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 June 28, 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 August 8, 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  Index to Condensed Consolidated Financial Statements

Page No.PART IFinancial InformationItem 1.

Unaudited Condensed Consolidated Balance Sheets as of June 28, 2008 and December 31, 2007

3Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 28, 2008 and June 30, 2007

4Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 2008 and June 30, 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

57Item 4T.

Controls and Procedures

59PART IIOther InformationItem 1.

Legal Proceedings

59Item 1A.

Risk Factors

61Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62Item 3.

Defaults Upon Senior Securities

62Item 4.

Submission of Matters to a Vote of Security Holders

62Item 5.

Other Information

62Item 6.

Exhibits

63SIGNATURES



64


2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

June 28,
2008

December 31,
2007AssetsCurrent assets:Cash and cash equivalents

$
43,513

$
63,471Accounts receivable, net


173,964


154,767Inventories, net


105,606


110,904Deferred tax assets, net


29,645


28,999Prepaid expenses and other current assets


16,278


17,319Total current assets


369,006


375,460Property and equipment, net


82,405


81,645Goodwill


1,205,829


1,201,282Intangible assets, net


1,325,652


1,360,361Other non-current assets


60,784


67,524Total assets

$
3,043,676

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

$
38,379

$
43,576Accrued interest


27,938


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


14,170


14,209Other current liabilities


92,390


93,636Total current liabilities


172,877


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


1,816,558


1,818,598Deferred tax liabilities, net


371,996


386,659Other non-current liabilities


17,842


13,260Total liabilities


2,379,273


2,380,069Minority interests


1,804


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


824,081


822,854Accumulated deficit


(169,016
)

(124,056
)Accumulated other comprehensive income


7,534


6,190Total membership equity


662,599


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

$
3,043,676

$
3,086,272


See
accompanying notes to unaudited condensed consolidated financial statements.

3

---





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

Three Months Ended

Six Months EndedJune 28,
2008

June 30,
2007

June 28,
2008

June 30,
2007Net sales

$
249,801

$
106,253

$
489,529

$
212,960Cost of sales


91,831


43,861


186,915


89,143Gross profit


157,970


62,392


302,614


123,817Operating expenses:Selling, general and administrative


116,537


51,282


227,149


102,256Research and development


7,230


4,106


13,906


7,741Amortization of acquired intangibles


19,140


6,671


38,256


13,178Operating income


15,063


333


23,303


642Other income (expense):Interest income


263


210


850


427Interest expense


(42,495
)

(14,051
)

(87,682
)

(28,072
)Other income (expense), net


323


(86
)

1,666


56Loss before income taxes and minority interests


(26,846
)

(13,594
)

(61,863
)

(26,947
)Benefit for income taxes


(6,343
)

(5,604
)

(17,398
)

(7,946
)Minority interests


295


87


495


165Net loss

$
(20,798
)
$
(8,077
)
$
(44,960
)
$
(19,166
)


See
accompanying notes to unaudited condensed consolidated financial statements.

4

---





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

Six Months EndedJune 28,
2008

June 30,
2007OPERATING ACTIVITIES:Net loss

$
(44,960
)
$
(19,166
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


11,192


6,179Amortization of intangibles


38,256


13,178Amortization of debt issuance costs


6,849


1,906Stock-based compensation


1,227


1,004Asset impairments and loss on disposal of assets


1,176


418Deferred income taxes


(19,766
)

(9,750
)Provision for doubtful accounts and sales returns


10,040


4,144Inventory reserves


2,727


649Minority interests


495


165Excess 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


(27,635
)

(10,886
)Inventories


3,235


4,273Prepaid expenses, other assets and liabilities


903


(7,436
)Accrued interest


17,807


(829
)Accounts payable and other current liabilities


(6,731
)

7,866Net cash used in operating activities


(5,185
)

(7,924
)INVESTING ACTIVITIES:Acquisition of businesses, net of cash acquired


(89
)

(7,678
)Acquisition of intangibles


(1,060
)

Purchases of property and equipment


(12,555
)

(7,145
)Proceeds from sale of assets





4,487Other, net


933


Net cash used in investing activities


(12,771
)

(10,336
)FINANCING ACTIVITIES:Proceeds from debt and revolving line of credit


7,000


12,500Payment of debt issuance costs





(370
)Payments on debt and revolving line of credit


(10,137
)

(1,863
)Excess tax benefit associated with stock option exercises





17Dividend paid to minority interests





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


(3,137
)

10,058Effect of exchange rate changes on cash and cash equivalents


1,135


166Net decrease in cash and cash equivalents


(19,958
)

(8,036
)Cash and cash equivalents at beginning of period


63,471


30,903Cash and cash equivalents at end of period

$
43,513

$
22,867Supplemental disclosures of cash flow information:Cash paid for interest

$
63,518

$
26,848Cash (received) paid for income taxes

$
2,365

$
(1,463
)


See accompanying notes to unaudited condensed consolidated financial statements.

5

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DJO Finance LLC and Subsidiaries  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 June 28, 2008 and for the three and six months ended June 28, 2008 and June 30, 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. These consolidated

6

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)

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 June 28, 2008 and for the three and six
months ended June 28, 2008 and June 30, 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 and Subsidiaries
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

Six Months EndedJune 28,
2008

June 30,
2007

June 28,
2008

June 30,
2007Net loss, as reported

$
(20,798
)
$
(8,077
)
$
(44,960
)
$
(19,166
)Foreign currency translation adjustments


(149
)

578


4,052


514Change in fair value of interest rate swap, net of tax


3,284


1,591


(2,708
)

533Comprehensive loss

$
(17,663
)
$
(5,908
)
$
(43,616
)
$
(18,119
)


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

As part of our growth strategy, we have completed three material business acquisitions since the
beginning of 2007. We believe that the acquisition of these businesses has allowed us to serve our patients and their professional caregivers more effectively. In addition, through the acquisition of
these businesses, we have achieved and expect to continue to achieve certain synergies that should reduce our combined manufacturing costs and selling and distribution costs, and enhance our product
offerings and research and development efforts.

8

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

2. ACQUISITIONS (Continued)

We
account for acquisitions in accordance with SFAS No. 141, "Business Combinations" ("SFAS 141"). The results of operations attributable to each acquisition are 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 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).

We
are currently integrating the operations of ReAble with those of DJO Opco. See Note 11 for further details.

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 and SFAS No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). The purchase prices and the allocation of the purchase prices in connection with the DJO Merger and IOMED acquisition remain preliminary as of June 28, 2008 and may be
subject to adjustments as we finalize our estimates of certain items, including severance amounts for employees terminated, certain acquired inventories and accounts receivable and accruals for
certain contingent liabilities that existed on the acquisition date. We expect to finalize estimates for the DJO Merger and IOMED acquisition

9

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

2. ACQUISITIONS (Continued)

by
the fourth and third quarters of 2008, respectively. We believe that the purchase price and allocation of the purchase price for the acquisition of Saunders is final as of June 28, 2008.

The
purchase prices for our recent acquisitions were allocated as follows to the fair values of the net tangible and intangible assets acquired, including the cumulative impact of
adjustments made to such allocations through June 28, 2008 (see Note 5):

DJO Opco

IOMED

Saunders

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

$
172,177

$
8,971

$
6,783Tangible non-current assets


67,519


853


273Liabilities assumed (see Note 11)


(684,379
)

(6,100
)

(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


678,416


8,676


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
$678.4 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 and Subsidiaries
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):

Six Months EndedJune 28,
2008

June 30,
2007Balance, beginning of period

$
30,954

$
513Provision for doubtful accounts and sales returns


10,040


4,144Write-offs, net of recoveries


(13,327
)

(855
)Balance, end of period

$
27,667

$
3,802


4. INVENTORIES

Inventories consist of the following (in thousands):

June 28,
2008

December 31,
2007Components and raw materials

$
33,694

$
35,534Work in process


6,892


6,626Finished goods


52,137


54,411Inventory held on consignment


21,801


22,159114,524


118,730Lessinventory reserves


(8,918
)

(7,826
)$
105,606

$
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):

Six Months EndedJune 28,
2008

June 30,
2007Balance, beginning of period

$
7,826

$
918Provision charged to cost of sales


2,727


649Recoveries (write-offs) charged to reserve


(1,635
)

(374
)Balance, end of period

$
8,918

$
1,193


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

11

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

5. GOODWILL AND INTANGIBLE ASSETS

A summary of adjustments to our goodwill balance for the six months ended June 28, 2008 is as follows (in thousands):

Balance, beginning of period

$
1,201,282Foreign currency translation adjustments


5,340Adjustments to purchase price allocation of acquired businesses


(793
)Balance, end of period

$
1,205,829


For
the six months ended June 28, 2008, goodwill related to the DJO Opco acquisition was reduced by $688,000 to reflect changes in our preliminary estimates of the acquired
property and equipment and assumed liabilities (see Note 11). In addition, goodwill related to Blackstone's 2006 acquisition of ReAble (the "Prior Transaction") was reduced by $32,000 to
reflect an adjustment to deferred taxes as of the acquisition date and goodwill related to our 2006 acquisition of Cefar AB was reduced by $73,000 in connection with the settlement of a contingent
payment.

Identifiable
intangible assets consisted of the following as of June 28, 2008 (in thousands):

Gross Carrying
Amount

Accumulated
Amortization

Intangibles,
NetAmortizable intangible assets:Technology-based

$
458,187

$
(37,469
)
$
420,718Customer-based


478,278


(38,318
)

439,960$
936,465

$
(75,787
)
$
860,678Indefinite-lived intangible assets:Trademarks








457,686Accumulated foreign currency translation adjustments








7,288Total identifiable intangible assets







$
1,325,652


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


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

12

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

5. GOODWILL AND INTANGIBLE ASSETS (Continued)

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

Remaining 2008

$
38,1152009


75,9632010


75,0242011


73,6572012


72,454Thereafter


525,465$
860,678


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

June 28, 2008:

Goodwill

Intangible
Assets, netDomestic Rehabilitation Segment

$
960,662

$
1,069,102International Rehabilitation Segment


197,761


228,253Surgical Implant Segment


47,406


28,297Total

$
1,205,829

$
1,325,652




December 31, 2007:

Goodwill

Intangibles,
netDomestic Rehabilitation Segment

$
961,382

$
1,104,093International Rehabilitation Segment


192,494


226,842Surgical Implant Segment


47,406


29,426Total

$
1,201,282

$
1,360,361


6. OTHER CURRENT LIABILITIES

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

June 28,
2008

December 31,
2007Wages and related expenses

$
28,404

$
31,232Commissions and royalties


13,199


13,114Taxes


5,334


6,119Restructuring costs (see Note 11)


3,549


9,563Professional fees


3,106


6,693Other accrued liabilities


38,798


26,915$
92,390

$
93,636


13

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

7. LONG-TERM DEBT AND CAPITAL LEASES

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

June 28, 2008

December 31, 2007Term loan under Senior Secured Credit Facility, net of unamortized original issue discount ($11.7 million and $12.5 million at June 28, 2008 and
December 31, 2007, respectively)

$
1,050,606

$
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


4,210


4,239Capital lease obligations and other


912


1,0541,830,728


1,832,807Less current portion


(14,170
)

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

$
1,816,558

$
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 June 28, 2008, no amounts
were drawn related to our revolving credit facility; however, $0.9 million was used to secure outstanding letters of credit.

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 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). As of June 28, 2008, our weighted average interest rate for all borrowings under the Senior Secured Credit
Facility was 5.70%.

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 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.

14

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

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").

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:



15

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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



In
addition, the Senior Secured Credit Facility requires us to maintain a declining maximum senior secured leverage ratio, starting at 5.1:1 as of the twelve months ended June 28,
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 initial covenant level as of June 28, 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 indenture 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 (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 equal to the principal amount of $575.0 million as of June 28, 2008 and was determined using trading prices for the notes on or
near that date.

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

16

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

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 June 28, 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 $185.5 million as of June 28, 2008 and was determined using trading prices for the 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%
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 notes. The redemption price decreases to 102.938% and 100.000% 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.

17

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

Cefar Indebtedness

Our Cefar-Compex division has certain debt outstanding under revolving credit facilities and term loans to various European banks. At
June 28, 2008, the balances outstanding were $2.4 million for the revolving credit facilities and $1.8 million for the term loans.

Debt Issue Costs

We incurred $30.7 million, $24.1 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 June 28, 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 acquisition of ReAble by Blackstone on November 3, 2006 (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.

Employee Stock Options

During the six months ended June 28, 2008 we have granted 4,417,114 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 five years) from the date of grant upon
the achievement of certain pre-determined performance targets based on Adjusted EBITDA and free cash flow over time ("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

18

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

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 six months ended June 28, 2008 as a result of the modification.

Options
under the 2007 Plan become exercisable with respect to 25% of the Time-Based Tranche on December 31, 2008, 20% of the Time-Based Tranche on
December 31, 2009, 18.33% of the Time-Based Tranche on each December 31, 2010 and 2011, and 18.34% on December 31, 2012 if such optionee remains employed with us or
any of our subsidiaries or affiliates as of each such date. As previously discussed, each of the Performance-Based and Enhanced Performance-Based Tranches contain Adjusted EBITDA and free cash flow
targets, with the Enhanced
Performance-Based Tranche requiring greater performance than the Performance-Based Tranche. The optionee may earn the right to exercise the option to purchase up to 25% of the Performance-Based or
both the Performance-Based and Enhanced Performance-Based Tranches on December 31, 2008 if the applicable performance targets are achieved, up to 20% of the Performance-Based or both the
Performance-Based and Enhanced Performance-Based Tranches on December 31, 2009 if the applicable performance targets are achieved, up to 18.33% of the Performance-Based or both the Performance-
Based and Enhanced Performance-Based Tranches on each December 31, 2010 and 2011, and up to 18.34% of the Performance-Based or both the Performance-Based and Enhanced Performance-Based Tranches
on December 31, 2012, if the applicable performance targets are achieved as of such dates, and provided that the optionee remains employed with us or any of our subsidiaries or affiliates as of
each such date.

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
recorded non-cash compensation expense of approximately $0.6 million and $1.2 million in the three and six months ended June 28, 2008, respectively,
associated with stock options issued under the 2007 Incentive Stock Plan. We recorded non-cash compensation expense of $0.6 million and $1.0 million in the three and six
months ended June 30, 2007, respectively, associated with stock options issued under the 2006 Stock Incentive Plan. We record compensation expense for awards with a

19

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

performance
condition only to the extent deemed probable of achievement, with the exception of market-based options originally issued under the 2006 Plan which were modified during the first quarter
of 2008 and reallocated to the Time-Based, Performance-Based and Enhanced Performance-Based Tranches. The expense related to the modified stock options is recognized ratably over the
expected term of the stock options using the original grant date fair value regardless of the probability of achieving the performance conditions. We are required to reassess at each reporting period
whether achievement of any performance condition is probable, at which time we would recognize the related compensation expense over the remaining performance or service period, if any. 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.

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 six months ended June 28, 2008 and June 30, 2007:

Six Months EndedJune 28,
2008

June 30,
2007Expected dividends


0.0%


0.0%Expected volatility


27.4% - 60.0%


56.0% - 60.0%Risk-free rate


3.22% - 4.7%


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 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
nonemployee option agreement does not include any performance requirements on the optionee's part in order to vest in the options granted.

20

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

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 remeasured 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 six months ended June 28, 2008:

Six Months EndedJune 28,
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 $15,000 in each of the three and six month periods ended June 28, 2008, respectively, associated with
non-employee stock options issued under the 2007 Incentive Stock Plan.

Summary of Activity for Employee & Non-Employee Stock Options

A summary of option activity under the 2007 Plan for the six months ended June 28, 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


4,454,914

$
16.46Exercised





Forfeited, including options cancelled


(1,084,386
)
$
16.46Outstanding at June 28, 2008


6,921,155

$
14.67


8.81

$
12,458,820Exercisable at June 28, 2008


2,481,351

$
11.46


7.43

$
12,458,820


For
the three and six months ended June 28, 2008 and June 30, 2007, the weighted-average grant-date fair value of stock options granted was $5.06, $5.37, $9.38
and $9.36, respectively.

21

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

Total
unrecognized stock-based compensation expense, related to nonvested stock options under the 2007 Plan, net of expected forfeitures, was $15.7 million as of June 28,
2008. We anticipate this expense to be recognized over a weighted-average period of approximately 4.5 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 awards to an executive officer pursuant to the terms of a
restricted stock agreement under the 2006 Plan. The shares are 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 will all vest
on January 1, 2009. In connection with the termination of the employment of this executive officer (Refer to Note 12), we expect all of the unvested shares of these restricted stock
awards to be cancelled.

9. SEGMENT AND GEOGRAPHIC INFORMATION

Prior to the fourth quarter of 2007, we operated and accounted for our results as two reportable segments: the Orthopedic Rehabilitation Segment and the Surgical Implant Segment. In the
fourth quarter of 2007, in connection with the DJO Merger, which resulted in significant changes in our executive team, including a new Chief Executive Officer, who has been identified as the Chief
Operating Decision Maker pursuant to SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", we effected an operational reorganization, which resulted in the
creation of the three operating segments further described below.

Domestic Rehabilitation Segment

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



22

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DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

9. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

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 and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

9. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

corporate
expenses. Information for the three and six months ended June 30, 2007 has been restated to reflect our current reportable segments.

Three Months Ended

Six Months EndedJune 28,
2008

June 30,
2007

June 28,
2008

June 30,
2007Net sales:Domestic Rehabilitation Segment

$
173,384

$
68,087

$
340,282

$
138,656International Rehabilitation Segment


63,823


25,997


121,694


49,789Surgical Implant Segment


18,737


16,644


37,900


33,445Intersegment revenues


(6,143
)

(4,475
)

(10,347
)

(8,930
)Consolidated net sales

$
249,801

$
106,253

$
489,529

$
212,960Gross profit:Domestic Rehabilitation Segment

$
104,854

$
38,893

$
201,611

$
78,470International Rehabilitation Segment


39,611


14,114


72,729


24,559Surgical Implant Segment


13,714


11,502


28,484


23,111Expenses not allocated to segments/Eliminations


(209
)

(2,117
)

(210
)

(2,323
)Consolidated gross profit

$
157,970

$
62,392

$
302,614

$
123,817Operating income:Domestic Rehabilitation Segment

$
18,049

$
3,305

$
29,691

$
9,073International Rehabilitation Segment


9,394


1,487


15,795


715Surgical Implant Segment


1,621


1,423


3,985


2,066Expenses not allocated to segments/Eliminations


(14,001
)

(5,882
)

(26,168
)

(11,212
)Consolidated operating income

$
15,063

$
333

$
23,303

$
642


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 and Subsidiaries
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

Six Months EndedJune 28,
2008

June 30,
2007

June 28,
2008

June 30,
2007Net sales:United States

$
178,474

$
75,464

$
352,247

$
153,277Germany


22,129


9,574


42,369


19,368Other Europe, Middle East, & Africa


38,058


17,118


73,510


32,362Asia Pacific


3,418


1,810


6,518


3,324Other


7,722


2,287


14,885


4,629$
249,801

$
106,253

$
489,529

$
212,960


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

June 28,
2008

December 31,
2007United States

$
134,242

$
2,592,799International


2,540,428


118,013$
2,674,670

$
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 six months ended June 28, 2008, we recorded income tax benefits of approximately $6.3 million and $17.4 million, respectively, on
pre-tax losses of approximately $26.8 million and $61.9 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 six months ended June 30, 2007, we recorded income tax benefits of approximately $5.6 million and
$7.9 million, respectively, on pre-tax losses of approximately $13.6 million and $26.9 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 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

25

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

10. INCOME TAXES (Continued)

transition.
Our gross unrecognized tax benefit has not materially changed from the $16.2 million recorded as of December 31, 2007.

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 June 28, 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 June 28, 2008, approximately $2.7 million was accrued related to severance and facility exit costs not yet paid. Additionally, approximately
$0.8 million has been accrued as of June 28, 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 and Subsidiaries
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 six months ended June 28, 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





2,184





2,184Adjustments to goodwill


46


(766
)

(458
)

(1,178
)Payments made during period


(403
)

(5,744
)

(745
)

(6,892
)Adjustments to estimated costs





(65
)

(123
)

(188
)Foreign currency translation


37


23





60Balance, June 28, 2008

$
1,029

$
1,719

$
801

$
3,549


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 prior to the date of acquisition. 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. We are waiting on
written notice of the final judgment. In the event the final ruling is in our favor, we will reverse the amount accrued and record it as a reduction to goodwill. We expect to receive final judgment
before the end of the fiscal year.

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 pray for, 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 ("MOU"), pursuant to which the parties agreed to settle the consolidated action subject to court approval. The
MOU provided for dismissal of the consolidated action with prejudice upon approval of a stipulation by the court. Pursuant to the terms of the MOU, the defendants acknowledged that the consolidated
action

27

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

12. COMMITMENTS AND CONTINGENCIES (Continued)

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 MOU, defendants deny all allegations of wrongdoing, fault, liability or damage to the plaintiffs
and the putative class in the consolidated action and deny that they are engaged in any wrongdoing or violation of law or breach of duty. Defendants also do not make any admission that the
supplemental disclosures are material. The parties signed a settlement agreement containing these terms and requested court approval. 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 court's order will be final if not appealed within 60 days after entry of the
order.

Due
to the nature of our business, we are subject to a variety of audits by government agencies and other private interests, including audits by the U.S. Food and Drug Administration
(the "FDA") of our compliance with federal requirements for our facilities and related quality and manufacturing processes. In the first quarter of 2008 we received an FDA Form 483
"Inspectional Observations" in connection with an audit of our 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. During the second
quarter, we received a warning letter relating to the 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.

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 14 product liability cases related to a 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. 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.

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

28

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

12. COMMITMENTS AND CONTINGENCIES (Continued)

significant
costs to us. As of June 28, 2008 and December 31, 2007, we have accrued approximately $2.2 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.

In
May 2008, we announced that an executive officer tendered his resignation and as of June 28, 2008 he is no longer providing services to the Company. We expect to enter into a
separation agreement with this executive officer in excess of the amounts due under his original employment agreement. Under the pending separation agreement we estimate that we would pay
approximately $2.1 million plus any excise taxes in settlement of all potential obligations and a release of claims. As such, we have accrued an estimated $2.8 million, consisting of the
$2.1 million separation payment and $0.7 million for other related costs, within other current liabilities in the condensed consolidated balance sheet as of June 28, 2008.

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 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 six months ended June 28, 2008 and June 30, 2007, we expensed $3.5 million and $1.5 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,

29

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

14. DERIVATIVE INSTRUMENTS (Continued)

the
duration of the hedge, and the availability, effectiveness and cost of derivative instruments. As of June 28, 2008, we had outstanding hedges in the form of forward contracts to purchase
Mexican Pesos aggregating a U.S. dollar equivalent of $11.7 million. For the three and six months ended June 28, 2008, we recognized a gain on future forward Mexico peso contracts for
the remainder of 2008 of approximately $371,000 and $751,000, 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 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 $500.0 million as of June 28, 2008).

The
fair value of our interest rate swap agreement recorded in the accompanying unaudiated condensed consolidated balance sheets as of June 28, 2008 and December 31, 2007
was a loss of approximately $8.4 million and $3.9 million, respectively, and is recorded in other non-current liabilities. We believe our interest rate swap is highly
effective. Derivative net losses on our interest rate swap agreement of $1.9 million and $1.1 million, on a pre-tax basis, were included in interest expense in the three and
six months ended June 28, 2008, respectively. Derivative net gains on our interest rate swap agreement of $180,000 and $130,000, on a pre-tax basis, were included in interest
expense in the three and six months ended June 30, 2007, respectively. Derivative gains and losses are reported as accumulated other comprehensive income, net of tax, until such time as they
are reported in income along with the hedged item.

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 June 28, 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.

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

30

---



DJO Finance LLC and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

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
June 28, 2008 and December 31, 2007 and for the three and six months ended June 28, 2008 and June 30, 2007, respectively.

31

---





DJO Finance LLC and Subsidiaries  Unaudited Condensed Consolidating Balance Sheets  As of June 28, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$


$
26,698

$
16,815

$


$
43,513Accounts receivable, net





129,543


44,421





173,964Inventories, net





90,613


22,276


(7,283
)

105,606Deferred tax assets, net





29,791





(146
)

29,645Prepaid expenses and other current assets





14,147


2,131





16,278Total current assets





290,792


85,643


(7,429
)

369,006Property and equipment, net





70,706


13,267


(1,568
)

82,405Goodwill





1,123,876


81,953





1,205,829Intangible assets, net





1,288,071


37,581





1,325,652Investment in subsidiaries


1,157,018


160,582


56,800


(1,374,400
)

Intercompany receivable


1,311,946





5,985


(1,317,931
)

Other non-current assets


55,493


3,850


1,441





60,784Total assets

$
2,524,457

$
2,937,877

$
282,670

$
(2,701,328
)
$
3,043,676Liabilities, Minority Interests and Membership EquityCurrent liabilities:Accounts payable

$


$
29,203

$
9,176

$


$
38,379Long-term debt and capital leases, current portion


10,650


719


2,801





14,170Other current liabilities


27,893


62,644


29,791





120,328Total current liabilities


38,543


92,566


41,768





172,877Long-term debt and capital leases, net of current portion


1,814,955


179


1,424





1,816,558Deferred tax liabilities, net





361,649


10,347





371,996Intercompany payable





1,228,105


91,521


(1,319,626
)

Other non-current liabilities


8,360


9,482








17,842Total liabilities


1,861,858


1,691,981


145,060


(1,319,626
)

2,379,273Minority interests








1,804





1,804Membership equity


662,599


1,245,896


135,806


(1,381,702
)

662,599Total liabilities, minority interests and membership equity

$
2,524,457

$
2,937,877

$
282,670

$
(2,701,328
)
$
3,043,676


32

---





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 and Subsidiaries  Unaudited Condensed Consolidating Statements of Operations  For the Three Months Ended June 28, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
203,137

$
70,451

$
(23,787
)
$
249,801Cost of sales





76,712


38,948


(23,829
)

91,831Gross profit





126,425


31,503


42


157,970Operating expenses:Selling, general and administrative





91,617


24,924


(4
)

116,537Research and development





6,528


702





7,230Amortization of acquired intangibles





18,589


551





19,140Operating income





9,691


5,326


46


15,063Other income (expense):Interest income


10,572


966


195


(11,470
)

263Interest expense


(42,345
)

(10,607
)

(1,013
)

11,470


(42,495
)Other income (expense), net


10,977


500


(177
)

(10,977
)

323Income (loss) before income taxes and minority interests


(20,796
)

550


4,331


(10,931
)

(26,846
)Provision (benefit) for income taxes





(7,245
)

902





(6,343
)Minority interests








295





295Net income (loss)

$
(20,796
)
$
7,795

$
3,134

$
(10,931
)
$
(20,798
)


34

---





DJO Finance LLC and Subsidiaries  Unaudited Condensed Consolidating Statements of Operations  For the Six Months Ended June 28, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
399,900

$
133,718

$
(44,089
)
$
489,529Cost of sales





156,090


75,005


(44,180
)

186,915Gross profit





243,810


58,713


91


302,614Operating expenses:Selling, general and administrative





180,511


46,644


(6
)

227,149Research and development





12,485


1,421





13,906Amortization of acquired intangibles





37,179


1,077





38,256Operating income





13,635


9,571


97


23,303Other income (expense):Interest income


26,321


2,408


347


(28,226
)

850Interest expense


(87,305
)

(26,530
)

(2,073
)

28,226


(87,682
)Other income (expense), net


16,026


876


790


(16,026
)

1,666Income (loss) before income taxes and minority interests


(44,958
)

(9,611
)

8,635


(15,929
)

(61,863
)Provision (benefit) for income taxes





(19,402
)

2,004





(17,398
)Minority interests








495





495Net income (loss)

$
(44,958
)
$
9,791

$
6,136

$
(15,929
)
$
(44,960
)


35

---





DJO Finance LLC and Subsidiaries  Unaudited Condensed Consolidating Statements of Operations  For the Three Months Ended June 30, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
82,685

$
24,596

$
(1,028
)
$
106,253Cost of sales





34,937


10,020


(1,096
)

43,861Gross profit





47,748


14,576


68


62,392Operating expenses:Selling, general and administrative





40,455


10,827





51,282Research and development





3,003


1,103





4,106Amortization of acquired intangibles





5,956


715





6,671Operating income





(1,666
)

1,931


68


333Other income (expense):Interest income


3,915


2,007


71


(5,783
)

210Interest expense


(13,988
)

(4,154
)

(1,692
)

5,783


(14,051
)Other income (expense), net


1,996


(63
)

(26
)

(1,993
)

(86
)Income (loss) before income taxes and minority interests


(8,077
)

(3,876
)

284


(1,925
)

(13,594
)Provision (benefit) for income taxes





(5,828
)

224





(5,604
)Minority interests








87





87Net income (loss)

$
(8,077
)
$
1,952

$
(27
)
$
(1,925
)
$
(8,077
)


36

---





DJO Finance LLC and Subsidiaries  Unaudited Condensed Consolidating Statements of Operations  For the Six Months Ended June 30, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedNet sales

$


$
167,676

$
47,610

$
(2,326
)
$
212,960Cost of sales





68,853


22,654


(2,364
)

89,143Gross profit





98,823


24,956


38


123,817Operating expenses:Selling, general and administrative





81,728


20,528





102,256Research and development





5,758


1,983





7,741Amortization of acquired intangibles





11,818


1,360





13,178Operating income (loss)





(481
)

1,085


38


642Other income (expense):Interest income


7,874


2,744


134


(10,325
)

427Interest expense


(27,930
)

(8,352
)

(2,115
)

10,325


(28,072
)Other income (expense), net


890


(2
)

58


(890
)

56Loss before income taxes and minority interest


(19,166
)

(6,091
)

(838
)

(852
)

(26,947
)Provision (benefit) for income taxes





(8,475
)

529





(7,946
)Minority interests








165





165Net income (loss)

$
(19,166
)
$
2,384

$
(1,532
)
$
(852
)
$
(19,166
)


37

---





DJO Finance LLC and Subsidiaries  Unaudited Condensed Consolidating Statements of Cash Flows  For the Six Months Ended June 28, 2008  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedOPERATING ACTIVITIES:Net income (loss)

$
(44,958
)
$
9,792

$
6,135

$
(15,929
)
$
(44,960
)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation





9,010


2,552


(370
)

11,192Amortization of intangibles





37,179


1,077





38,256Amortization of debt issuance costs


6,849











6,849Stock-based compensation





1,227








1,227Asset impairments and loss on disposal of assets





977


247


(48
)

1,176Deferred income taxes





(19,551
)

(215
)




(19,766
)Non-cash income from subsidiaries


(16,026
)







16,026


Provision for doubtful accounts and sales returns





9,697


343





10,040Inventory reserves





2,481


246





2,727Minority interests








495





495Changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable





(18,242
)

(9,393
)




(27,635
)Inventories





2,583


599


53


3,235Prepaid expenses, other assets and liabilities


9


(1,106
)

2,000





903Accounts payable and other current liabilities


17,720


(8,532
)

1,888





11,076Net cash (used in) provided by operating activities


(36,406
)

25,515


5,974


(268
)

(5,185
)INVESTING ACTIVITIES:Acquisition of intangible assets





(1,060
)







(1,060
)Acquisition of businesses, net cash acquired





(89
)







(89
)Purchases of property and equipment





(10,256
)

(2,567
)

268


(12,555
)Other, net





933








933Net cash (used in) provided by investing activities





(10,472
)

(2,567
)

268


(12,771
)FINANCING ACTIVITIES:Intercompany


38,550


(32,899
)

(5,651
)




Proceeds from debt and revolving line of credit


7,000











7,000Payments on debt and revolving line of credit


(9,663
)

(140
)

(334
)




(10,137
)Net cash provided by (used in) financing activities


35,887


(33,039
)

(5,985
)




(3,137
)Effect of exchange rate changes on cash and cash equivalents








1,135





1,135Net (decrease) increase in cash and cash equivalents


(519
)

(17,996
)

(1,443
)




(19,958
)Cash and cash equivalents at beginning of period


519


44,694


18,258





63,471Cash and cash equivalents at end of period

$


$
26,698

$
16,815

$


$
43,513


38

---





DJO Finance LLC and Subsidiaries  Unaudited Condensed Consolidating Statements of Cash Flows  For the Six Months Ended June 30, 2007  (in thousands)

DJOFL

Guarantors

Non-
Guarantors

Eliminations

ConsolidatedOPERATING ACTIVITIES:Net income (loss)

$
(19,166
)
$
2,384

$
(1,532
)
$
(852
)
$
(19,166
)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation





4,813


1,742


(376
)

6,179Amortization of intangibles





11,818


1,360





13,178Amortization of debt issuance costs


1,906











1,906Stock-based compensation





1,004








1,004Asset impairments and loss on disposal of assets





113


353


(48
)

418Deferred income taxes





(8,801
)

(949
)




(9,750
)Non-cash income from subsidiaries


(890
)







890


Provision for doubtful accounts and sales returns





3,902


242





4,144Inventory reserves





602


47





649Minority interests








165





165Excess 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





(9,656
)

(1,230
)




(10,886
)Inventories





3,227


908


138


4,273Prepaid expenses, other assets and liabilities


(395
)

(6,162
)

(879
)




(7,436
)Accounts payable and other current liabilities


(319
)

7,245


111





7,037Net cash provided by (used in) operating activities


(18,864
)

10,850


338


(248
)

(7,924
)INVESTING ACTIVITIES:Acquisition of businesses, net of cash acquired





(7,246
)

(432
)




(7,678
)Proceeds from sale of assets





4,480


7





4,487Purchases of property and equipment





(5,942
)

(1,451
)

248


(7,145
)Net cash used in investing activities





(8,708
)

(1,876
)

248


(10,336
)FINANCING ACTIVITIES:Intercompany


8,499


(10,597
)

2,098





Payments on long-term obligations


(1,750
)

(240
)

127





(1,863
)Proceeds on long-term obligations


12,500











12,500Payment of debt issuance costs


(370
)










(370
)Excess tax benefit associated with stock option exercises





17








17Dividend paid to minority interests








(226
)




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


18,879


(10,820
)

1,999





10,058Effect of exchange rate changes on cash and cash equivalents








166





166Net increase (decrease) in cash and cash equivalents


15


(8,678
)

627





(8,036
)Cash and cash equivalents at beginning of period


12


22,650


8,241





30,903Cash and cash equivalents at end of period

$
27

$
13,972

$
8,868

$


$
22,867


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. 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 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 divisions described below.



40

---





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 six months ended June 28, 2008 and June 30, 2007,
respectively. This information excludes the impact of certain expenses not allocated to segments, which 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

41

---



unaudited
condensed consolidated financial statements. All prior periods presented have been restated to reflect our current reportable segments.

Three Months Ended

Six Months Ended($ in thousands)

June 28,
2008

June 30,
2007

June 28,
2008

June 30,
2007Domestic Rehabilitation:Net sales

$
173,384

$
68,087

$
340,282

$
138,656Gross profit

$
104,854

$
38,893

$
201,611

$
78,470Gross profit margin


60.5
%

57.1
%

59.2
%

56.6
%Operating income

$
18,049

$
3,305

$
29,691

$
9,073Operating income as a percent of net segment sales


10.4
%

4.9
%

8.7
%

6.5
%International Rehabilitation:Net sales

$
63,823

$
25,997

$
121,694

$
49,789Gross profit

$
39,611

$
14,114

$
72,729

$
24,556Gross profit margin


62.1
%

54.3
%

59.8
%

49.3
%Operating income

$
9,394

$
1,487

$
15,795

$
715Operating income as a percent of net segment sales


14.7
%

5.7
%

13.0
%

1.5
%Surgical Implant:Net sales

$
18,737

$
16,644

$
37,900

$
33,445Gross profit

$
13,714

$
11,502

$
28,484

$
23,113Gross profit margin


73.2
%

69.1
%

75.2
%

69.1
%Operating income

$
1,621

$
1,423

$
3,984

$
2,066Operating income as a percent of net segment sales


8.7
%

8.5
%

10.5
%

6.2
%


Recent Acquisitions

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

42

---



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

Six Months EndedJune 28, 2008

June 30, 2007

June 28, 2008

June 30, 2007Net sales

$
249,801


100.0
%
$
106,253


100.0
%
$
489,529


100.0
%
$
212,960


100.0
%Cost of sales


91,831


36.8


43,861


41.3


186,915


38.2


89,143


41.9Gross profit


157,970


63.2


62,392


58.7


302,614


61.8


123,817


58.1Operating expenses:Selling, general and administrative


116,537


46.7


51,282


48.3


227,149


46.4


102,256


48.0Research and development


7,230


2.9


4,106


3.9


13,906


2.8


7,741


3.6Amortization of acquired intangibles


19,140


7.7


6,671


6.3


38,256


7.8


13,178


6.2Operating income


15,063


6.0


333


0.3


23,303


4.8


642


0.3Other income (expense):Interest income


263


0.1


210


0.2


850


0.2


427


0.2Interest expense


(42,495
)

(17.0
)

(14,051
)

(13.2
)

(87,682
)

(17.9
)

(28,072
)

(13.2
)Other income (expense), net


323


0.1


(86
)

(0.1
)

1,666


0.3


56


0.0Loss before income taxes and minority interests


(26,846
)

(10.8
)

(13,594
)

(12.8
)

(61,863
)

(12.6
)

(26,947
)

(12.7
)Benefit for income taxes


(6,343
)

(2.5
)

(5,604
)

(5.3
)

(17,398
)

(3.6
)

(7,946
)

(3.7
)Minority interests


295


0.1


87


0.1


495


0.1


165


0.1Net loss

$
(20,798
)

(8.3
)%
$
(8,077
)

(7.6
)%
$
(44,960
)

(9.2
)%
$
(19,166
)

(9.0
)%


Three Months Ended June 28, 2008 compared to Three Months Ended June 30, 2007

Net Sales.Our net sales for the three months ended June 28, 2008 were $249.8 million, representing an increase of 135.1% from net sales of
$106.3 million for the three months ended June 30, 2007. The increase was primarily driven by business acquisitions, including the DJO Merger (November 2007) and the IOMED (August 2007)
and Saunders (July 2007) acquisitions and continued growth across our product lines. Revenues associated with business acquisitions were approximately $130.8 million for three months ended
June 28, 2008. For the three months ended June 28, 2008, we generated 25.5% of our net sales from customers outside the United States as compared to 24.5% for the three months ended
June 30, 2007. Net sales were also positively impacted for the three months ended June 28, 2008 by $7.6 million due to favorable changes in foreign exchange rates compared to
rates in effect for the three months ended June 30, 2007.

43

---



The
following table sets forth the mix of our net sales for the three months ended June 28, 2008 compared to the three months ended June 30, 2007:

Three Months Ended($ in thousands)

June 28,
2008

% of Net
Revenues

June 30,
2007

% of Net
Revenues

Increase

% IncreaseDomestic Rehabilitation Segment

$
173,384


69.4
%
$
68,087


64.1
%
$
105,297


154.7
%International Rehabilitation Segment


63,823


25.5


25,997


24.5


37,826


145.5Surgical Implant Segment


18,737


7.5


16,644


15.6


2,093


12.6Intersegment revenues


(6,143
)

(2.4
)

(4,475
)

(4.2
)

(1,668
)

37.3Consolidated net sales

$
249,801


100.0
%
$
106,253


100.0
%
$
143,548


135.1
%


Net sales in our Domestic Rehabilitation Segment were $173.4 million for the three months ended June 28, 2008, reflecting an
increase of 154.7% over net sales of $68.1 million for the three months ended June 30, 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 catalog and electrotheraphy.

Net
sales in our International Rehabilitation Segment for the three months ended June 28, 2008 were $63.8 million, reflecting an increase of 145.5% from net sales of
$26.0 million for the three months ended June 30, 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 $7.6 million for the three months ended June 28, 2008 due to favorable changes in foreign exchange rates compared to rates in effect
for the three months ended June 30, 2007.

Net
sales in our Surgical Implant Segment increased to $18.8 million from $16.6 million for the three months ended June 28, 2008, representing a 12.6% increase over
the same period in the prior year. The increase was driven primarily by growth in our hip and knee implant product lines.

Sales
of new products for all segments, which include products that have been on the market less than one year, were $12.0 million for the three months ended June 28, 2008,
compared to new product sales of $8.7 million for the three months ended June 30, 2007.

Gross Profit.Consolidated gross profit as a percentage of net sales increased to 63.2% for the three months ended June 28, 2008 from 58.7% for the three
months ended June 30, 2007. The increase in our gross profit margin is 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 $3.0 million of reduced 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 $3.0 million for the
three months ended June 30, 2007.

Gross
profit in our Domestic Rehabilitation Segment as a percentage of net sales increased to 60.5% for the three months ended June 28, 2008 from 57.1% for the three months ended
June 30, 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 included $0.7 million of reduced 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 $0.7 million for the three months ended June 30, 2007.

44

---



Gross profit in our International Rehabilitation Segment as a percentage of net sales increased to 62.1% for the three months ended June 28, 2008 from 54.3% for the three months
ended June 30, 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 included $0.4 million of reduced 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 $0.4 million for the three months ended
June 30, 2007.

Gross
profit in our Surgical Implant Segment as a percentage of gross sales increased to 73.2% for the three months ended June 28, 2008 from 69.1% for the three months ended
June 30, 2007. The increase was primarily driven by cost improvement initiatives implemented in the past year and included $2.0 million of reduced amortization of purchased inventory
fair value adjustments related to the acquisition of this business in the prior year. The amortization of purchased inventory fair value adjustments included in cost of sales was $2.0 million
for the three months ended June 30, 2007.

Selling, General and Administrative.Our selling, general and administrative expenses increased to $116.5 million for the three months ended June 28,
2008 from $51.3 million for the three months ended June 30, 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. The following table sets forth certain incremental costs associated with the integration of our recent acquisitions:

Three Months Ended($ in thousands)

June 28, 2008

June 30, 2007Severance and relocation expenses

$
5,308

$
75Integration expenses


8,575


1,846$
13,883

$
1,921


Severance
and relocation expenses for the three months ended June 28, 2008 consists of $1.9 million of severance payments made to employees in connection with the DJO
Merger, $0.6 million of severance payments made to employees in connection with other recent acquisitions and $2.8 million of estimated separation payments and other expenses in
connection with the termination of one of the Company's executive officers. Integration expenses for the three months ended June 28, 2008 included $7.5 million of integration costs
incurred in connection with the DJO Merger and $1.1 million of integration costs related to other recent acquisitions. Integration expenses for the three months ended June 30, 2007
included $1.5 million and $0.3 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 $7.2 million for the three months ended June 28, 2008 from
$4.1 million for the three months ended June 30, 2007. The increase is primarily due to expenses incurred by the operations of our recent acquisitions. As a percentage of net sales,
research and development expense decreased to 2.9% compared to 3.9% in the prior year second quarter.

Amortization of Acquired Intangibles.Amortization of acquired intangibles includes amortization expense related to intangible assets acquired in connection with
recent acquisitions, which are being amortized over the estimated lives ranging from two to twenty years. Our amortization of acquired intangibles increased to $19.1 million for the three
months ended June 28, 2008 compared to $6.7 million for the three months ended June 30, 2007. At June 28, 2008, we expect the future amortization of intangibles to be
approximately $38.1 million for the remainder of 2008, $76.0 million in 2009, $75.0 million in 2010, $73.7 million in 2011, $72.5 million in 2012, and
$525.5 million for the

45

---



periods
thereafter. Future acquisitions of businesses or intangible assets may cause these estimates to differ materially.

Interest Expense.Our interest expense increased to $42.5 million for the three months ended June 28, 2008 compared to interest expense of
$14.1 million for the three months ended June 30, 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.

Benefit for Income Taxes.For the three months ended June 28, 2008, we recorded $6.3 million of income tax benefit on a pre-tax loss of
$26.8 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 three
months ended June 30, 2007, we recorded $5.6 million of income tax benefit on a pre-tax loss of $13.6 million, net of offsetting tax expense related to foreign taxes,
deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items.

Six Months Ended June 28, 2008 compared to Six Months Ended June 30, 2007

Net Sales.Our net sales for the six months ended June 28, 2008 were $489.5 million, representing an increase of 129.9% from net sales of
$213.0 million for the six months ended June 30, 2007. The increase was primarily driven by business acquisitions, including the DJO Merger (November 2007) and the
IOMED (August 2007) and Saunders (July 2007) acquisitions and continued growth across our product lines. Revenues associated with business acquisitions were approximately $252.8 million for six
months ended June 28, 2008. For the six months ended June 28, 2008 and June 30, 2007, we generated 24.9% and 23.4% of our net sales from customers outside the United States,
respectively. Net sales were also positively impacted for the six months ended June 28, 2008 by $14.1 million due to favorable changes in foreign exchange rates compared to rates in
effect for the six months ended June 30, 2007.

The
following table sets forth the mix of our net sales for the six months ended June 28, 2008 compared to the six months ended June 30, 2007:

Six Months Ended($ in thousands)

June 28,
2008

% of Net
Revenues

June 30,
2007

% of Net
Revenues

Increase

% IncreaseDomestic Rehabilitation Segment

$
340,282


69.5
%
$
138,656


65.1
%
$
201,626


145.4
%International Rehabilitation Segment


121,694


24.9


49,789


23.4


71,905


144.4Surgical Implant Segment


37,900


7.7


33,445


15.7


4,455


13.2Intersegment revenues


(10,347
)

(2.1
)

(8,930
)

(4.2
)

(1,417
)

158.7Consolidated net sales

$
489,529


100.0
%
$
212,960


100.0
%
$
276,569


129.9
%


Net
sales in our Domestic Rehabilitation Segment were $340.3 million for the six months ended June 28, 2008, reflecting an increase of 145.4% over net sales of
$138.7 million for the six months ended June 30, 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 catalog, electrotheraphy and orthotics.

Net
sales in our International Rehabilitation Segment for the six months ended June 28, 2008 were $121.7 million, reflecting an increase of 144.4% from net sales of
$49.8 million for the six months ended June 30, 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 $14.1 million for the six months ended June 28, 2008 due to favorable changes in foreign exchange rates compared to rates in effect
for the six months ended June 30, 2007.

46

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Net
sales in our Surgical Implant Segment increased to $37.9 million from $33.4 million for the six months ended June 28, 2008, representing a 13.2% increase over
the same period in the prior year. The increase was driven primarily by growth in our hip, knee and shoulder implant product lines.

Sales
of new products for all segments, which include products that have been on the market less than one year, were $20.3 million for the six months ended June 28, 2008,
compared to new product sales of $11.6 million for the six months ended June 30, 2007.

Gross Profit.Consolidated gross profit as a percentage of net sales increased to 61.8% for the six months ended June 28, 2008 from 58.1% for the six months
ended June 30, 2007. The increase in our gross profit margin is 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 consolidated gross profit included $3.0 million of reduced 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 $7.1 million for the six months ended June 28, 2008 and
June 30, 2007, respectively.

Gross
profit in our Domestic Rehabilitation Segment as a percentage of net sales increased to 59.2% for the six months ended June 28, 2008 from 56.6% for the six months ended
June 30, 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 $3.0 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 $1.7 million for the
six months ended June 28, 2008 and June 30, 2007, respectively.

Gross
profit in our International Rehabilitation Segment as a percentage of net sales increased to 59.8% for the six months ended June 28, 2008 from 49.3% for the six months ended
June 30, 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 included $2.1 million of reduced 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 $2.1 million for the six months ended June 30, 2007.

Gross
profit in our Surgical Implant Segment as a percentage of gross sales increased to 75.2% for the six months ended June 28, 2008 from 69.1% for the six months ended
June 30, 2007. The increase was primarily driven by cost improvement initiatives implemented in the past year and included $3.3 million of reduced amortization of purchased inventory
fair value adjustments related to the acquisition of this business in the prior year. The amortization of purchased inventory fair value adjustments included in cost of sales was $3.3 million
for the six months ended June 30, 2007.

Selling, General and Administrative.Our selling, general and administrative expenses increased to $227.2 million for the six months ended June 28,
2008 from $102.3 million for the six months ended June 30, 2007 due to additional expenses associated with the operations of our recent acquisitions,

47

---



including
certain incremental costs related to the integration of the acquired businesses. The following table sets forth certain incremental costs associated with the integration of our recent
acquisitions:

Six Months Ended($ in thousands)

June 28, 2008

June 30, 2007Severance and relocation expenses

$
6,368

$
217Integration expenses


16,356


3,953$
22,724

$
4,170


Severance
and relocation expenses for the six months ended June 28, 2008 consists of $2.8 million of severance payments made related to the DJO Merger, $0.8 million
of severance payments to employees in connection with other recent acquisitions, and $2.8 million of estimated separation payments and other expenses in connection with the termination of one
of the Company's executive officers. Integration expenses for the six months ended June 28, 2008 included $13.4 million, $1.6 million and $1.4 million of integration costs
incurred in connection with the DJO Merger, the IOMED acquisition and other recent acquisitions, respectively. Integration expenses for the six months ended June 30, 2007 included
$2.8 million and $1.2 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 $13.9 million for the six months ended June 28, 2008 from
$7.7 million for the six months ended June 30, 2007. The increase is primarily due to expenses incurred by the operations of our recent acquisitions. As a percentage of net sales,
research and development expense decreased to 2.8% compared to 3.6% in the prior year period.

Amortization of Acquired Intangibles.Amortization of acquired intangibles includes amortization expense related to intangible assets acquired in connection with
recent acquisitions, which are being amortized over the estimated lives ranging from two to twenty years. Our amortization of acquired intangibles increased to $38.3 million for the six months
ended June 28, 2008 compared to $13.2 million for the six months ended June 30, 2007.

Interest Expense.Our interest expense increased to $87.7 million for the six months ended June 28, 2008 compared to interest expense of
$28.1 million for the six months ended June 30, 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.

Benefit for Income Taxes.For the six months ended June 28, 2008, we recorded $17.4 million of income tax benefit on a pre-tax loss of
$61.9 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 six
months ended June 30, 2007, we recorded $7.9 million of income tax benefit on a pre-tax loss of $27.0 million, net of offsetting tax expense related to foreign taxes,
deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items.

Liquidity and Capital Resources

As of June 28, 2008 our primary source of liquidity consisted of cash and cash equivalents totaling $43.5 million and
$99.1 million of available borrowings under our revolving credit facility, described below. Working capital at June 28, 2008 was $196.1 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

48

---



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 six months ended June 28, 2008 and June 30, 2007 is as follows:

Six Months EndedJune 28,
2008

June 30,
2007Cash used in operating activities

$
(5,185
)
$
(7,924
)Cash used in investing activities


(12,771
)

(10,336
)Cash (used in) provided by financing activities


(3,137
)

10,058Effect of exchange rate on cash and cash equivalents


1,135


166Net decrease in cash and cash equivalents

$
(19,958
)
$
(8,036
)


Cash Flows

Operating activities used $5.2 million of cash for the six months ended June 28, 2008 and used $7.9 million of
cash for the six months ended June 30, 2007. Cash provided by operating activities for the six months ended June 28, 2008 and 2007 primarily reflect our net losses, partially offset by
non-cash charges, and negative net changes in operating assets and liabilities. Cash paid for interest was $63.5 million for the six months ended June 28, 2008 and
$26.8 million for the six months ended June 30, 2007.

Investing
activities used $12.8 million of cash for the six months ended June 28, 2008, compared to $10.3 million for the six months ended June 30, 2007. Cash
used in investing activities for the six months ended June 28, 2008 was primarily used for purchases of property and equipment totaling to $12.6 million. Included within purchases of
property and equipment is approximately $3.0 million for the purchase of a new global ERP system. Cash used in investing activities for the six months ended
June 30, 2007 included purchases of property and equipment amounting to $7.1 million and acquisition of certain assets amounting to $7.7 million, partially offset by proceeds from
a sale of assets amounting to $4.5 million.

Financing
activities used $3.1 million of cash for the six months ended June 28, 2008, compared to cash provided by financing activities of $10.1 million for the six
months June 30, 2007. Cash used in financing activities for the six months ended June 28, 2008 included a net payment of $3.1 million for long-term debt and revolving
lines of credit as compared to cash provided by financing activities for the six months ended June 30, 2007, which included net proceeds of $10.6 million for long-term debt
and revolving credit lines.

For
the remainder of 2008, we expect to spend total cash of approximately $160.6 million for the following:



49

---





In
addition, we expect to make other general corporate payments in 2008. In addition, we expect to spend up to an additional $37 million implementing our new ERP system capital
project over approximately the next two years.

Indebtedness

As of June 28, 2008, we had approximately $1,831 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 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.

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. As of June 28, 2008, our weighted average interest rate for all borrowings under
the Senior Secured Credit Facility was 5.70%.

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 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.

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 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:



50

---





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 June 28, 2008, we were required to maintain a senior leverage ratio not to exceed
5.1:1. At June 28, 2008 our senior leverage ratio was 4.11:1.

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:



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

51

---



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 June 28, 2008, measured on that date,
was 1.57:1. 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 principal amount of senior notes and the $200.0 million principal amount 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, that 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.

Adjusted
EBITDA should not be considered as an alternative to net income or other performance measures derived 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.

52

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Our ability to meet the covenants specified above in future periods will depend on events beyond our control, and we cannot assure you that we will meet those ratios. 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 June 28, 2008. The terms and related calculations are
defined in the credit agreement relating to our Senior Secured Credit Facility and the Indentures.

(unaudited)Three Months
Ended June 28, 2008

Twelve Months
Ended June 28, 2008(in thousands)Net loss

$
(20,798
)
$
(108,216
)Interest expense, net


42,232


145,003Income tax benefit


(6,343
)

(51,956
)Depreciation and amortization


24,673


78,331Non-cash items (a)


615


16,355Non-recurring items (b)


13,883


58,840Other adjustment items, before cost savings (c)


2,276


55,884Other adjustment itemscost savings applicable for twelve month period only (d)


N/A


56,343Adjusted EBITDA

$
56,538

$
250,584


(unaudited)Three Months
Ended June 28, 2008

Twelve Months
Ended June 28, 2008(in thousands)Stock compensation expense

$
615

$
1,763Purchase accounting adjustments(1)





14,592Total non-cash items

$
615

$
16,355


---



53

---





(unaudited)Three Months
Ended June 28, 2008

Twelve Months
Ended June 28, 2008(in thousands)Employee severance and relocation(1)

$
5,308

$
22,523Integration expense(2)


8,575


23,320Reserve estimate change(3)





12,997Total non-recurring items

$
13,883

$
58,840


---



(unaudited)Three Months
Ended June 28, 2008

Twelve Months
Ended June 28, 2008(in thousands)Transaction expenses(1)

$
1,813

$
10,714Minority interest


295


745Pre-acquisition Adjusted EBITDA(2)





46,383Other(3)


168


(1,958
)Total other adjustment items, before cost savings

$
2,276

$
55,884


---



54

---





The
following is a summary of our covenant requirements and pro forma ratios as of June 28, 2008 are as follows:

Covenant
Requirements

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


5.10:1


4.11:110.875% Notes and 11.75% NotesMinimum ratio of Adjusted EBITDA to fixed charges required to incur additional debt pursuant to ratio provision


2.00:1


1.57:1


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
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

55

---



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 six 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 75% of our net revenues for the six months ended June 28, 2008 and approximately 69% of our
net accounts receivable at June 28, 2008. We experienced write-offs of less than 0.2% of related net revenues for the six months ended June 28, 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 25% of our net revenues for the six months ended June 28, 2008 and
approximately 31% of our net accounts receivable at June 28, 2008. For the six months ended June 28, 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.

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

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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 142, 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.

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. 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.

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 carry forwards. 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 $157.7 million at June 28, 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 June 28, 2008, we maintained a valuation allowance of
$15.8 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.

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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 June 28, 2008, we
had $1,062.3 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 $500.0 million as of
June 28, 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 six months ended June 28, 2008, by approximately $1.4 million and $2.8 million, respectively. All of our other debt of approximately
$775.0 million was fixed rate debt at June 28, 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
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 first three and six months of 2008, our average monthly sales denominated in foreign currencies was approximately $20.3 million
and $38.9 million, respectively, of which $16.3 million and $31.2 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 June 28, 2008, we had outstanding hedges in the form of forward contracts to purchase
Mexican Pesos aggregating a U.S. dollar equivalent of $11.7 million.

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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.

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 14 product liability cases related to a 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. Our product liability carrier has accepted coverage of these cases, subject to

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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 June 28, 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.

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 pray for, 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 ("MOU"), pursuant to which the parties agreed to settle the consolidated action subject to court approval. The
MOU provided for dismissal of the consolidated action with prejudice upon approval of a stipulation by the court. Pursuant to the terms of the MOU, 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 MOU, defendants deny all allegations of wrongdoing, fault, liability or damage to the
plaintiffs and the putative class in the consolidated action and deny that they are engaged in any wrongdoing or violation of law or breach of duty. Defendants also do not make any admission that the
supplemental disclosures are material. The parties signed a settlement agreement containing these terms and requested court approval. 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 courts order will be final if not appealed within 60 days after entry of the
order.

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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.

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

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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 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. Most recently, we 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

On April 25, 2008, the Board of Directors of DJO Incorporated, the parent ("Parent") of DJO Finance LLC (the "Company"),
and the majority shareholder of Parent (representing 98.74% of the outstanding shares of Common Stock) approved an amendment to the Parent's 2007 Incentive Stock Plan ("Plan") to increase the maximum
number of shares of Common Stock that may be issued under the Plan from 5,000,000 shares to 7,500,000 shares.

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

Amendment to DJO Incorporated 2007 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to DJOFL's Current Report on Form 8-K, filed May 1, 2008.31.1+

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: August 8, 2008

By:

/s/LESLIE H. CROSSLeslie H. Cross Chief Executive Officer(Authorized Signatory)Date: August 8, 2008

By:

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


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