UNITED STATESSECURITIES 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 1934 
|---------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|For the quarterly period ended March 29, 2008                                     
|or                                                                                
|o                                                                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                        to                
        .
|Commission file number 333-142188                                                 

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

|Delaware                                                          |  | 20-5653965                             
|----------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of
incorporation or organization)    |  | (I.R.S. Employer
Identification Number)
|1430 Decision Street
Vista, California                            |  | 92081                                  
|(Address of principal executive offices)                          |  | (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 May 12, 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 Information
|Item 1.                      |  | Unaudited Condensed Consolidated Balance Sheets as of March 29, 2008 and December 31, 2007                                    |  | 3       
|                             |  | Unaudited Condensed Consolidated Statements of Operations for the three month periods ended March 29, 2008 and March 31, 2007 |  | 4       
|                             |  | Unaudited Condensed Consolidated Statements of Cash Flows for the three month periods ended March 29, 2008 and March 31, 2007 |  | 5       
|                             |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                |  | 6       
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 34      
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 50      
|Item 4T.                     |  | Controls and Procedures                                                                                                       |  | 51      
|PART IIOther Information   
|Item 1.                      |  | Legal Proceedings                                                                                                             |  | 51      
|Item 1A.                     |  | Risk Factors                                                                                                                  |  | 52      
|Item 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 52      
|Item 3.                      |  | Defaults Upon Senior Securities                                                                                               |  | 52      
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 53      
|Item 5.                      |  | Other Information                                                                                                             |  | 53      
|Item 6.                      |  | Exhibits                                                                                                                      |  | 53      
|SIGNATURES                   |  | 54                                                                                                                           

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)

|                                                          |                                                    | March 29,
2008                                               |           | December 31,
2007 |          
|--------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------------ | --------- | ----------------- | ---------
|Assets                                                    |                                                    |                                                              |           |                   |          
|Current assets:                                           |                                                    |                                                              |           |                   |          
|                                                          | Cash and cash equivalents                          |                                                              | $         | 67,694            |          
|                                                          | Accounts receivable, net                           |                                                              |           | 168,187           |          
|                                                          | Inventories, net                                   |                                                              |           | 105,475           |          
|                                                          | Deferred tax assets, net                           |                                                              |           | 29,703            |          
|                                                          | Prepaid expenses and other current assets          |                                                              |           | 20,712            |          
|                                                          |                                                    |                                                              |           |                   |          
|                                                          |                                                    | Total current assets                                         |           |                   | 391,771  
|Property and equipment, net                               |                                                    |                                                              | 80,695    |                   |          
|Goodwill                                                  |                                                    |                                                              | 1,206,170 |                   |          
|Intangible assets, net                                    |                                                    |                                                              | 1,344,517 |                   |          
|Other non-current assets                                  |                                                    |                                                              | 64,268    |                   |          
|                                                          |                                                    |                                                              |           |                   |          
|                                                          |                                                    | Total assets                                                 |           | $                 | 3,087,421
|                                                          |                                                    |                                                              |           |                   |          
|Liabilities, Minority Interests, and Membership Equity    |                                                    |                                                              |           |                   |          
|Current liabilities:                                      |                                                    |                                                              |           |                   |          
|                                                          | Accounts payable                                   |                                                              | $         | 38,750            |          
|                                                          | Accrued interest                                   |                                                              |           | 52,415            |          
|                                                          | Long-term debt and capital leases, current portion |                                                              |           | 14,410            |          
|                                                          | Other current liabilities                          |                                                              |           | 80,496            |          
|                                                          |                                                    |                                                              |           |                   |          
|                                                          |                                                    | Total current liabilities                                    |           |                   | 186,071  
|Long-term debt and capital leases, net of current portion |                                                    |                                                              | 1,818,989 |                   |          
|Deferred tax liabilities, net                             |                                                    |                                                              | 378,016   |                   |          
|Other non-current liabilities                             |                                                    |                                                              | 23,189    |                   |          
|                                                          |                                                    |                                                              |           |                   |          
|                                                          |                                                    | Total liabilities                                            |           |                   | 2,406,265
|                                                          |                                                    |                                                              |           |                   |          
|Minority interests                                        |                                                    |                                                              | 1,510     |                   |          
|Commitments and contingencies                             |                                                    |                                                              |           |                   |          
|Membership equity:                                        |                                                    |                                                              |           |                   |          
|                                                          | Additional paid-in capital                         |                                                              |           | 823,465           |          
|                                                          | Accumulated deficit                                |                                                              |           | (148,218          | )        
|                                                          | Accumulated other comprehensive income             |                                                              |           | 4,399             |          
|                                                          |                                                    |                                                              |           |                   |          
|                                                          |                                                    | Total membership equity                                      |           |                   | 679,646  
|                                                          |                                                    |                                                              |           |                   |          
|                                                          |                                                    | Total liabilities, minority interests, and membership equity |           | $                 | 3,087,421
|                                                          |                                                    |                                                              |           |                   |          

See
accompanying notes to condensed consolidated financial statements.

3

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

|                                                |                                      | Three Months Ended |        
|----------------------------------------------- | ------------------------------------ | ------------------ | -------
|
|Net sales                                       |                                      | $                  | 239,728
|Cost of sales                                   |                                      |                    | 95,084 
|                                                |                                      |                    |        
|                                                |                                      | Gross profit       |        
|Operating expenses:                             |                                      |                    |        
|                                                | Selling, general and administrative  |                    |        
|                                                | Research and development             |                    |        
|                                                | Amortization of acquired intangibles |                    |        
|                                                |                                      |                    |        
|Operating income                                |                                      |                    | 8,240  
|Other income (expense):                         |                                      |                    |        
|                                                | Interest income                      |                    |        
|                                                | Interest expense                     |                    |        
|                                                | Other income, net                    |                    |        
|                                                |                                      |                    |        
|Loss before income taxes and minority interests |                                      |                    | (35,017
|Benefit for income taxes                        |                                      |                    | (11,055
|Minority interests                              |                                      |                    | 200    
|                                                |                                      |                    |        
|                                                | Net loss                             |                    | $      
|                                                |                                      |                    |        

See
accompanying notes to condensed consolidated financial statements.

4

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

|                                                                                          |                                                                                      | Three Months Ended                                             |                                                    
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ---------------------------------------------------
|
|OPERATING ACTIVITIES:                                                                     |                                                                                      |                                                                |                                                    
|Net loss                                                                                  |                                                                                      | $                                                              | (24,162                                            
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      | Depreciation                                                   |                                                    
|                                                                                          |                                                                                      | Amortization of intangibles                                    |                                                    
|                                                                                          |                                                                                      | Amortization of debt issuance costs                            |                                                    
|                                                                                          |                                                                                      | Stock-based compensation                                       |                                                    
|                                                                                          |                                                                                      | Asset impairments and loss on disposal of assets               |                                                    
|                                                                                          |                                                                                      | Deferred income taxes                                          |                                                    
|                                                                                          |                                                                                      | Provision for doubtful accounts and sales returns              |                                                    
|                                                                                          |                                                                                      | Inventory reserves                                             |                                                    
|                                                                                          |                                                                                      | Minority interests                                             |                                                    
|                                                                                          |                                                                                      | Excess tax benefit associated with stock option exercises      |                                                    
|                                                                                          |                                                                                      | Net effect of discontinued operations, net of gain on disposal |                                                    
|                                                                                          | Changes in operating assets and liabilities, net of acquired assets and liabilities: |                                                                |                                                    
|                                                                                          |                                                                                      | Accounts receivable                                            |                                                    
|                                                                                          |                                                                                      | Inventories                                                    |                                                    
|                                                                                          |                                                                                      | Prepaid expenses, other assets and liabilities                 |                                                    
|                                                                                          |                                                                                      | Accrued interest                                               |                                                    
|                                                                                          |                                                                                      | Accounts payable and other current liabilities                 |                                                    
|                                                                                          |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      |                                                                | Net cash provided by (used in) operating activities
|INVESTING ACTIVITIES:                                                                     |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      | Acquisition of intangible assets                               |                                                    
|                                                                                          |                                                                                      | Acquisition of businesses, net of cash acquired                |                                                    
|                                                                                          |                                                                                      | Purchases of property and equipment                            |                                                    
|                                                                                          |                                                                                      | Proceeds from sale of assets                                   |                                                    
|                                                                                          |                                                                                      | Other, net                                                     |                                                    
|                                                                                          |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      |                                                                | Net cash used in investing activities              
|FINANCING ACTIVITIES:                                                                     |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      | Payments on long-term obligations                              |                                                    
|                                                                                          |                                                                                      | Excess tax benefit associated with stock option exercises      |                                                    
|                                                                                          |                                                                                      | Dividend paid to minority interests                            |                                                    
|                                                                                          |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      |                                                                |                                                    
|Effect of exchange rate changes on cash and cash equivalents                              |                                                                                      |                                                                | 1,389                                              
|                                                                                          |                                                                                      |                                                                |                                                    
|Net increase (decrease) in cash and cash equivalents                                      |                                                                                      |                                                                | 4,223                                              
|Cash and cash equivalents at beginning of period                                          |                                                                                      |                                                                | 63,471                                             
|                                                                                          |                                                                                      |                                                                |                                                    
|Cash and cash equivalents at end of period                                                |                                                                                      | $                                                              | 67,694                                             
|                                                                                          |                                                                                      |                                                                |                                                    
|Supplemental disclosures of cash flow information:                                        |                                                                                      |                                                                |                                                    
|                                                                                          |                                                                                      | Cash paid for interest                                         |                                                    
|                                                                                          |                                                                                      | Cash paid for income taxes                                     |                                                    

See
accompanying notes to 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, which we
have consolidated due to our controlling interest in it. All significant intercompany balances and transactions have been eliminated in consolidation.

The
accompanying unaudited condensed consolidated financial statements as of March 29, 2008 and for the three months ended March 29, 2008 and March 31, 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 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 March 29, 2008 and for the three months ended March 29, 2008 and March 31, 2007

6

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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, 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 FDIC 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.

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

Three Months EndedMarch 29,
2008

March 31,
2007Net loss, as reported

$
(24,162
)
$
(11,087
)Foreign currency translation adjustments


4,201


(64
)Change in fair value of interest rate swap, net of tax


(5,992
)

(1,058
)Comprehensive loss

$
(25,953
)
$
(12,209
)


Reclassifications.The condensed consolidated financial statements and accompanying footnotes reflect certain
reclassifications, including the reclassification of certain shipping costs from selling,

7

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general
and administrative expenses to cost of sales. These reclassifications 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.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment to FASB Statement
No. 115" which permits entities to choose to measure many financial instruments and certain other items at fair value. The statement is effective for fiscal years beginning after
November 15, 2007. The adoption of this statement did not have a material impact on our results of operations or financial condition.

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement" ("SFAS 157") which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP") and expands disclosure about fair value measurements. The statement is effective for fiscal years beginning after November 15, 2007.
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. 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 March 29, 2008, our interest rate swaps (see Note 14) were carried at fair value measured on a recurring
basis. Fair values are 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.

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

8

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combined
manufacturing costs and selling and distribution costs, and enhance our product offerings and research and development efforts.

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 in connection with the acquisition of the businesses discussed above were estimated in accordance with SFAS 141
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The purchase price for the acquisitions remained preliminary as of March 29, 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 dates.

9

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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 March 29, 2008 (see Note 5):

|(in thousands):                              |                           | DJO Opco |          | IOMED     |   | Saunders |        | Wtd. Avg.
Useful Lives
|-------------------------------------------- | ------------------------- | -------- | -------- | --------- | - | -------- | ------ | ----------------------
|Current assets                               |                           | $        | 172,177  |           | $ | 8,971    |        | $                     
|Tangible non-current assets                  |                           |          | 67,519   |           |   | 853      |        |                       
|Liabilities assumed (see Note 11)            |                           |          | (684,387 | )         |   | (6,100   | )      |                       
|Acquired in-process research and development |                           |          | 3,000    |           |   |         |        |                       
|Identifiable intangible assets:              |                           |          |          |           |   |          |        |                       
|                                             | Technology-based          |          |          | 354,000   |   |          | 6,616  |                       
|                                             | Customer-based            |          |          | 328,000   |   |          | 2,512  |                       
|                                             | Trademarks and tradenames |          |          | 356,000   |   |          | 1,777  |                       
|Goodwill                                     |                           |          | 678,424  |           |   | 8,676    |        |                       
|                                             |                           |          |          |           |   |          |        |                       
|                                             | Purchase price            |          | $        | 1,274,733 |   | $        | 23,305 |                       
|                                             |                           |          |          |           |   |          |        |                       

Goodwill
represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.

The
purchase price allocation for the DJO Opco acquisition 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. 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 Opco acquisition that
resulted in the recognition of goodwill.

3. ACCOUNTS RECEIVABLE RESERVES

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

Three Months EndedMarch 29,
2008

March 31,
2007Balance, beginning of period

$
30,954

$
513Provision for doubtful accounts and sales returns


4,440


2,322Write-offs, net of recoveries


(5,863
)

(15
)Balance, end of period

$
29,531

$
2,820


10

---



4. INVENTORIES

Inventories consist of the following (in thousands):

March 29,
2008

December 31,
2007Components and raw materials

$
33,800

$
35,534Work in process


6,308


6,626Finished goods


51,966


54,411Inventory held on consignment


22,501


22,159114,575


118,730Lessinventory reserves


(9,100
)

(7,826
)$
105,475

$
110,904


In
connection with the DJO Merger, the carrying value of the acquired DJO Opco inventory was increased by approximately $9.4 million to its estimated fair value as of the
acquisition date. This amount was amortized through cost of sales over a three month period based upon the estimated turn of the acquired inventory, of which the final $4.7 million was recorded
in the three months ended March 29, 2008.

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

Three Months EndedMarch 29,
2008

March 31,
2007Balance, beginning of period

$
7,826

$
918Provision charged to cost of sales


1,518


268Recoveries (write-offs) charged to reserve


(244
)

163Balance, end of period

$
9,100

$
1,349


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

5. GOODWILL AND INTANGIBLE ASSETS

A summary of adjustments to our goodwill balance for the three months ended March 29, 2008 is as follows (in thousands):

Balance, beginning of period

$
1,201,282Adjustment related to DJO Opco acquisition


(680
)Foreign currency translation adjustments


5,568Balance, end of period

$
1,206,170


During
the quarter ended March 29, 2008, goodwill related to the DJO Opco acquisition was adjusted to reflect changes in our preliminary estimates of the acquired property and
equipment and assumed liabilities (see Note 11).

11

---



Identifiable
intangible assets consisted of the following as of March 29, 2008 (in thousands):

|                                                     |                                      | Gross Carrying
Amount |         | Accumulated
Amortization |   | Intangibles,
Net
|---------------------------------------------------- | ------------------------------------ | --------------------- | ------- | ------------------------ | - | ----------------
|Amortizable intangible assets:                       |                                      |                       |         |                          |   |                 
|                                                     | Technology-based                     |                       | $       | 458,138                  |   | $               
|                                                     | Customer-based                       |                       |         | 477,942                  |   |                 
|                                                     |                                      |                       |         |                          |   |                 
|                                                     |                                      | $                     | 936,080 |                          | $ | (56,647         
|                                                     |                                      |                       |         |                          |   |                 
|Indefinite-lived intangible assets:                  |                                      |                       |         |                          |   |                 
|                                                     | Trademarks                           |                       |         |                          |   |                 
|Accumulated foreign currency translation adjustments |                                      |                       |         |                          |   |                 
|                                                     |                                      |                       |         |                          |   |                 
|                                                     | Total identifiable intangible assets |                       |         |                          |   |                 
|                                                     |                                      |                       |         |                          |   |                 

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

|                                                     |                                      | Gross Carrying
Amount |         | Accumulated
Amortization |   | Intangibles,
Net
|---------------------------------------------------- | ------------------------------------ | --------------------- | ------- | ------------------------ | - | ----------------
|Amortizable intangible assets:                       |                                      |                       |         |                          |   |                 
|                                                     | Technology-based                     |                       | $       | 457,463                  |   | $               
|                                                     | Customer-based                       |                       |         | 477,942                  |   |                 
|                                                     |                                      |                       |         |                          |   |                 
|                                                     |                                      | $                     | 935,405 |                          | $ | (37,531         
|                                                     |                                      |                       |         |                          |   |                 
|Indefinite-lived intangible assets:                  |                                      |                       |         |                          |   |                 
|                                                     | Trademarks                           |                       |         |                          |   |                 
|Accumulated foreign currency translation adjustments |                                      |                       |         |                          |   |                 
|                                                     |                                      |                       |         |                          |   |                 
|                                                     | Total identifiable intangible assets |                       |         |                          |   |                 
|                                                     |                                      |                       |         |                          |   |                 

Our
amortizable intangible assets are being amortized over useful lives ranging from 1 to 20 years.

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

Remaining 2008

$
57,1082009


75,8382010


74,8992011


73,5882012


72,459Thereafter


525,541$
879,433


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

March 29, 2008:

Goodwill

Intangibles,
netDomestic Rehabilitation Segment

$
960,702

$
1,089,176International Rehabilitation Segment


198,062


226,167Surgical Implant Segment


47,406


29,174Total

$
1,206,170

$
1,344,517


12

---



|
|

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):

March 29,
2008

December 31,
2007Wages and related expenses

$
21,444

$
31,232Commissions and royalties


12,853


13,114Taxes


6,483


6,119Restructuring costs (see Note 11)


4,130


9,563Professional fees


5,874


6,693Other accrued liabilities


29,712


26,915$
80,496

$
93,636


7. LONG-TERM DEBT AND CAPITAL LEASES

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

|                                                                                                                                                                                   |  | March 29,
2008 |           | December 31,
2007 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ----------------- | -
|Term loan under Senior Secured Credit Facility, net of unamortized original issue discount ($12.1 million and $12.5 million at March 29, 2008 and December 31, 2007, respectively) |  | $              | 1,052,887 |                   | $
|10.875% Senior notes                                                                                                                                                               |  |                | 575,000   |                   |  
|11.75% Senior subordinated notes                                                                                                                                                   |  |                | 200,000   |                   |  
|Loans and revolving credit facilities at various European Banks                                                                                                                    |  |                | 4,527     |                   |  
|Capital lease obligations and other                                                                                                                                                |  |                | 985       |                   |  
|                                                                                                                                                                                   |  |                |           |                   |  
|                                                                                                                                                                                   |  |                | 1,833,399 |                   |  
|Less current portion                                                                                                                                                               |  |                | (14,410   | )                 |  
|                                                                                                                                                                                   |  |                |           |                   |  
|Long-term debt and capital leases, net of current portion                                                                                                                          |  | $              | 1,818,989 |                   | $
|                                                                                                                                                                                   |  |                |           |                   |  

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 March 29, 2008, no amounts
were drawn related to our revolving credit facility; however, $0.9 million was used to secure outstanding letters of credit.

13

---



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 the 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 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 March 29, 2008, our weighted average interest rate for all borrowings under the Senior Secured Credit Facility was
7.83%.

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.

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.

14

---



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



In
addition, the Senior Secured Credit Facility requires us to maintain a declining maximum senior secured leverage ratio, as defined, 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. Although we are not required to
maintain this ratio until the period ending June 28, 2008, our maximum senior secured leverage ratio was within the initial covenant level as of March 29, 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, as trustee. In April 2008, we filed a
registration statement on Form S-4 with the Securities and Exchange Commission (the "Commission") relating to an exchange offer to exchange these privately issued 10.875% Notes for
registered 10.875% Notes. The registration statement is being reviewed by the Commission and must be declared effective prior to commencing the exchange offer.

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 $550.6 million as of March 29, 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 10.875% Notes.

Optional Redemption.Under the 10.875% Indenture, prior to November 15, 2011, DJOFL has 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, DJOFL may redeem some or all of the 10.875%

15

---



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 100.000% of the then outstanding
principal balance at November 2012 and November 2013, respectively. Additionally, from time to time, before November 15, 2010, DJOFL may redeem up to 35% of the 10.875% Notes at a
redemption price equal to 110.875% of the principal amount then outstanding, in each case, with proceeds we raise, or a direct or indirect parent company raises, in certain offerings of equity of
DJOFL or its direct or indirect parent companies, as long as at least 65% of the aggregate principal amount of the notes issued remains outstanding.

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

Covenants.The 10.875% Indenture contains covenants limiting, among other things, our and our restricted subsidiaries'
ability to incur additional indebtedness or issue certain preferred and convertible shares, pay dividends on, redeem, repurchase or make distributions in respect of the capital stock of DJO or make
other restricted payments, make certain investments, sell certain assets, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of
our assets, enter into certain transactions with affiliates, and designate our subsidiaries as unrestricted subsidiaries. As of March 29, 2008, we were in compliance with all applicable
covenants.

11.75% Senior Subordinated Notes Payable

In November 2006, the Issuers issued and sold $200.0 million aggregate principal amount of the 11.75% senior subordinated notes due 2014 (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. We filed a registration statement on Form S-4 with the Commission relating to an exchange offer to exchange these privately issued 11.75% Notes for registered 11.75% Notes.
The registration statement was declared effective on May 2, 2007. The exchange offer was completed on June 5, 2007.

The
market value of the 11.75% Notes was approximately $175.0 million as of March 29, 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, DJOFL has 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, DJOFL 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, DJOFL 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

16

---



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.

Cefar Indebtedness

In connection with the acquisition in November 2006 of Cefar, a leading European provider of electrotherapy and rehabilitation devices, we assumed debt
outstanding under revolving credit facilities and term loans to various European banks. At March 29, 2008, the balances outstanding were $2.6 million for the revolving credit facilities
and $1.9 million for the term loans.

Debt Issue Costs

We incurred $30.7 million, $24.0 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
March 29, 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. In addition, DJO adopted a form of non-statutory stock option agreement
(the "DJO Form Option Agreement") for 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 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.

On
February 21, 2008, we granted 4,234,427 stock options under the 2007 Plan to our executive officers, senior management, and certain other employees. In addition, in an effort
to align our objectives following the DJO Merger with vesting requirements for previously issued stock options under the 2006 Plan, we cancelled all stock options originally granted under the 2006
Plan, except for 63,806 vested Time-Based Tranche options held by 72 employees, and concurrently issued the same or a greater number of options to each 2006 Plan participant under the 2007
Plan (the "Replacement Options"). These Replacement Options were valued in accordance with the modification provisions

17

---



pursuant
to SFAS No. 123(R), "Share-Based Payment", 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 quarter. We did not recognize any additional compensation expense during the three months ended March 29, 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 $0.4 million in the three months ended March 29, 2008 and March 31,
2007, respectively, associated with stock options issued under the 2007 Incentive Stock Plan and the 2006 Stock Incentive Plan, respectively. We record compensation expense for awards with a
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. For the three
months ended March 29, 2008, we recorded expense related to the Performance-Based Tranche as management deems probable that the related performance targets will be achieved for the current
fiscal year. To date, no amount has been recorded related to the Enhanced

18

---



Performance-Based
Tranche, as achievement of the performance criteria for that tranche is not deemed probable at this time.

Summary of Assumptions and Activity

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 to calculate fair value of market condition stock options is based on the contractual life of the option, whereas the risk-free rate used in
calculating fair value of service and performance-based stock options is based on the expected term of the option. In all cases, the risk-free rate 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 key assumptions used in
determining fair value of share based payment awards for the three month periods ended March 29, 2008 and March 31, 2007 were as follows:

Three Months EndedMarch 29,
2008

March 31,
2007Expected dividends

0.0
%
0.0
%Expected volatility

27.4% - 60.0
%
56.0% - 60.0
%Risk-free rate

2.8% - 4.7
%
4.7
%Expected term (in years)

4.9 - 7.1 years

5.2 - 7.1 years


A
summary of option activity under the 2007 Plan for the three months ended March 29, 2008 is presented below:

|                               |                                        | Number of
Shares |            | Weighted-Average
Exercise Price |       | Weighted-Average
Remaining
Contractual
Term (Years) |      | Aggregate Intrinsic
Value
|------------------------------ | -------------------------------------- | ---------------- | ---------- | ------------------------------- | ----- | --------------------------------------------------- | ---- | -------------------------
|Outstanding at January 1, 2008 |                                        | 3,550,627        |            | $                               | 12.97 |                                                     |      |                          
|                               | Granted, including Replacement Options |                  | 4,234,427  |                                 |       | 16.46                                               |      |                          
|                               | Exercised                              |                  |           |                                 |       |                                                    |      |                          
|                               | Forfeited, including options cancelled |                  | (1,062,244 | )                               |       | 16.46                                               |      |                          
|                               |                                        |                  |            |                                 |       |                                                     |      |                          
|Outstanding at March 29, 2008  |                                        | 6,722,810        |            | $                               | 14.62 |                                                     | 9.08 |                          
|                               |                                        |                  |            |                                 |       |                                                     |      |                          
|Exercisable at March 29, 2008  |                                        | 2,480,425        |            | $                               | 11.46 |                                                     | 7.69 |                          
|                               |                                        |                  |            |                                 |       |                                                     |      |                          

For
the three months ended March 29, 2008 and March 31, 2007, the weighted-average grant-date fair value of stock options granted was $5.34 and $9.37,
respectively.

There
were no stock options exercised during the three months ended March 29, 2008 or March 31, 2007.

Total
unrecognized stock-based compensation expense, related to nonvested stock options under the 2007 Plan, net of expected forfeitures, was $20.7 million as of March 29,
2008. We anticipate this

19

---



expense
to be recognized over a weighted-average period of approximately 4.8 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.

As
of March 29, 2008, a total of 39,489 shares of restricted stock were outstanding, of which a total of 34,427 shares were not vested. No restricted stock awards were granted,
vested, or forfeited during the three months ended March 29, 2008. Related compensation expense is recognized on a straight-line basis over the respective vesting period. As of
March 29, 2008, there was approximately $0.4 million of total unrecognized compensation expense related to unvested restricted stock. This expense is expected to be recognized over a
weighted-average period of approximately 1.1 years.

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.

Following
the DJO Merger, we provide a broad array of orthopedic rehabilitation and regeneration products, as well as implants to customers in the United States and abroad. Our
reportable segments are managed separately because each segment requires different sales and marketing strategies and in some cases offers different products. We currently develop, manufacture and
distribute our products through three operating segments.

The
Domestic Rehabilitation 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 and traction equipment; and orthotics devices used to treat joint and spine conditions. We sell our Domestic Rehabilitation Segment
products through a variety of distribution channels. We sell our home therapy products to wholesale customers and directly to patients. We recognize wholesale revenue when we ship our products to our
wholesale customers. We recognize home therapy retail revenue, both rental and purchase, when our product has been dispensed to the patient and the patient's insurance has been verified. We recognize
revenue for product shipped directly to the patient at the time of shipment. For retail products that are sold from our inventories consigned at clinic locations, we recognize revenue when we receive
notice that the device has been prescribed and dispensed to the patient and the insurance has been verified or preauthorization from the insurance company has been obtained, when required.

We
sell our DonJoy products through a network of independent sales representatives. We record revenues from sales made by sales representatives, who are paid commissions, when the
product is

20

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shipped
to the customer. For certain of our other products, we sell directly to the patient and bill a third party payor, if applicable, on behalf of the patient.

We
sell our ProCare, Aircast and clinical rehabilitation products to distributors. We record revenue at the time product is shipped to the distributor. Distributors take title to the
products, assume credit and product obsolescence risks, must pay within specified periods regardless of when they sell or use the products and have no price protection except for distributors who
participate in our rebate program.

We
sell our International Rehabilitation products to customers outside the United States through wholly owned subsidiaries or independent distributors. We record revenue from sales to
distributors at the time product is shipped to the distributor. Our international distributors take title to the products, assume credit and product obsolescence risks, must pay within specified
periods regardless of when they sell the products and have no price protection. We record revenue from sales made by our wholly owned subsidiaries at the time product is shipped to the customer.

The
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.
We currently market and sell our Surgical Implant Segment products to hospitals and orthopedic surgeons through independent commissioned sales representatives in the United States and through
independent distributors outside the United States. We record revenues from sales made by sales representatives, who are paid commissions at the time the product is used in a surgical procedure
(implanted in a patient) and a purchase order is received from the hospital. We record revenues from sales to customers outside the United States at the time the product is shipped to the distributor.
We include amounts billed to customers for freight in revenue. Our international distributors, who sell the products to their customers, take title to the products, have no rights of return and assume
the risk for credit and obsolescence. Distributors are obligated to pay us within specified terms, regardless of when they sell the products. In addition, there is no price protection available to
distributors.

21

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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 corporate expenses. Information for the three months ended March 31, 2007 has been restated to reflect our current reportable segments.

Three Months EndedMarch 29,
2008

March 31,
2007Net sales:Domestic Rehabilitation Segment

$
164,140

$
67,894International Rehabilitation Segment


56,425


22,012Surgical Implant Segment


19,163


16,801Consolidated net sales

$
239,728

$
106,707Gross profit:Domestic Rehabilitation Segment

$
96,681

$
39,401International Rehabilitation Segment


33,193


10,413Surgical Implant Segment


14,770


11,611Consolidated gross profit

$
144,644

$
61,425Operating income:Domestic Rehabilitation Segment

$
11,566

$
5,593International Rehabilitation Segment


6,476


(801
)Surgical Implant Segment


2,363


643Income from operations of reportable segments


20,405


5,435Expenses not allocated to segments


(12,165
)

(5,125
)Consolidated operating income

$
8,240

$
310


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.

Geographic Area

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

Three Months EndedMarch 29,
2008

March 31,
2007Net sales:United States

$
173,773

$
77,813Germany


20,240


9,795Other Europe, Middle East, & Africa


35,452


15,242Asia Pacific


3,100


1,514Other


7,163


2,343$
239,728

$
106,707


22

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

March 29,
2008

December 31,
2007United States

$
2,561,308

$
2,592,799International


134,342


118,013$
2,695,650

$
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 month period ended March 29, 2008, we recorded approximately $11.1 million of income tax benefit on a pre-tax loss of approximately
$35.0 million, net of offsetting tax expense for foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items. During the three
month period ended March 31, 2007, we recorded approximately $2.3 million of income tax benefit on a pre-tax loss of approximately $13.4 million, 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 Interpretation No. 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 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 March 29,
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 Minneapolis, Minnesota. Internationally, we anticipate facility closures in Germany and certain other locations in an effort to integrate and realize
cost synergies in our international operations. As of March 29, 2008, approximately $3.0 million was accrued related to

23

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severance
and facility exit costs not yet paid. Additionally, approximately $1.1 million has been accrued as of March 29, 2008 related to purchase of rights to distributor territories in
connection with the DJO Merger. We also assumed $1.9 million of severance paid to a former executive officer of a business acquired by DJO Opco prior to the DJO Merger, of which the full amount
was paid during the current quarter.

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.

A
summary of the activity relating to the restructuring for the three month period ended March 29, 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





1,334





1,334Adjustments to goodwill


46


(809
)

(318
)

(1,081
)Payments made during period


(222
)

(4,769
)

(571
)

(5,562
)Adjustments to reserve


(23
)

(42
)

(123
)

(188
)Foreign currency translation


39


25





64Balance, end of period

$
1,189

$
1,826

$
1,115

$
4,130


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. Both sides have appealed the ruling and a final judgment is expected to be
received in mid-2008. We believe the amount accrued for in our condensed consolidated balance sheet as of March 29, 2008 is adequate should a loss occur.

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.

24

---



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 provides 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 have signed a settlement agreement containing these terms and have requested court approval. On April 8, 2008, the court entered an
order granting preliminary approval of the settlement and scheduled a hearing for June 13, 2008 for final approval after providing notice and opportunity to be heard to the members of the
class.

Due
to the nature of our business, we are subject to a variety of audits by government agencies and other private interests. In connection with audits of our compliance with federal
requirements for our facilities and related quality and manufacturing processes, the U.S. Food and Drug Administration (the "FDA") had previously informed us in January 2007 that they believed
that certain discrete processes related to our Surgical Implant Segment did not conform with Current Good Manufacturing Practices ("CGMP"). During the year, 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 officially concluded their
investigation concerning the January 2007 warning letter, indicating that all areas of concern were resolved satisfactorily.

The
manufacturing and marketing of orthopedic medical products entails risk of product liability. From time to time, we have been, and currently we are, subject to product liability
claims and litigation. In the future, we may again be subject to additional product liability claims, which could have a negative impact on our business. We currently carry product liability insurance
up to a limit of $25.0 million, subject to aggregate self-insurance retention of $750,000 and a deductible of $50,000 on non-invasive and $250,000 on invasive products.
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, as a result of a product liability claim, we may have to recall some of our products,
which could result in significant costs to us. As of March 29, 2008 and December 31, 2007, we have accrued approximately $2.0 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 claims.

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

25

---



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. During the three month periods ended March 29, 2008 and March 31, 2007, we paid $7.0 million and
$3.0 million, respectively, related to the monitoring fee, and recorded approximately $1.8 million and $0.8 million, respectively, as a component of selling, general and
administrative expense.

14. DERIVATIVE INSTRUMENTS

We make use of debt financing as a source of funds and are therefore exposed to interest rate fluctuations in the normal course of our business. We operate
internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Mexican Peso due to our Mexico-based
manufacturing operations that incur costs that are largely denominated in Mexican Pesos. As part of our risk management strategy, we use derivative instruments to hedge portions of our exposure.
Before acquiring a derivative instrument to hedge a specific risk, potential natural hedges are evaluated. Derivative instruments are only utilized to manage underlying exposures that arise from our
business operations. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, and the
availability, effectiveness and cost of derivative instruments. As of March 29, 2008, we had outstanding hedges in the form of forward contracts to purchase Mexican Pesos aggregating a U.S.
dollar equivalent of $16.6 million.

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
fair value of our interest rate swap agreement recorded in the accompanying condensed consolidated balance sheets as of March 29, 2008 and December 31, 2007 was a loss
of approximately $13.8 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 gains on our interest rate swap agreement of $0.8 million and $0.1 million, on a pre-tax basis, were included in interest expense in the three months ended
March 29, 2008 and March 31, 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.

15. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

On November 20, 2007, in connection with the DJO Merger, DJOFL and its direct wholly-owned subsidiary, Finco, issued the 10.875% Notes with an aggregate
principal amount of $575.0 million. On November 3, 2006, DJOFL and Finco issued the 11.75% Notes with an aggregate principal amount of $200.0 million. Finco was formed solely to
act as a co-issuer of the notes, has only nominal assets and does not conduct any operations. The Indentures generally prohibit Finco from holding any assets,

26

---



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
March 29, 2008 and December 31, 2007 and for the three months ended March 29, 2008 and March 31, 2007, respectively.

27

---





DJO Finance LLC and Subsidiaries        Unaudited Condensed Consolidating Balance Sheets        As of March 29, 2008        (in thousands)

|                                                          |                                                    | DJOFL                                                       |           | Guarantors |           | Non-
Guarantors |         | Eliminations |         | Consolidated
|--------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------------------------- | --------- | ---------- | --------- | --------------- | ------- | ------------ | ------- | ------------
|Assets                                                    |                                                    |                                                             |           |            |           |                 |         |              |         |             
|Current assets:                                           |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          | Cash and cash equivalents                          |                                                             | $         |           |           | $               | 49,169  |              | $       | 18,525      
|                                                          | Accounts receivable, net                           |                                                             |           |           |           |                 | 129,128 |              |         | 39,059      
|                                                          | Inventories, net                                   |                                                             |           |           |           |                 | 90,464  |              |         | 22,565      
|                                                          | Deferred tax assets, net                           |                                                             |           |           |           |                 | 29,849  |              |         |            
|                                                          | Prepaid expenses and other current assets          |                                                             |           | 805        |           |                 | 17,110  |              |         | 2,797       
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total current assets                                        |           |            | 805       |                 |         | 315,720      |         |             
|Property and equipment, net                               |                                                    |                                                             |          |            |           | 68,646          |         |              | 13,718  |             
|Goodwill                                                  |                                                    |                                                             |          |            |           | 1,123,916       |         |              | 82,254  |             
|Intangible assets, net                                    |                                                    |                                                             |          |            |           | 1,306,276       |         |              | 38,241  |             
|Investment in subsidiaries                                |                                                    |                                                             | 1,149,636 |            |           | 154,670         |         |              | 56,922  |             
|Intercompany receivable                                   |                                                    |                                                             | 1,364,774 |            |           |                |         |              |        |             
|Other non-current assets                                  |                                                    |                                                             | 58,454    |            |           | 4,016           |         |              | 1,798   |             
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total assets                                                |           | $          | 2,573,669 |                 | $       | 2,973,244    |         | $           
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|Liabilities, Minority Interests and Membership Equity     |                                                    |                                                             |           |            |           |                 |         |              |         |             
|Current liabilities:                                      |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          | Accounts payable                                   |                                                             | $         | 18         |           | $               | 29,480  |              | $       | 9,252       
|                                                          | Long-term debt and capital leases, current portion |                                                             |           | 10,650     |           |                 | 752     |              |         | 3,008       
|                                                          | Other current liabilities                          |                                                             |           | 52,366     |           |                 | 52,912  |              |         | 27,633      
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total current liabilities                                   |           |            | 63,034    |                 |         | 83,144       |         |             
|Long-term debt and capital leases, net of current portion |                                                    |                                                             | 1,817,237 |            |           | 217             |         |              | 1,535   |             
|Deferred tax liabilities, net                             |                                                    |                                                             |          |            |           | 367,412         |         |              | 10,604  |             
|Intercompany payable                                      |                                                    |                                                             |          |            |           | 1,275,936       |         |              | 88,838  |             
|Other non-current liabilities                             |                                                    |                                                             | 13,752    |            |           | 9,437           |         |              |        |             
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total liabilities                                           |           |            | 1,894,023 |                 |         | 1,736,146    |         |             
|Minority interests                                        |                                                    |                                                             |          |            |           |                |         |              | 1,510   |             
|Membership equity                                         |                                                    |                                                             | 679,646   |            |           | 1,237,098       |         |              | 133,499 |             
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total liabilities, minority interests and membership equity |           | $          | 2,573,669 |                 | $       | 2,973,244    |         | $           
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             

28

---



DJO Finance LLC and Subsidiaries        Unaudited Condensed Consolidating Balance Sheets        As of December 31, 2007        (in thousands)

|                                                          |                                                    | DJOFL                                                       |           | Guarantors |           | Non-
Guarantors |         | Eliminations |         | Consolidated
|--------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------------------------- | --------- | ---------- | --------- | --------------- | ------- | ------------ | ------- | ------------
|Assets                                                    |                                                    |                                                             |           |            |           |                 |         |              |         |             
|Current assets:                                           |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          | Cash and cash equivalents                          |                                                             | $         | 519        |           | $               | 44,694  |              | $       | 18,258      
|                                                          | Accounts receivable, net                           |                                                             |           |           |           |                 | 120,949 |              |         | 33,818      
|                                                          | Inventories, net                                   |                                                             |           |           |           |                 | 94,908  |              |         | 22,868      
|                                                          | Deferred tax assets, net                           |                                                             |           |           |           |                 | 29,145  |              |         |            
|                                                          | Prepaid expenses and other current assets          |                                                             |           | 9          |           |                 | 13,669  |              |         | 3,641       
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total current assets                                        |           |            | 528       |                 |         | 303,365      |         |             
|Property and equipment, net                               |                                                    |                                                             |          |            |           | 70,413          |         |              | 12,949  |             
|Goodwill                                                  |                                                    |                                                             |          |            |           | 1,132,388       |         |              | 68,894  |             
|Intangible assets, net                                    |                                                    |                                                             |          |            |           | 1,324,191       |         |              | 36,170  |             
|Investment in subsidiaries                                |                                                    |                                                             | 1,140,111 |            |           | 184,420         |         |              | 53,114  |             
|Intercompany receivable                                   |                                                    |                                                             | 1,344,358 |            |           |                |         |              |        |             
|Other non-current assets                                  |                                                    |                                                             | 61,587    |            |           | 4,220           |         |              | 1,717   |             
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total assets                                                |           | $          | 2,546,584 |                 | $       | 3,018,997    |         | $           
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|Liabilities, Minority Interests and Membership Equity     |                                                    |                                                             |           |            |           |                 |         |              |         |             
|Current liabilities:                                      |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          | Accounts payable                                   |                                                             | $         | 54         |           | $               | 34,722  |              | $       | 8,800       
|                                                          | Long-term debt and capital leases, current portion |                                                             |           | 10,650     |           |                 | 752     |              |         | 2,807       
|                                                          | Other current liabilities                          |                                                             |           | 10,116     |           |                 | 66,985  |              |         | 26,666      
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total current liabilities                                   |           |            | 20,820    |                 |         | 102,459      |         |             
|Long-term debt and capital leases, net of current portion |                                                    |                                                             | 1,816,864 |            |           | 287             |         |              | 1,447   |             
|Deferred tax liabilities, net                             |                                                    |                                                             |          |            |           | 376,778         |         |              | 9,881   |             
|Intercompany payable                                      |                                                    |                                                             |          |            |           | 1,255,008       |         |              | 89,350  |             
|Other non-current liabilities                             |                                                    |                                                             | 3,912     |            |           | 9,348           |         |              |        |             
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total liabilities                                           |           |            | 1,841,596 |                 |         | 1,743,880    |         |             
|Minority interests                                        |                                                    |                                                             |          |            |           |                |         |              | 1,215   |             
|Membership equity                                         |                                                    |                                                             | 704,988   |            |           | 1,275,117       |         |              | 111,263 |             
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             
|                                                          |                                                    | Total liabilities, minority interests and membership equity |           | $          | 2,546,584 |                 | $       | 3,018,997    |         | $           
|                                                          |                                                    |                                                             |           |            |           |                 |         |              |         |             

29

---





DJO Finance LLC and Subsidiaries        Unaudited Condensed Consolidating Statements of Operations        For the Three Month Period Ended March 29, 2008        (in thousands)

|                                                         |                                      | DJOFL        |         | Guarantors |   | Non-
Guarantors |         | Eliminations |        | Consolidated |       
|-------------------------------------------------------- | ------------------------------------ | ------------ | ------- | ---------- | - | --------------- | ------- | ------------ | ------ | ------------ | ------
|Net sales                                                |                                      | $            |        |            | $ | 196,763         |         | $            | 63,267 |              | $     
|Cost of sales                                            |                                      |              |        |            |   | 79,378          |         |              | 36,057 |              |       
|                                                         |                                      |              |         |            |   |                 |         |              |        |              |       
|                                                         |                                      | Gross profit |         |            |  |                 |         | 117,385      |        |              | 27,210
|Operating expenses:                                      |                                      |              |         |            |   |                 |         |              |        |              |       
|                                                         | Selling, general and administrative  |              |         |           |   |                 | 88,894  |              |        | 21,720       |       
|                                                         | Research and development             |              |         |           |   |                 | 5,957   |              |        | 719          |       
|                                                         | Amortization of acquired intangibles |              |         |           |   |                 | 18,590  |              |        | 526          |       
|                                                         |                                      |              |         |            |   |                 |         |              |        |              |       
|Operating income                                         |                                      |              |        |            |   | 3,944           |         |              | 4,245  |              |       
|Other income (expense):                                  |                                      |              |         |            |   |                 |         |              |        |              |       
|                                                         | Interest income                      |              |         | 15,749     |   |                 | 1,442   |              |        | 152          |       
|                                                         | Interest expense                     |              |         | (44,960    | ) |                 | (15,923 | )            |        | (1,060       | )     
|                                                         | Other income (expense), net          |              |         | 5,049      |   |                 | 376     |              |        | 967          |       
|                                                         |                                      |              |         |            |   |                 |         |              |        |              |       
|Income (loss) before income taxes and minority interests |                                      |              | (24,162 | )          |   | (10,161         | )       |              | 4,304  |              |       
|Provision (benefit) for income taxes                     |                                      |              |        |            |   | (12,157         | )       |              | 1,102  |              |       
|Minority interests                                       |                                      |              |        |            |   |                |         |              | 200    |              |       
|                                                         |                                      |              |         |            |   |                 |         |              |        |              |       
|Net income (loss)                                        |                                      | $            | (24,162 | )          | $ | 1,996           |         | $            | 3,002  |              | $     
|                                                         |                                      |              |         |            |   |                 |         |              |        |              |       

30

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DJO Finance LLC and Subsidiaries        Unaudited Condensed Consolidating Statements of Operations        For the Three Month Period Ended March 31, 2007        (in thousands)

|                                               |                                      | DJOFL        |         | Guarantors |   | Non-
Guarantors |        | Eliminations |        | Consolidated |       
|---------------------------------------------- | ------------------------------------ | ------------ | ------- | ---------- | - | --------------- | ------ | ------------ | ------ | ------------ | ------
|Net sales                                      |                                      | $            |        |            | $ | 84,991          |        | $            | 23,014 |              | $     
|Cost of sales                                  |                                      |              |        |            |   | 33,916          |        |              | 12,634 |              |       
|                                               |                                      |              |         |            |   |                 |        |              |        |              |       
|                                               |                                      | Gross profit |         |            |  |                 |        | 51,075       |        |              | 10,380
|Operating expenses:                            |                                      |              |         |            |   |                 |        |              |        |              |       
|                                               | Selling, general and administrative  |              |         |           |   |                 | 41,272 |              |        | 9,701        |       
|                                               | Research and development             |              |         |           |   |                 | 2,755  |              |        | 880          |       
|                                               | Amortization of acquired intangibles |              |         |           |   |                 | 5,862  |              |        | 645          |       
|                                               |                                      |              |         |            |   |                 |        |              |        |              |       
|Operating income (loss)                        |                                      |              |        |            |   | 1,186           |        |              | (846   | )            |       
|Other income (expense):                        |                                      |              |         |            |   |                 |        |              |        |              |       
|                                               | Interest income                      |              |         | 3,959      |   |                 | 737    |              |        | 63           |       
|                                               | Interest expense                     |              |         | (13,942    | ) |                 | (4,198 | )            |        | (423         | )     
|                                               | Other income (expense), net          |              |         | (1,104     | ) |                 | 59     |              |        | 84           |       
|                                               |                                      |              |         |            |   |                 |        |              |        |              |       
|Loss before income taxes and minority interest |                                      |              | (11,087 | )          |   | (2,216          | )      |              | (1,122 | )            |       
|Provision (benefit) for income taxes           |                                      |              |        |            |   | (2,646          | )      |              | 305    |              |       
|Minority interests                             |                                      |              |        |            |   |                |        |              | 77     |              |       
|                                               |                                      |              |         |            |   |                 |        |              |        |              |       
|Net income (loss)                              |                                      | $            | (11,087 | )          | $ | 430             |        | $            | (1,504 | )            | $     
|                                               |                                      |              |         |            |   |                 |        |              |        |              |       

31

---





DJO Finance LLC and Subsidiaries        Unaudited Condensed Consolidating Statements of Cash Flows        For the Three Month Period Ended March 29, 2008        (in thousands)

|                                                                                                   |                                                              | DJOFL                                               |                                                     | Guarantors |        | Non-
Guarantors |         | Eliminations |        | Consolidated |      
|-------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------------------- | ---------- | ------ | --------------- | ------- | ------------ | ------ | ------------ | -----
|OPERATING ACTIVITIES:                                                                              |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|Net income (loss)                                                                                  |                                                              | $                                                   | (24,162                                             | )          | $      | 1,996           |         | $            | 3,002  |              | $    
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   | Depreciation                                                 |                                                     |                                                     |           |        |                 | 4,636   |              |        | 1,222        |      
|                                                                                                   | Amortization of intangibles                                  |                                                     |                                                     |           |        |                 | 18,590  |              |        | 526          |      
|                                                                                                   | Amortization of debt issuance costs                          |                                                     |                                                     | 3,506      |        |                 |        |              |        |             |      
|                                                                                                   | Stock-based compensation                                     |                                                     |                                                     |           |        |                 | 611     |              |        |             |      
|                                                                                                   | Asset impairments and loss on disposal of assets             |                                                     |                                                     |           |        |                 | 115     |              |        | 57           |      
|                                                                                                   | Deferred income taxes                                        |                                                     |                                                     |           |        |                 | (12,208 | )            |        |             |      
|                                                                                                   | Non-cash income from subsidiaries                            |                                                     |                                                     | (5,049     | )      |                 |        |              |        |             |      
|                                                                                                   | Provision for doubtful accounts and sales returns            |                                                     |                                                     |           |        |                 | 4,264   |              |        | 176          |      
|                                                                                                   | Inventory reserves                                           |                                                     |                                                     |           |        |                 | 1,449   |              |        | 69           |      
|                                                                                                   | Minority interests                                           |                                                     |                                                     |           |        |                 |        |              |        | 200          |      
|Changes in operating assets and liabilities, net of acquired assets and liabilities:               |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   | Accounts receivable                                          |                                                     |                                                     |           |        |                 | (12,393 | )            |        | (3,779       | )    
|                                                                                                   | Inventories                                                  |                                                     |                                                     |           |        |                 | 3,682   |              |        | 944          |      
|                                                                                                   | Prepaid expenses, other assets and liabilities               |                                                     |                                                     | (795       | )      |                 | (3,739  | )            |        | 1,075        |      
|                                                                                                   | Accounts payable and other current liabilities               |                                                     |                                                     | 42,212     |        |                 | (18,238 | )            |        | (380         | )    
|                                                                                                   |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   |                                                              | Net cash provided by (used in) operating activities |                                                     |            | 15,712 |                 |         | (11,235      | )      |              | 3,112
|INVESTING ACTIVITIES:                                                                              |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   | Acquisition of intangible assets                             |                                                     |                                                     |           |        |                 | (675    | )            |        |             |      
|                                                                                                   | Purchases of property and equipment                          |                                                     |                                                     |           |        |                 | (2,962  | )            |        | (1,466       | )    
|                                                                                                   | Proceeds from sale of assets                                 |                                                     |                                                     |           |        |                 | 2       |              |        |             |      
|                                                                                                   | Other, net                                                   |                                                     |                                                     |           |        |                 | (450    | )            |        | 904          |      
|                                                                                                   |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   |                                                              | Net cash used in investing activities               |                                                     |            |       |                 |         | (4,085       | )      |              | (562 
|FINANCING ACTIVITIES:                                                                              |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   | Intercompany                                                 |                                                     |                                                     | (16,231    | )      |                 | 19,865  |              |        | (3,634       | )    
|                                                                                                   | Payments on long-term obligations                            |                                                     |                                                     |           |        |                 | (70     | )            |        | (38          | )    
|                                                                                                   |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   |                                                              |                                                     | Net cash provided by (used in) financing activities |            |        | (16,231         | )       |              | 19,795 |              |      
|                                                                                                   | Effect of exchange rate changes on cash and cash equivalents |                                                     |                                                     |           |        |                 |        |              |        | 1,389        |      
|                                                                                                   |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|                                                                                                   | Net increase (decrease) in cash and cash equivalents         |                                                     |                                                     | (519       | )      |                 | 4,475   |              |        | 267          |      
|Cash and cash equivalents at beginning of period                                                   |                                                              |                                                     | 519                                                 |            |        | 44,694          |         |              | 18,258 |              |      
|                                                                                                   |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      
|Cash and cash equivalents at end of period                                                         |                                                              | $                                                   |                                                    |            | $      | 49,169          |         | $            | 18,525 |              | $    
|                                                                                                   |                                                              |                                                     |                                                     |            |        |                 |         |              |        |              |      

32

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DJO Finance LLC and Subsidiaries        Unaudited Condensed Consolidating Statements of Cash Flows        For the Three Month Period Ended March 31, 2007        (in thousands)

|                                                                                                   |                                                                | DJOFL                                               |                                                     | Guarantors |        | Non-
Guarantors |         | Eliminations |        | Consolidated |     
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ---------- | ------ | --------------- | ------- | ------------ | ------ | ------------ | ----
|OPERATING ACTIVITIES:                                                                              |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|Net income (loss)                                                                                  |                                                                | $                                                   | (11,087                                             | )          | $      | 430             |         | $            | (1,504 | )            | $   
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   | Depreciation                                                   |                                                     |                                                     |           |        |                 | 2,394   |              |        | 872          |     
|                                                                                                   | Amortization of intangibles                                    |                                                     |                                                     |           |        |                 | 5,862   |              |        | 645          |     
|                                                                                                   | Amortization of debt issuance costs                            |                                                     |                                                     | 960        |        |                 |        |              |        |             |     
|                                                                                                   | Stock-based compensation                                       |                                                     |                                                     |           |        |                 | 384     |              |        |             |     
|                                                                                                   | Asset impairments and loss on disposal of assets               |                                                     |                                                     |           |        |                 | (17     | )            |        | 150          |     
|                                                                                                   | Deferred income taxes                                          |                                                     |                                                     |           |        |                 | (2,923  | )            |        | (625         | )   
|                                                                                                   | Non-cash income from subsidiaries                              |                                                     |                                                     | 1,104      |        |                 |        |              |        |             |     
|                                                                                                   | Provision for doubtful accounts and sales returns              |                                                     |                                                     |           |        |                 | 2,236   |              |        | 86           |     
|                                                                                                   | Inventory reserves                                             |                                                     |                                                     |           |        |                 | 203     |              |        | 65           |     
|                                                                                                   | Minority interests                                             |                                                     |                                                     |           |        |                 |        |              |        | 77           |     
|                                                                                                   | Excess tax benefit associated with stock option exercises      |                                                     |                                                     |           |        |                 | (17     | )            |        |             |     
|                                                                                                   | Net effect of discontinued operations, net of gain on disposal |                                                     |                                                     |           |        |                 | 376     |              |        |             |     
|Changes in operating assets and liabilities, net of acquired assets and liabilities:               |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   | Accounts receivable                                            |                                                     |                                                     |           |        |                 | (11,599 | )            |        | (742         | )   
|                                                                                                   | Inventories                                                    |                                                     |                                                     |           |        |                 | 1,601   |              |        | 1,885        |     
|                                                                                                   | Prepaid expenses, other assets and liabilities                 |                                                     |                                                     | 21         |        |                 | (5,108  | )            |        | (282         | )   
|                                                                                                   | Accounts payable and other current liabilities                 |                                                     |                                                     | 5,700      |        |                 | 7,540   |              |        | (563         | )   
|                                                                                                   |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   |                                                                | Net cash provided by (used in) operating activities |                                                     |            | (3,302 | )               |         | 1,362        |        |              | 64  
|INVESTING ACTIVITIES:                                                                              |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   | Acquisition of businesses, net of cash acquired                |                                                     |                                                     |           |        |                 | (4,200  | )            |        |             |     
|                                                                                                   | Proceeds from sale of assets                                   |                                                     |                                                     |           |        |                 | 3,480   |              |        | 93           |     
|                                                                                                   | Purchases of property and equipment                            |                                                     |                                                     |           |        |                 | (3,780  | )            |        | (817         | )   
|                                                                                                   |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   |                                                                | Net cash used in investing activities               |                                                     |            |       |                 |         | (4,500       | )      |              | (724
|FINANCING ACTIVITIES:                                                                              |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   | Intercompany                                                   |                                                     |                                                     | 4,171      |        |                 | (4,132  | )            |        | (39          | )   
|                                                                                                   | Payments on long-term obligations                              |                                                     |                                                     | (873       | )      |                 | (197    | )            |        | 82           |     
|                                                                                                   | Excess tax benefit associated with stock option exercises      |                                                     |                                                     | 17         |        |                 |        |              |        |             |     
|                                                                                                   | Dividend paid to minority interests                            |                                                     |                                                     |           |        |                 |        |              |        | (226         | )   
|                                                                                                   |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   |                                                                |                                                     | Net cash provided by (used in) financing activities |            |        | 3,315           |         |              | (4,329 | )            |     
|                                                                                                   | Effect of exchange rate changes on cash and cash equivalents   |                                                     |                                                     |           |        |                 |        |              |        | 99           |     
|                                                                                                   |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|                                                                                                   | Net increase (decrease) in cash and cash equivalents           |                                                     |                                                     | 13         |        |                 | (7,467  | )            |        | (744         | )   
|Cash and cash equivalents at beginning of period                                                   |                                                                |                                                     | 12                                                  |            |        | 22,650          |         |              | 9,017  |              |     
|                                                                                                   |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     
|Cash and cash equivalents at end of period                                                         |                                                                | $                                                   | 25                                                  |            | $      | 15,183          |         | $            | 8,273  |              | $   
|                                                                                                   |                                                                |                                                     |                                                     |            |        |                 |         |              |        |              |     

33

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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" above. 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.



34

---





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 further information regarding our segments.

Set
forth below is net revenue, gross profit and operating income information for our reporting segments for the three months ended March 29, 2008 and March 31, 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

35

---



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

Three Months Ended($ in thousands)

March 29,
2008

March 31,
2007Domestic Rehabilitation:Net sales

$
164,140

$
67,894Gross profit

$
96,681

$
39,401Gross profit margin


58.9
%

58.0
%Operating income

$
11,566

$
5,593Operating income as a percent of net segment sales


7.0
%

8.2
%International Rehabilitation:Net sales

$
56,425

$
22,012Gross profit

$
33,193

$
10,413Gross profit margin


58.8
%

47.3
%Operating income (loss)

$
6,476

$
(801
)Operating income (loss) as a percent of net segment sales


11.5
%

(3.6
)%Surgical Implant:Net sales

$
19,163

$
16,801Gross profit

$
14,770

$
11,611Gross profit margin


77.1
%

69.1
%Operating income

$
2,363

$
643Operating income as a percent of net segment sales


12.3
%

3.8
%


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.

36

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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 |                                                
|------------------------ | ------------------------------------ | ------------------ | -----------------------------------------------
|
|Net sales                |                                      | $                  | 239,728                                        
|Cost of sales            |                                      |                    | 95,084                                         
|                         |                                      |                    |                                                
|                         |                                      | Gross profit       |                                                
|Operating expenses:      |                                      |                    |                                                
|                         | Selling, general and administrative  |                    |                                                
|                         | Research and development             |                    |                                                
|                         | Amortization of acquired intangibles |                    |                                                
|                         |                                      |                    |                                                
|                         |                                      |                    | Operating income                               
|                         | Other income (expense):              |                    |                                                
|                         |                                      | Interest income    |                                                
|                         |                                      | Interest expense   |                                                
|                         | Other income, net                    |                    |                                                
|                         |                                      |                    |                                                
|                         |                                      |                    | Loss before income taxes and minority interests
|Benefit for income taxes |                                      |                    | (11,055                                        
|Minority interests       |                                      |                    | 200                                            
|                         |                                      |                    |                                                
|                         |                                      |                    |                                                
|                         |                                      |                    |                                                

Three Months Ended March 29, 2008 compared to Three Months Ended March 31, 2007

Net Sales.Our net sales for the three month period ended March 29, 2008 were $239.7 million, representing an
increase of 124.7% from net sales of $106.7 million for the three month period ended March 31, 2007, driven by business acquisitions and continued growth across our product lines. Sales
in the Domestic Rehabilitation and International Rehabilitation Segments benefited from sales of products we acquired in the DJO Merger and the IOMED and Saunders acquisitions, which were completed in
November 2007, August 2007, and July 2007, respectively. For the three months ended March 29, 2008, we generated 27.5% of our net sales from customers outside the United
States as compared to 27.1% for the three months ended March 31, 2007. Net sales were also positively impacted during the three months ended March 29, 2008 by $6.2 million due to
favorable changes in foreign exchange rates compared to rates in effect during the three months ended March 31, 2007.

37

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The
following table sets forth the mix of our net sales for the three month period ended March 29, 2008 compared to the three month period ended March 31, 2007:

|                                     |  | Three Months Ended |         |  |       |   |  
|------------------------------------ |  | ------------------ | ------- |  | ----- | - | -
|
|Domestic Rehabilitation Segment      |  | $                  | 164,140 |  | 68.5  | % | $
|International Rehabilitation Segment |  |                    | 56,425  |  | 23.5  |   |  
|Surgical Implant Segment             |  |                    | 19,163  |  | 8.0   |   |  
|                                     |  |                    |         |  |       |   |  
|Consolidated net sales               |  | $                  | 239,728 |  | 100.0 | % | $
|                                     |  |                    |         |  |       |   |  

Net
sales in our Domestic Rehabilitation Segment were $164.1 million during the three month period ended March 29, 2008, reflecting an increase of 141.8% over net sales of
$67.9 million during the three month period ended March 31, 2007, driven primarily by the addition of sales from the DJO Merger and the IOMED and Saunders acquisitions as discussed above
and continued growth in our core domestic markets.

Net
sales in our International Rehabilitation Segment for the three month period ended March 29, 2008 were $56.4 million, reflecting an increase of 156.3% from net sales of
$22.0 million for the three month period ended March 31, 2007, driven primarily by the addition of sales from the DJO Merger and the IOMED and Saunders acquisitions and continued growth
in our core international markets. Net sales were also positively impacted by $6.2 million during the three months ended March 29, 2008 due to favorable changes in foreign exchange rates
compared to rates in effect during the three months ended March 31, 2007.

Net
sales in our Surgical Implant Segment increased to $19.2 million from $16.8 million during the three month period ended March 29, 2008, representing a 14.1%
increase over the same period in the prior year, driven by growth in our hip, knee and shoulder implant product lines.

Sales
of new products, which are products that have been on the market less than one year in all of our business segments, were $13.8 million for the three months ended
March 29, 2008, compared to new product sales of $6.0 million during the three months ended March 31, 2007.

Gross Profit.Consolidated gross profit as a percentage of net sales increased to 60.3% during the three month period ended
March 29, 2008 from 57.6% during the three month period ended March 31, 2007. The increase in our gross profit margin is primarily attributable to cost improvement initiatives completed
following the three months ended March 31, 2007 and changes in our product mix due to our recent acquisitions. Consolidated gross profit was negatively impacted by $4.7 million and
$4.1 million in the three month periods ended March 29, 2008 and March 31, 2007, respectively, related to the write-up to fair market value of inventory required by
purchase accounting in connection with recent business acquisitions and the Prior Transaction. Gross profit in our Domestic Rehabilitation Segment as a percentage of net sales increased to 58.9%
during the three month period ended March 29, 2008 from 58.0% during the three month period ended March 31, 2007. Gross profit in our Domestic Rehabilitation Segment was negatively
impacted by $4.7 million and $1.0 million in the three month periods ended March 29, 2008 and March 31, 2007, respectively, related to the write-up to fair
market value of inventory in connection with the DJO Merger and the Prior Transaction. Gross profit in our International Rehabilitation Segment as a percentage of net sales increased to 58.8% during
the three month period ended March 29, 2008 from 47.3% during the three month period ended March 31, 2007. Gross profit in our International Rehabilitation Segment was negatively
impacted by $1.7 million in the three month period ended March 31, 2007 related to the write-up to fair market value of inventory acquired in connection with an acquisition.
Gross profit in our Surgical Implant Segment as a percentage of gross sales increased to 77.1% during the three month period ended March 29, 2008 from 69.1% during the three month period ended
March 31, 2007. Gross profit in our Surgical Implant

38

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Segment
was negatively impacted by $1.3 million in the three month period ended March 31, 2007 related to the write-up to fair market value of inventory in connection with
the Prior Transaction.

Selling, General and Administrative.Our selling, general and administrative expenses increased to $110.6 million
during the three month period ended March 29, 2008 from $51.0 million during the three month period ended March 31, 2007 due to additional expenses associated with the operations
of our recent acquisitions. In addition, in both 2008 and 2007, we incurred certain non-cash and non-recurring expenses of $8.8 million and $2.2 million,
respectively, in connection with those acquisitions, other acquisitions completed in 2006 and the Prior Transaction which we do not believe are reflective of the ongoing operations of our business.
Excluding these expenses, our selling, general and administrative expenses increased to $101.8 million in the three month period ended March 29, 2008 compared to $48.7 million in
the three month period ended March 31, 2007, or 42.5% of net sales in the three month period ended March 29, 2008 compared to 45.7% in the three month period ended March 31, 2007.
The following table sets forth the expenses incurred in connection with our recent acquisitions which we believe are directly attributable to the acquisitions and the Prior Transaction and not to our
ongoing operations.

Three Months Ended($ in thousands)

March 29, 2008

March 31, 2007Severance and relocation expenses

$
1,060

$
142Restructuring expenses


7,781


2,107$
8,841

$
2,249


Severance
and relocation expenses for the three month period ended March 29, 2008 included $0.8 million of severance payments to former ReAble executives,
$0.1 million related to other severance-related items and employee relocation and $0.2 million of employee severance incurred in connection with other recent acquisitions. Restructuring
expenses for the three month period ended March 29, 2008 included $5.2 million, $1.2 million and $0.4 million of integration costs incurred in connection with the DJO
Merger, the IOMED acquisition and other recent acquisitions, respectively, and $1.0 million of integration costs related to the Prior Transaction. Restructuring expenses for the three month
period ended March 29, 2007 included $0.9 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 $6.7 million during the three month period
ended March 29, 2008 from $3.6 million for the three month period ended March 31, 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 3.4% in the prior year first 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 lives ranging from one to twenty years. Our amortization of acquired intangibles increased to
$19.1 million during the three months ended March 29, 2008 compared to $6.5 million during the three months ended March 31, 2007.

Interest Expense.Our interest expense increased to $45.2 million during the three month period ended March 29,
2008 compared to interest expense of $14.0 million during the three month period ended March 31, 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.

39

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Benefit for Income Taxes.For the three month period ended March 29, 2008, we recorded $11.1 million of income
tax benefit on a pre-tax loss of $35.0 million, net of offsetting tax expense related to foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other
non-deductible items. During the three month period ended March 31, 2007, we recorded $2.3 million of income tax benefit on a pre-tax loss of
$13.4 million, net of offsetting tax expense related to foreign taxes, deferred taxes on the assumed repatriation of foreign earnings, and other non-deductible items.

Net loss.We had a net loss of $24.2 million during the three month period ended March 29, 2008 compared to a
net loss of $11.1 million during the three month period ended March 31, 2007 due to the factors discussed above.

Liquidity and Capital Resources

Cash flows were as follows (in thousands):

Three Months EndedMarch 29,
2008

March 31,
2007Cash provided by (used in) operating activities

$
7,433

$
(2,041
)Cash used in investing activities


(4,491
)

(5,059
)Cash used in financing activities


(108
)

(1,197
)Effect of exchange rate on cash and cash equivalents


1,389


99Net increase (decrease) in cash and cash equivalents

$
4,223

$
(8,198
)


Cash Flows

Operating activities provided $7.4 million of cash during the three months ended March 29, 2008 and used $2.0 million of cash during the
three months ended March 31, 2007. Cash provided by operating activities for the three months ended March 29, 2008 primarily reflects a positive net change in operating assets and
liabilities partially offset by our net loss. Cash used in operating activities for the three months ended March 31, 2007 reflects our net loss, partially offset by non-cash
charges, and a negative net change in operating assets and liabilities.

Investing
activities used $4.5 million of cash during the three months ended March 29, 2008, compared to $5.1 million during the three months ended March 31,
2007. Cash used in investing activities for the three months ended March 29, 2008 was primarily used for purchases of property and equipment amounting to $4.3 million. Cash used in
investing activities for the three months ended March 31, 2007 included purchases of property and equipment amounting to $4.4 million and an acquisition of certain assets amounting to
$4.2 million, partially offset by proceeds from a sale of assets amounting to $3.6 million.

Financing
activities used $0.1 million of cash during the three months ended March 29, 2008, compared to $1.2 million during the three months March 31, 2007.
Financing activities in both periods consisted of payments on long-term obligations.

Indebtedness

As of March 29, 2008, we had outstanding approximately $1,833.4 million in aggregate indebtedness, and we had $99.1 million of available
borrowings under our revolving credit facility, net of $0.9 million used for letters of credit. We had cash and cash equivalents aggregating $67.7 million at March 29, 2008. 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

40

---



expenditures,
and debt repayment obligations. While we currently believe that we will be able to meet all of our financial covenants imposed by our Senior Secured Credit Facility, there is no
assurance that we will in fact be able to do so or that, if we do not, we will be able to obtain from our lenders waivers of default or amendments to the Senior Secured Credit Facility in the future.

We
and our subsidiaries, affiliates or significant shareholders (including Blackstone and its affiliates) may from time to time, in our or their sole discretion, purchase, repay, redeem
or retire any of our outstanding debt or equity securities (including any publicly issued debt or equity securities), in privately negotiated or open market transactions, by tender offer or otherwise.

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 the 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 March 29, 2008, our weighted average interest
rate for all borrowings under the Senior Secured Credit Facility was 7.83%.

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:



41

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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 EBITDA 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"). We are subject
to these financial covenants beginning as of June 28, 2008.

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:



Covenant Compliance

As described above, our Senior Secured Credit Facility and the Indentures contain various covenants that limit our ability to engage in specified types of
transactions. In addition, under our

42

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Senior
Secured Credit Facility, we are required to satisfy and maintain specified financial ratios, and under the Indentures, our ability to engage in activities such as incurring additional
indebtedness, making investments and paying dividends is tied to ratios based on Adjusted EBITDA, as defined below.

Adjusted
EBITDA is defined as EBITDA 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 EBITDA and 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. We also
present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by security analysts, investors and other interested parties in the
evaluation of high yield issuers, many of which present EBITDA when reporting their results.

EBITDA
and Adjusted EBITDA are presented as supplemental measures of our performance and are not required by, or presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not
be considered as alternatives 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.

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.

43

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The following table provides a reconciliation from our net loss to EBITDA and Adjusted EBITDA for the three and twelve months ended March 29, 2008. The terms and related
calculations are defined in the credit agreement relating to our Senior Secured Credit Facility and the Indentures.

|                                                                               |  | (unaudited) |        
|------------------------------------------------------------------------------ |  | ----------- | -------
|
|Net loss                                                                       |  | $           | (24,162
|Loss on early extinguishment of debt and interest expense, net                 |  |             | 44,600 
|Income tax benefit                                                             |  |             | (11,055
|Depreciation and amortization                                                  |  |             | 24,777 
|                                                                               |  |             |        
|EBITDA                                                                         |  |             | 34,160 
|Non-cash items(a)                                                              |  |             | 5,311  
|Non-recurring items(b)                                                         |  |             | 8,841  
|Other adjustment items, before cost savings(c)                                 |  |             | 465    
|Other adjustment itemscost savings applicable for twelve month period only(d) |  |             | N/A    
|                                                                               |  |             |        
|Adjusted EBITDA                                                                |  | $           | 48,777 
|                                                                               |  |             |        

---

(unaudited)(in thousands)

Three Months
Ended March 29,
2008

Twelve Months
Ended March 29,
2008Stock compensation expense

$
611

$
1,768Loss on disposition of assets





125Purchase accounting adjustments(1)


4,700


17,651Total non-cash items

$
5,311

$
19,544




44

---





(unaudited)(in thousands)

Three Months
Ended March 29,
2008

Twelve Months
Ended March 29,
2008Employee severance and relocation(1)

$
1,060

$
17,290Restructuring expense(2)


7,781


16,591Reserve methodology change(3)





12,997Total non-recurring items

$
8,841

$
46,878




45

---





(unaudited)(in thousands)

Three Months
Ended March 29,
2008

Twelve Months
Ended March 29,
2008Transaction expenses(1)

$
1,812

$
10,191Minority interest


200


538Pre-acquisition EBITDA(2)





76,825Other(3)


(1,547
)

(2,136
)Discontinued operations





(28
)Total other adjustment items, before cost savings

$
465

$
85,390




Our
covenant requirements and pro forma ratios as of March 29, 2008 are as follows:

|                                  |                                                                                                                 | Covenant Requirements |        | Actual Ratios
|--------------------------------- | --------------------------------------------------------------------------------------------------------------- | --------------------- | ------ | -------------
|Senior Secured Credit Facility(1) |                                                                                                                 |                       |        |              
|                                  | Consolidated net senior debt to Adjusted EBITDA                                                                 |                       | *      |              
|10.875% Notes and 11.75% Notes    |                                                                                                                 |                       |        |              
|                                  | Minimum ratio of Adjusted EBITDA to fixed charges required to incur additional debt pursuant to ratio provision |                       | 2.00:1 |              

---

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

46

---



charges
ratio or having a ratio of at least 2.00:1 on a pro forma basis after giving effect to such incurrence. Additionally, our ability to make certain restricted payments is also tied to having an
Adjusted EBITDA to fixed charge ratio of at least 2.00:1 on a pro forma basis. Our ratio of Adjusted EBITDA to fixed charges for the twelve months ended March 29, 2008, measured on that date,
would have been 1.52:1. 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 to 1.0. 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.

Recent Accounting Pronouncements

For information on recent accounting pronouncements impacting our business, see Note 1 to our unaudited condensed consolidated financial statements
included in Part I. Item 1 herein.

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 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.

47

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For
the first three months of 2008, we reserved for and reduced gross revenues from third party payors by 34% 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 72% of our net revenues for the three month period ended March 29, 2008 and approximately
65% of our net accounts receivable at March 29, 2008. We experienced write-offs of less than 1% of related net revenues for the three month period ended March 29, 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 28% of our net revenues for the three month period ended
March 29, 2008 and approximately 35% of our net accounts receivable at March 29, 2008. For the three months ended
March 29, 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 for newer product inventories, as appropriate, based on any minimum purchase commitments and our level of sales of the new products.

48

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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 $151.7 million at March 29, 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 March 29, 2008, we maintained a valuation allowance of
$16.6 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.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

Our primary exposure is to changing interest rates. We have historically managed our interest rate risk by balancing the amounts of our fixed and variable debt.
For our fixed rate debt, interest rate changes may affect the market value of the debt, but do not impact our earnings or cash flow. Conversely, for our variable rate debt, interest rate changes
generally do not affect the fair market value of the debt, but do impact future earnings and cash flow, assuming other factors are held constant. We are exposed to interest rate risk as a result of
our borrowings under our Senior Secured Credit Facility, which bear interest at floating rates based on the LIBOR or the prime rate of Credit Suisse. As of March 29, 2008, we had
$1,065.0 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. 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 months ended March 29, 2008, by approximately
$1.3 million. All of our other debt of approximately $775.0 million was fixed rate debt at March 29, 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. During the first three months of 2008, our average monthly sales denominated in foreign currencies was approximately $18.6 million, of
which $14.9 million 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 March 29, 2008, we had outstanding hedges in the form of forward contracts to purchase Mexican Pesos aggregating a U.S. dollar equivalent of $16.6 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
currently carry product liability insurance up to a limit of $25.0 million, subject to aggregate self-insurance retention of $750,000 and a deductible of $50,000 on
non-invasive and $250,000 on invasive products. Our insurance policy is subject to annual renewal. We believe our current product liability insurance coverage is adequate. As of
March 29, 2008, we exceeded the coverage limits for certain historical product liability claims. The estimated exposure 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

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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 provides 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 have signed a settlement agreement containing these terms and have requested court approval. On April 8, 2008, the court entered an
order granting preliminary approval of the settlement and scheduled a hearing for June 13, 2008 for final approval after providing notice and opportunity to be heard to the members of the
class.

ITEM 1A.    RISK FACTORS

For a discussion of the Company's potential risks or uncertainties, please see Part I, Item 1A, of the Company's 2007 Annual Report on
Form 10-K filed with the Commission on March 28, 2008. There have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company's
2007 Annual Report on Form 10-K.

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



ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.    OTHER INFORMATION



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 on April 18, 2007 (File No. 333-142188)).
|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 LLC
|------------------ |  | ---------------
|Date: May 12, 2008 |  | By:            
|Date: May 12, 2008 |  | By:            

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