. Any such acceleration would also result in a default under the Indentures.

The
following table provides a reconciliation from our net loss to Adjusted EBITDA for the three and twelve months ended September 27, 2008. The terms and related calculations are
defined in the credit agreement relating to our Senior Secured Credit Facility and the Indentures.

Three Months Ended
September 27, 2008

Twelve Months Ended
September 27, 2008(unaudited)(in thousands)Net loss

$
(14,429
)
$
(116,705
)Interest expense, net


41,737


171,932Income tax benefit


(10,829
)

(56,807
)Depreciation and amortization


25,397


93,178Non-cash items(a)


(22
)

15,427Non-recurring items(b)


9,046


64,836Other adjustment items, before cost savings(c)


3,706


27,244Other adjustment itemscost savings applicable for twelve month period only(d)


N/A


52,595Adjusted EBITDA

$
54,606

$
251,700


Three Months Ended
September 27, 2008

Twelve Months Ended
September 27, 2008(unaudited)(in thousands)Stock compensation expense

$
(22
)
$
1,211Purchase accounting adjustments(1)





14,216Total non-cash items

$
(22
)
$
15,427


---



53

---





Three Months Ended
September 27, 2008

Twelve Months Ended
September 27, 2008(unaudited)(in thousands)Employee severance and relocation(1)

$
2,602

$
24,510Integration expense(2)


6,444


27,329Reserve estimate change(3)





12,997Total non-recurring items

$
9,046

$
64,836


---



54

---





Three Months Ended
September 27, 2008

Twelve Months Ended
September 27, 2008(unaudited)(in thousands)Transaction expenses(1)

$
2,089

$
11,921Minority interest


298


930Pre-acquisition Adjusted EBITDA(2)





14,830Other(3)


1,319


(437
)Total other adjustment items, before cost savings

$
3,706

$
27,244


---



The
following is a summary of our covenant requirements and pro forma ratios as of September 27, 2008:

Covenant
Requirements

Actual RatiosSenior Secured Credit FacilityMaximum ratio of consolidated net senior debt to Adjusted EBITDA


5.10:1


4.03:110.875% Notes and 11.75% NotesMinimum ratio of Adjusted EBITDA to fixed charges required to incur additional debt pursuant to ratio provision


2.00:1


1.83:1


Critical Accounting Policies and Estimates

Our management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to reserves for contractual allowances, doubtful accounts, rebates, product returns and rental credits, goodwill and intangible assets, deferred tax assets and liabilities, and

55

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inventory.
We base our estimates on historical experience and on various other assumptions 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. To the extent that actual events differ from our estimates and assumptions, there could
be a material impact on our financial statements.

We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements and
this discussion and analysis of our financial condition and results of operations.

Reserves for Contractual Allowances, Doubtful Accounts, Rebates, Product Returns and Rental Credits

We have established reserves to account for contractual allowances, doubtful accounts, rebates, product returns and rental credits.
Significant management judgment must be used and estimates must be made in connection with establishing these reserves.

We
maintain provisions for estimated contractual allowances for reimbursement amounts from our third party payor customers based on negotiated contracts and historical experience for
non-contracted payors. We report these allowances as reductions in our gross revenue. We estimate the amount of the reduction based on historical experience and invoices generated in the
period, and we consider the impact of new contract terms or modifications of existing arrangements with our customers. We have contracts with certain third party payors for our third party
reimbursement billings, which call for specified reductions in reimbursement of billed amounts based
upon contractual reimbursement rates. For the first nine months of 2008, we reserved for and reduced gross revenues from third party payors by 32% for estimated allowances related to these contractual
reductions.

Our
reserve for doubtful accounts is based upon estimated losses from customers who are billed directly and the portion of third party reimbursement billings that ultimately become the
financial responsibility of the end user patients. Direct-billed customers represented approximately 73% of our net revenues for the nine months ended September 27, 2008 and approximately 66%
of our net accounts receivable at September 27, 2008. We experienced write-offs of less than 0.2% of related net revenues for the nine months ended September 27, 2008. Our
third party reimbursement customers including insurance companies, managed care companies and certain governmental payors, such as Medicare, include all of our OfficeCare customers, most of our Empi
customers, and certain other customers of our Domestic Rehabilitation Segment. Our third-party payor customers represented approximately 27% of our net revenues for the nine months ended
September 27, 2008 and approximately 34% of our net accounts receivable at September 27, 2008. For the nine months ended September 27, 2008, we estimate bad debt expense to be
approximately 5% of gross revenues from these third party reimbursement customers. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make
payments or if third-party payors were to deny claims for late filings, incomplete information or other reasons, additional provisions may be required. Additions to this reserve are reflected as
selling, general and administrative expense.

Our
reserve for rebates accounts for incentives that we offer to certain of our distributors. These rebates generally are attributable to sales volume, sales growth and to reimburse the
distributor for certain discounts. We record estimated reductions to revenue for customer rebate programs based upon historical experience and estimated revenue levels.

Our
reserve for product returns accounts for estimated customer returns of our products after purchase. These returns are mainly attributable to a third party payor's refusal to provide
reimbursement for the product or the inability of the product to adequately address the patient's condition. We provide for this reserve by reducing gross revenue based on our historical rate of
returns.

56

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Our
reserve for rental credit recognizes a timing difference between billing for a sale and processing a rental credit associated with some of our rehabilitation devices. Many insurance
providers require patients to rent our rehabilitation devices for a period of one to three months prior to purchase. If the patient has a long-term need for the device, these insurance
companies may authorize purchase of the device after such time period. When the device is purchased, most providers require that rental payments previously made on the device be credited toward the
purchase price. These credits are processed at the time the payment is received for the purchase of the device, which creates a time lag between billing for a sale and processing the rental credit.
Our rental credit reserve
estimates unprocessed rental credits based on the number of devices converted to purchase. The reserve is calculated by first assessing the number of our products being rented during the relevant
period and our historical conversion rate of rentals to sales, and then reducing our revenue by the applicable amount. We provide for these reserves by reducing our gross revenue. The cost to
refurbish rented products is expensed as incurred as part of cost of sales.

Inventory Reserves

We provide reserves for estimated excess and obsolete inventories equal to the difference between the costs of inventories on hand plus
future purchase commitments and the estimated market value based upon assumptions about future demand. If future demand is less favorable than currently projected by management, additional inventory
write-downs may be required. We also provide reserves for newer product inventories, as appropriate, based on any minimum purchase commitments and our level of sales of the new products.

We
consign a portion of our inventory to allow our products to be immediately dispensed to patients. This requires a large amount of inventory to be on hand for the products we sell
through consignment arrangements. It also increases the sensitivity of these products to obsolescence reserve estimates. As this inventory is not in our possession, we maintain additional reserves for
estimated shrinkage of these inventories based on the results of periodic inventory counts and historical trends.

Goodwill and Intangible Assets

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", we do not amortize goodwill. In lieu of amortization,
we are required to perform an annual review for impairment. Goodwill is considered to be impaired if we determine that the carrying value of the segment or reporting unit exceeds its fair value. At
September 29, 2007, our goodwill was evaluated for impairment and we determined that no impairment existed at that date. As a result of the DJO Merger, which occurred November 20, 2007,
we now expect to test goodwill and indefinite intangible assets during the fourth quarter of 2008.

At
September 29, 2007, other intangibles were evaluated for impairment as required by SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived
Assets". The determination of the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions. Determining the
fair values and useful lives of intangible assets requires the exercise of judgment. Upon initially recording certain of our other intangible assets, we used independent valuation firms to assist us
in determining the appropriate values for these assets. Subsequently, we have used the same methodology and updated our assumptions to test for impairment
whenever indicators of impairment are present. While there are a number of different generally accepted valuation methods to estimate the value of intangible assets acquired, we primarily used the
undiscounted cash flows expected to result from the use of these assets. This method requires significant management judgment to forecast the future operating results used in the analysis. In
addition, other significant estimates are required such as residual growth rate and discount factors. The estimates we have used are consistent with the plans and estimates that we use to manage our
business and are based on available historical information and industry averages.

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Deferred Tax Asset Valuation Allowance

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amount and the tax
bases of assets, liabilities and net operating loss carryforwards. We establish valuation allowances when the recovery of a deferred tax asset is not likely based on historical income, projected
future income, the expected timing of the reversals of temporary differences and the implementation of tax-planning strategies.

Our
gross deferred tax asset balance was approximately $166.9 million at September 27, 2008 and primarily related to reserves for accounts receivable and inventory, accrued
expenses, and net operating loss carryforwards (see Note 10 to our unaudited condensed consolidated financial statements). As of September 27, 2008, we maintained a valuation allowance
of $16.2 million due to uncertainties related to our ability to realize certain net operating loss carryforwards acquired in connection with recent acquisitions and the Prior Transaction.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks as part of our ongoing business operations, primarily risks from changing interest rates and
foreign currency exchange rates that could impact our financial condition, results of operations, and cash flows.

Interest Rate Risk

Our primary exposure is to changing interest rates. We have historically managed our interest rate risk by balancing the amounts of our
fixed and variable debt. For our fixed rate debt, interest rate changes may affect the market value of the debt, but do not impact our earnings or cash flow. Conversely, for our variable rate debt,
interest rate changes generally do not affect the fair market value of the debt, but do impact future earnings and cash flow, assuming other factors are held constant. We are exposed to interest rate
risk as a result of our borrowings under our Senior Secured Credit Facility, which bear interest at floating rates based on the LIBOR or the prime rate of Credit Suisse. As of September 27,
2008, we had $1,059.7 million of borrowings under our Senior Secured Credit Facility. On November 20, 2007, we entered into a new interest rate swap agreement related to the Senior
Secured Credit Facility for a notional amount of $515.0 million at a fixed LIBOR rate of 4.205% amortizing through an expiration date of 2009 (the notional amount was $490 million as of
September 27, 2008). A hypothetical 1% increase in variable interest rates for the remaining portion of the Senior Secured Credit Facility not covered by the swap would have impacted our
earnings and cash flow, for the three and nine months ended September 27, 2008, by approximately $1.4 million and $4.3 million, respectively. Our senior debt of approximately
$775.0 million consisted of fixed rate debt at September 27, 2008. We may use additional derivative financial instruments where appropriate to manage our interest rate risk. However, as
a matter of policy, we do not enter into derivative or other financial investments for trading or speculative purposes.

Foreign Currency Risk

Due to the global reach of our business, we are exposed to market risk from changes in foreign currency exchange rates, particularly
with respect to the U.S. dollar compared to the Euro and the Mexican Peso. Our wholly owned foreign subsidiaries are consolidated into our financial results and are subject to risks typical of an
international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange
volatility. To date, we have not used international currency derivatives to hedge against our investment in our European subsidiaries or their operating results, which are converted into U.S. Dollars
at period-end and average rates, respectively. However, as we continue to expand our business through acquisitions and organic growth, the sales of our products that are denominated in

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foreign
currencies has increased as well as the costs associated with our foreign subsidiaries which operate in currencies other than the U.S. dollar. Accordingly, our future results could be
materially impacted by changes in these or other factors. For the three and nine months ended September 27, 2008, our average monthly sales denominated in foreign currencies was approximately
$17.4 million and $56.3 million, respectively, of which $13.5 million and $44.7 million, respectively, was derived from Euro denominated sales. In addition, our exposure to
fluctuations in foreign currencies arises because certain
of our subsidiaries enter into purchase or sale transactions using a currency other than its functional currency. Our Mexico-based manufacturing operations incur costs that are largely denominated in
Mexican Pesos. Accordingly, our future results could be materially impacted by changes in foreign exchange rates or other factors. Occasionally, we seek to reduce the potential impact of currency
fluctuations on our business through hedging transactions. As of September 27, 2008, we had outstanding hedges in the form of forward contracts to purchase Mexican Pesos aggregating a U.S.
dollar equivalent of $16.4 million.

ITEM 4T.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as the term is defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

Any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Under the supervision and with
the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures.
Based on this evaluation and subject to the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the quarter covered by this report, the design and
operation of our disclosure controls and procedures provide reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.

Changes in Internal Control over Financial Reporting

There has been no change to our internal control over financial reporting (as that term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.

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Part II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

From time to time, we are plaintiffs or defendants in various litigation matters in the ordinary course of our business, some of which
involve claims for damages that are substantial in amount. We believe that the disposition of claims currently pending will not have a material adverse effect on our financial position or results of
operations.

The
manufacture and sale of orthopedic devices and related products exposes us to significant risks of product liability claims, lawsuits and product recalls. From time to time, we have
been, and we are currently, the subject of a number of product liability claims and lawsuits relating to our products. We face an inherent business risk of exposure to product liability claims in the
event that the use of our products is alleged to have resulted in adverse effects, including injuries or death. If there is a significant increase in the number or amount of product liability claims,
our business could be adversely affected. Even if we are successful in defending against any product liability claims, such claims could nevertheless distract our management, result in substantial
costs, harm our reputation, adversely affect the sales of all our products and otherwise harm our business.

We
are currently defendants in 25 product liability cases related to a disposable drug infusion pump product manufactured by a third party manufacturer that we distribute through our
Bracing and Supports division of our Domestic Rehabilitation segment. These cases have been brought against the manufacturers and certain distributors of these pumps, the manufacturers of the
anesthetics used in these pumps, and the healthcare professionals involved in providing the pumps to their patients. All of these lawsuits allege that the use of these pumps with certain anesthetics
in certain shoulder surgeries over prolonged periods have resulted in cartilage damage to the plaintiffs. We have tendered the defense of these cases both to the manufacturers who have supplied these
pumps to us and to our product liability carrier. One of the two manufacturers of the pumps supplied to us has accepted our tender of defense in several of the cases involving that manufacturer,
subject to certain reservation of rights, and we continue to press for indemnity and defense in the other cases and from the other manufacturer. Our product liability carrier has accepted coverage of
these cases, subject to customary reservations, and is providing the Company with the defense. The lawsuits allege damages ranging from unspecified amounts to claims between $1 million and
$10 million. These cases are in the early stages of discovery.

We
currently carry product liability insurance up to a limit of $25.0 million, subject to a deductible of $50,000 on non-invasive products and a deductible of $250,000
on invasive products and an aggregate deductible of $750,000 for all product liability claims. Our insurance policy is subject to annual renewal. We believe our current product liability insurance
coverage is adequate. As of September 27, 2008, we exceeded the coverage limits for certain historical product liability claims involving our Surgical Implant segment. The estimated exposure
for these claims has been accrued for in our condensed consolidated balance sheet as of that date. Future product liability claims that could be made against us could significantly exceed the coverage
limit of our policies or such insurance coverage may not continue to be available on commercially reasonable terms or at all. Additionally, we are also subject to the risk that our insurers will
exclude from coverage claims made against us or the risk that insurers may become insolvent. If we do not or cannot maintain adequate product liability insurance, our business and results of
operations may be adversely affected.

Pending Stockholder Litigation

In August 2007 and September 2007, two purported shareholder class action lawsuits were filed in California Superior Court, in the
County of San Diego, on behalf of DJO Opco's public stockholders, challenging DJO Opco's proposed merger with ReAble. The court ordered the two lawsuits consolidated for all purposes in September
2007.

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The
two original complaints named DJO Opco, ReAble and the current members of DJO Opco's board of directors as defendants. One of the original complaints also named Blackstone as a
defendant. The two substantially similar original complaints alleged, among other things, that the individual defendants breached their fiduciary duties of care, good faith and loyalty by approving
the proposed merger with an allegedly inadequate price, without adequately informing themselves of DJO Opco's highest transactional value, and without adequately marketing DJO Opco to other potential
buyers. The original complaints also alleged that the individual defendants and DJO Opco failed to make full and adequate disclosures in the preliminary proxy statement regarding the proposed merger.
The original complaints request, among other things, class certification, declaratory relief, an injunction of the proposed merger or a rescission order, corrective disclosures to the proxy statement,
damages, interest, attorneys' fees, expert fees and other costs; and such other relief as the court may find just and proper.

In
November 2007, the parties entered into a memorandum of understanding, pursuant to which the parties agreed to settle the consolidated action subject to court approval. In March 2008,
the parties entered into a settlement agreement which provided for dismissal of the consolidated action with prejudice upon approval of a stipulation by the court. Pursuant to the terms of the
settlement agreement, the defendants acknowledged that the consolidated action resulted in a decision to provide additional information to DJO Opco's shareholders in the definitive proxy statement
concerning the proposed merger and to modify certain terms in the merger agreement and to pay certain attorneys' fees, costs, and expenses incurred by the plaintiffs. As stated in the settlement
agreement, defendants denied all allegations of wrongdoing, fault, liability or damage to the plaintiffs and the putative class in the consolidated action and denied that they were engaged in any
wrongdoing or violation of law or breach of duty. Defendants also did not make any admission that the supplemental disclosures were material. On June 13, 2008, the court entered an order
granting final approval of the settlement after providing notice and opportunity to be heard to the members of the class. The order and settlement became final and not subject to appeal on
August 20, 2008.

ITEM 1A.    RISK FACTORS

For a discussion of the Company's potential risks or uncertainties, please see Part I, Item IA, of the Company's 2007
Annual Report on Form 10-K filed with the Commission on March 28, 2008. Except for the following risk factors, there have been no material changes to the risk factors
disclosed in such Form 10-K.

The current credit and financial market conditions may exacerbate certain risks affecting our business.

Sales of our products are largely dependent, directly or indirectly, on reimbursement from private insurers and government payors such
as Medicaid and Medicare. As a
result of the current credit and financial market conditions, some of the private insurers may be unable to satisfy their reimbursement obligations, may delay payment or may increase their scrutiny of
claims, any of which could negatively affect our product sales and revenue. We also sell capital equipment to dealers and other customers who may curtail their purchases or have difficulty meeting
payment obligations in the current credit environment.

In
addition, we rely on third parties for several important aspects of our business. Generally, we use third party vendors because they have special manufacturing capabilities or because
we believe it is appropriate based on certain factors, including in-house capacity, lead time control and cost control. Due to the recent tightening of global credit and the disruption in
the financial markets, there may be a disruption or delay in the performance of our third-party contractors, suppliers or collaborators. If such third parties are unable to satisfy their commitments
to us, our business would be adversely affected.

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Recent changes in coverage and reimbursement policies for our products by Medicare or reductions in reimbursement rates for our products could adversely affect our business
and results of operations.

The Medicare Modernization Act mandates a number of changes in the Medicare payment methodology and conditions for coverage of orthotic
devices and durable medical equipment, including many of our products. These changes include a temporary freeze in annual increases in payments for durable medical equipment from 2004 through 2008,
competitive bidding requirements, new clinical conditions for payment and quality standards. Although these changes affect our products generally, specific products may be affected by some but not all
of the Medicare Modernization Act's provisions.

Prefabricated
orthotic devices and certain durable medical equipment, including many of our products, may be subject to a competitive bidding process established under the Medicare
Modernization Act. In April 2007, CMS issued final regulations in connection with the competitive bidding program. Under competitive bidding, Medicare will no longer reimburse for certain products and
services based on the Medicare fee schedule amount in designated competitive bidding areas. Instead, CMS will provide reimbursement for these items and services based on a competitive bidding process.
Only those suppliers selected through competitive bidding process within each designated region will be eligible to have their products reimbursed by Medicare. Competitive bidding was scheduled to go
into effect July 1, 2008 initially in ten metropolitan statistical areas and will apply to ten product categories. In 2009, the program will be expanded to 70 additional metropolitan
statistical areas and to apply to eight product categories. The program is expected to be expanded to additional areas thereafter, and additional
product categories may be selected. On July 15, 2008, the U.S. Congress instituted an 18 month delay in the implementation of the program, postponing the first round of bidding until
2009 and the second round until 2011. When it is eventually implemented, the competitive bidding process may reduce the number of suppliers providing certain items and services to Medicare
beneficiaries and the amounts paid for such items and services within a given geographic area. None of our products were included in the initial round of items subject to bidding; however, there is no
assurance they will not be included in the future. Inclusion of any of our products in Medicare competitive bidding or other Medicare reimbursement or coverage reductions could result in such products
being sold in lesser quantities or for a lower price, or coverage for such products being discontinued altogether. Any of these developments could have a material adverse effect on our results of
operations. In addition, if we are not selected to participate in the competitive bidding program in a particular region, it could have a material adverse effect on our sales and profitability.

If we fail to comply with the FDA's Quality System Regulation, our manufacturing could be delayed, and our product sales and profitability could suffer.

Our manufacturing processes are required to comply with the FDA's Quality System Regulation, which covers the procedures concerning
(and documentation of) the design, testing, production processes, controls, quality assurance, labeling, packaging, storage and shipping of our devices. We also are subject to state requirements and
licenses applicable to manufacturers of medical devices. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for
periodic unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries. Moreover, if we fail to pass a Quality System Regulation
inspection or to comply with these and other applicable regulatory requirements, we may receive a warning letter or could otherwise be required to take corrective action and, in severe cases, suffer a
disruption of our operations and manufacturing delays. If we fail to take adequate corrective actions we could be subject to certain enforcement actions, including, among other things, significant
fines, suspension of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions. We cannot assure you that the FDA or other governmental authorities would agree with
our interpretation of applicable regulatory requirements or that we have in all

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instances
fully complied with all applicable requirements. Any failure to comply with applicable requirements could adversely affect our product sales and profitability.

We
have received FDA warning letters in the past. Our Surgical Implant business received a warning letter in January 2007 in which the FDA investigator concluded that we had failed to
establish and maintain adequate procedures for handling and investigating complaints, failed to establish and maintain procedures for changes to specifications and processes, including verification or
validation of such changes, and found that these failures caused certain products to be misbranded. In the warning letter, the FDA informed us that we would not receive premarket approval for
Class III devices to which these issues are reasonably related until the issues have been corrected. During 2007, we
submitted a response and met with FDA representatives, and instituted the necessary changes and improvements in our policies and procedures to correct these issues. During the first quarter of 2008,
the FDA concluded their follow-up investigation concerning the January 2007 warning letter. We received no observations and all areas of concern were addressed satisfactorily. Also, in the
first quarter of 2008, we received FDA Form 483 "Inspectional Observations" in connection with an FDA audit of the Chattanooga division of our Domestic Rehabilitation segment, stating that we
failed to report certain customer complaints claiming that our muscle stimulator devices malfunctioned, and that we did not adequately implement corrective and preventive action to prevent recurrence
of potential product failures relating to our muscle stimulator devices. The auditor also recommended that we recall a series of ultrasound devices that had experienced operating issues in 2005, and
we are implementing such a recall. We recently received a warning letter relating to reporting issues on the muscle stimulator device complaints and requesting software verification and validation
plans and reports regarding the correction of problems associated with the ultrasound product. We believe that we are in a position to address these areas of concern adequately. However, we cannot
assure you that the FDA will not take further action along these lines in the future.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.    OTHER INFORMATION



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ITEM 6.    EXHIBITS



3.1

Certificate of Formation of DJOFL and amendments thereto (incorporated by reference to Exhibit 3.1 to DJOFL's Annual Report on Form 10-K, filed on March 28, 2008).3.2

Limited Liability Company Agreement of DJOFL (incorporated by reference to Exhibit 3.2 to DJOFL's Registration Statement on Form S-4, filed April 18, 2008 (File No. 333-142188)).10.1+

Transition Agreement, dated August 14, 2008, and Separation of Employment Agreement and General Release, dated as of August 31, 2008, between DJO and Peter Baird.31.1+

Certification (pursuant to Securities Exchange Act Rule 13a-14a) by Chief Executive Officer.31.2+

Certification (pursuant to Securities Exchange Act Rule 13a-14a) by Chief Financial Officer.32.1+

Section 1350Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) by Chief Executive Officer.32.2+

Section 1350Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) by Chief Financial Officer.


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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.

DJO FINANCE LLCDate: November 7, 2008

By:

/s/ LESLIE H. CROSS Leslie H. Cross Chief Executive Officer(Authorized Signatory)Date: November 7, 2008

By:

/s/ VICKIE L. CAPPS Vickie L. Capps Executive Vice President, Chief Financial
Officer and Treasurer(Authorized Signatory)


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