CYBEX INTERNATIONAL INC, 10-K, 1997-03-28

CYBEX INTERNATIONAL INC
10-K, 1997-03-28
SPORTING & ATHLETIC GOODS, NEC

Previous: LOUISVILLE GAS & ELECTRIC CO /KY/, 10-K405, 1997-03-28

Next: ARROW MAGNOLIA INTERNATIONAL INC, 10KSB, 1997-03-28

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

Commission file number
0-4538

CYBEX INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

New York 11-1731581
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2100 Smithtown Avenue, Ronkonkoma, New York 11779
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code (516) 585-9000
------------------------------

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
- --------------------------------------------------------------------------------

Common Stock, $.10 Par Value American Stock Exchange
- --------------------------------------------------------------------------------

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

NONE
- --------------------------------------------------------------------------------
(Title of Class)

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 17, 1997

Common Stock, $.10 Par Value -- $35,334,652
- --------------------------------------------------------------------------------

The number of shares outstanding of each of the registrant's classes of common
stock, as of March 17, 1997

Common Stock, $.10 Par Value -- 4,378,379 shares
- --------------------------------------------------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from the Registrant's definitive proxy statement, which involves
the election of directors, to be filed with the Commission pursuant to
Regulation 14A, or if such proxy statement is not filed with the Commission on
or before 120 days after the end of the fiscal year covered by this Report, such
information will be included in an amendment to this Report filed no later than
the end of such 120-day period.

<PAGE>

PART I
ITEM 1. BUSINESS

GENERAL

CYBEX International, Inc., formerly Lumex, Inc. (the "Company"), designs,
develops, manufactures and sells/distributes strength training and
cardiovascular exercise equipment used in fitness conditioning, sports medicine
and rehabilitation. These products are marketed under a number of trademarks
leading with the name CYBEX(R). The Company operates in one industry segment,
the exercise equipment industry, which includes institutional fitness
facilities, sports teams, research/educational centers, hospitals, private
practice physical therapy clinics and rehabilitation centers.

On April 3, 1996, the Company sold substantially all of the assets of its Lumex
Division business, as more fully described below under the caption
"Restructuring Plan".

On December 27, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") whereby a wholly-owned subsidiary of the Company would
be merged with and into Trotter Inc. ("Trotter"), a manufacturer of premium
quality cardiovascular and strength equipment for the home and commercial
fitness markets. The Merger Agreement is more fully described under the caption
"Recent Developments".

The Company has a wholly-owned finance subsidiary, CYBEX Financial Corp.
("CFC"), which provides capital equipment financing for CYBEX products primarily
to its domestic customer base. CFC is operated as a separate business unit with
separate profit and loss responsibilities.

Founded in 1947, the Company is a New York based corporation. Its executive
offices are currently located at 2100 Smithtown Avenue, Ronkonkoma, New York
11779; the telephone number is (516) 585-9000.

RESTRUCTURING PLAN

In December 1995, the Board of Directors of the Company announced a strategic
plan to restructure the Company's operations which included the decision to sell
the Lumex Division business. The Lumex Division had been engaged in the
healthcare industry for 49 years designing, manufacturing and marketing a wide
range of specialty patient seating, bath safety products, mobility products and
therapeutic support systems for use by patients at home and in health care
facilities such as hospitals and nursing homes.

On April 3, 1996, the Company completed the sale of substantially all the assets
of its Lumex Division to Fuqua Enterprises, Inc. ("Fuqua") for $40,750,000 in
cash. Accordingly, the Company has reflected the results of operations of the
Lumex Division as Discontinued Operations for financial statement purposes for
all years presented, as further described in Note B to the accompanying
consolidated financial statements.

The asset sale agreement with Fuqua contains representations, warranties,
covenants and indemnification provisions of the Company customary for
transactions of this type. The representations, warranties and covenants of all
parties to the agreement generally survive for one year after the date of
closing. The agreement also provides for a post-closing adjustment to the sales
price based on the change in the net assets of the Lumex Division from December
31, 1995, through the closing date. The Company has received notice from Fuqua
that Fuqua believes the stated amount of the net assets of the Lumex Division as
of the closing date are overstated by $9.3 million. The

2
<PAGE>

Company has determined to proceed to arbitration to resolve this dispute. An
initial submission to the arbitrator was made by Fuqua in March 1997, and the
Company's initial submission is due on or about April 25, 1997. Fuqua has also
notified the Company of claims for breaches of certain of the Company's
representations and warranties in the asset sale agreement involving
substantially the same matters submitted to the arbitrator. The Company recorded
a $4.0 million charge to discontinued operations in 1996 ($3.6 million in the
fourth quarter) representing a change in its estimated loss on the sale of the
Lumex Division including accruals for professional fees and other expenses.

In connection with the December 1995 restructuring announcement, the Company
also initiated a plan to restructure its remaining CYBEX operations to improve
manufacturing processes, increase productivity and competitiveness and sharply
reduce operating expenses. As part of its efforts to reduce operating costs the
Company consolidated its separate rehabilitation and fitness sales forces into
one combined group, phased down production of unprofitable product lines and
eliminated approximately 75 sales, administrative and engineering positions. The
Company recorded a 1995 fourth quarter charge to earnings of approximately $8.2
million before taxes, which charges included, among other items, severance
payments related to organizational restructuring of the CYBEX business and the
writedown of inventories specific to its older rehabilitation products (see Note
C to the consolidated financial statements).

PRODUCTS

The Company develops, manufactures, distributes and services fitness and
rehabilitation equipment. These products can generally be grouped into three
major categories: strength systems; cardiovascular exercise products; and
testing and rehabilitation products.

The contribution to net sales of the Company's strength systems, cardiovascular
and testing and rehabilitation product lines over the past three years is as
follows (dollars in millions):
<TABLE>
<CAPTION>

1994 1995 1996
-------------------------- -------------------------- --------------------------
Net Net Net
Sales Percent Sales Percent Sales Percent
----------- ----------- ------------ ------------ ----------- -----------

<S> <C> <C> <C> <C> <C> <C>
Strength Systems $39.8 57% $44.7 59% $51.5 64%
Cardiovascular Products 14.9 21 16.5 22 16.4 20
Testing and Rehab Products 15.7 22 14.2 19 12.8 16
----------- ----------- ------------ ------------ ----------- -----------
$70.4 100% $75.4 100% $80.7 100%
=========== =========== ============ ============ =========== ===========
</TABLE>

Strength Systems - The Company manufactures variable resistance weight training
machines marketed under the trademark "CYBEX Strength Systems" (previously as
"Eagle Fitness Systems by CYBEX"). The Company entered the strength training
market in 1983 with its acquisition of Eagle Performance Systems, Inc., and has
expanded the number of variable resistance machines since then from 12 to 29.
Each machine exercises a major muscle group in relative isolation, and features
adjustable seats and pads, utilizes aircraft cable to provide a smooth and quiet
low maintenance operation, weight selection adjustments that are accessible from
the exercise position and design configurations that maximize the use of floor
space.

In 1989, the Company introduced a free-weight product line of 17 benches and
stations. Since then, the free-weight product line has been expanded to 43. The
free-weight line is complemented by a line of barbells and plates.

3
<PAGE>

In 1990, CYBEX Strength Systems were expanded to include the CYBEX "Modular
Systems". This product line, while inheriting the advanced design and high
performance features of the CYBEX variable resistance and free weight strength
systems, introduced a revolutionary concept to the multi-gym field. Each Modular
System may be configured to accommodate up to eight stations, including four
selectorized weight and four body weight stations, from 25 available work
stations all utilizing a fraction of the space that individual weight stations
would require. The CYBEX "Tandem System" integrates two Modular Systems in a
back-to-back format to create a circuit or expand a strength training area in a
space-efficient manner.

The CYBEX Plate Loaded Series was introduced in 1994. Designed to combine the
controlled resistance profile, convenience and safety of a variable resistance
machine, it preserves the natural feel of free weights for people accustomed to
working out with free weights while providing for low maintenance and a smaller
space commitment for gym owners. This product line now includes 20 different
machines.

In 1995, the Company introduced its VR2 second generation variable resistance
weight training machines which included the unique patented Dual Axis
Technology. Using this technology the exercise movement is defined by the user,
rather than by the machine. Resistance is applied to the targeted muscle groups
from two directions simultaneously, providing an increased exercise intensity,
while retaining a biomechanically correct arc of movement. The CYBEX VR2
equipment offers a more attractive appearance, greater ease of use and
additional safety features, such as a weight stack guard and locking aircraft
pin. CYBEX VR2 provides for a natural complement to the original CYBEX VR
Classic line. During 1996, the number of VR2 machines was expanded from 12 to
19.

In April, 1997, the Company plans to introduce a new 15 piece line of variable
resistance weight training machines with shipments beginning in May. The New VR
(also referred to internally as Metric) will be the natural successor to most of
the units in CYBEX VR Classic line. The New VR is value engineered based on the
experience gained most recently in the development of VR2, providing our
customers with a high-quality competitively-priced line with the CYBEX signature
feel and biomechanical correctness.

Cardiovascular Products - In 1992, the Company introduced THE BIKE, a cycle
ergometer. THE BIKE was designed by integrating the most popular features that
were identified by customer focus groups. These features include a
biomechanically contoured design, numerous pre-programmed operating modes and
profiles, as well as a durable structural steel frame and multi-position handle
bars. A year later the Company expanded its offering of cardiovascular products
to include THE SEMI. THE SEMI is a semi-recumbent cycle ergometer that
incorporates the same features as THE BIKE and is designed to complement THE
BIKE in both function and appearance. In April 1997, the Company will introduce
both standard and "elite" models of a new low-cost Bike with shipments scheduled
to begin in June. This new Bike will be structured to provide competitive price
points and favorable margins. The standard model will incorporate specially
designed features which emphasize the three major points of contact - the hands,
feet and seat. The elite model will include heart rate, increased programming
and the capability for RS232 ports and cardio-theater linking.

In 1995, the Company continued expanding its line of cardiovascular products to
include THE MILL, a treadmill featuring the CYBEX Controlled Impact System. The
Controlled Impact System allows the user to select from nine different settings,
the firmness of the deck surface in response to their stride, weight and level
of fitness. Other features include a computerized control panel, manual or
pre-set workout profiles, inclines up to 15% and speeds from 1.0 to 12.0 mph.
THE MILL is designed to provide a natural complement to the CYBEX family of
cardiovascular products.

Fastex - In 1994, the Company acquired the exclusive worldwide rights to
distribute FASTEX, a functional activity system for testing and exercise for use
in the rehabilitation and commercial fitness

4
<PAGE>

markets. The FASTEX patented computer-guided, force measuring floor permits
clinicians to objectively identify and quantify a patient's functional
weaknesses or limitation. FASTEX can then be used as an exercise and training
system to strengthen and improve the deficit while documenting the patient's
progress through a series of computer prompted exercises created by the
clinician to improve strength, stability, reaction time and patient confidence.

Testing and Rehabilitation Products - In 1995, the Company introduced NORM, its
latest generation extremity testing and rehabilitation system. This testing and
rehabilitation product utilizes isokinetic resistance to provide accurate and
reproducible measurement of dynamic performance and functional capability.
Isokinetic resistance is an automatically accommodating resistance which varies
in opposition to the amount of force applied against it. NORM, which stands for
Normative Outcomes for Rehabilitation Management, provides clinicians with
instant access to the world's largest on-line isokinetic normative database
which provides immediate objective documentation to assess patient needs. As
with earlier generations of CYBEX testing and rehabilitation products, NORM
provides clinicians with isokinetic concentric resistance, eccentric loading and
continuous passive motion (CPM). These features, along with its twenty three
standard set up patterns, compact design and windows-based software, enable
clinicians to provide a comprehensive rehabilitation program at lower cost while
opening up new markets through pre-placement screenings, return to work
evaluations and worker compensation assessments.

As part of its strategic planning process, the Company is evaluating its
isokinetic rehabilitation product line. Potential alternatives include
relocating and continuing the operations, downsizing, selling or merging this
product line. The Company's isokinetic products, sold principally to private
practice physical therapists, sports medicine facilities and hospitals, have
come under severe pressure in recent years primarily due to changes in the U.S.
healthcare reimbursement system.

PRODUCT DEVELOPMENT

The Company employed 26 persons as part of its New Product Development Group at
December 31, 1996, to improve existing products and develop new designs. This
group has expertise in mechanical and electrical design, isokinetic technology,
computer applications, software design and development, and application and
integration of sophisticated technology to functional biomechanics.

The Company also uses independent health care professionals and works closely
with university researchers to review the Company's designs and test new
products.

The cost of the Company's product development activities, including salaries and
employee benefits, materials used and allocated facility expenses, amounted to
$4,065,000 in 1994, $5,058,000 in 1995 and $3,990,000 in 1996. Product
development costs are expensed as incurred. Product development activities will
continue to be a significant factor in the Company's long-term growth.

5
<PAGE>
MARKETING, SALES AND SERVICES

CYBEX institutional fitness and rehabilitation products are marketed in the
United States through 19 sales representatives and five independent sales agents
supported by two directors of sales and two sales managers. Sales are made
directly to users such as professional sports teams, university physical
education and physiology departments, gym owners, health clubs, orthopedic
surgeons, hospital physical therapy departments, private practice physical
therapists, sports medicine clinics, medical research laboratories and
individuals.

International markets are served by an in-house staff of 11 people who
coordinate the efforts of 60 worldwide distributors. To coordinate, expand and
improve its sales and servicing efforts in Europe, including Russia, Africa and
the Middle East, the Company entered into a joint venture agreement to form a
new company, CYBEX Forza International, Ltd. The joint venture is 50% owned by
the Company and 50% owned by The Forza Group Ltd. ("Forza"), the Company's
distributor in the United Kingdom. Under the terms of the agreement, the Company
sells its products to the joint venture on a cost-plus basis while Forza will
manage the sales, marketing and administrative efforts of the joint venture. The
new venture will also pursue selective European based manufacturing
opportunities. In addition to the Company's products, the joint venture will
distribute other notable fitness products including, but not limited to, Cross
Conditioning, The Step Company, Quinton, Tectrix and Reebok fitness products
(U.K.). Both Forza and the Company will share equally in the net profits of the
joint venture. Upon consummation of the merger, the existing joint venture
arrangement will be terminated and be replaced by a new agreement with Forza
with different transfer pricing, terms and geography.

Early in 1993 the Company formed a subsidiary, CYBEX Fitness Gerate Vertrieb
GmbH, to exclusively handle the German fitness market, and also opened an office
in Japan to address the growing needs of the Asia-Pacific markets.

CYBEX contracts with independent licensed physical therapists who provide
on-site training to customers on equipment use and clinical applications. They
also assist with marketing efforts and provide design and operational feedback
to management as to the actual field performance of new products and
accessories.

Through a third party service provider, the Company offers customer
installations, emergency service, preventative maintenance and extended warranty
contracts throughout the United States.

CYBEX products have frequently been used by university and medical research
facilities for testing and measurement of protocols. Published results of
accredited research, now totaling over 1,000 independent articles, are made
available to customers attesting to the accuracy, effectiveness, validity and
reproducibility of the results of CYBEX products.

The Company's product lines are advertised in trade and professional journals
and are supported by extensive literature, public service booklets and
audio-visual presentations, which are developed and prepared by the Company's
marketing and support staff. CYBEX products are also shown at numerous trade
shows, exhibits and seminars.

The Company offers lease financing for its products to its customers through
CFC, its wholly-owned finance subsidiary. The Company periodically enters into
agreements to sell lease receivables to financial institutions to provide
continuous funding for its leasing programs.

6
<PAGE>

Export sales for the three years ended December 31, 1994, 1995 and 1996, were
$16,880,000, $21,585,000, and $26,017,000, respectively. No single geographic
area outside of the United States was material relative to consolidated sales,
operating profits or identifiable assets. Export sales of the Company are
subject to normal risks, such as protective tariffs and export/import controls.
However, since the majority of these sales are to countries with stable
political environments and payments are made in U.S. dollars, the Company
believes such political and foreign exchange risks are minimal.

MANUFACTURING AND SOURCES OF SUPPLY

The Company's manufacturing techniques make use of metal fabrication, electronic
processes, hardware and software integration. Raw materials and purchased
components are comprised primarily of aluminum and steel tubing, hydraulic and
electronic components, precision parts, milled products and upholstery. These
materials are machined, welded, finished, upholstered and assembled to create
finished products. Circuit boards for computerized controls are also assembled
in house.

The Company purchases its raw materials from numerous suppliers and has not had
any difficulties in obtaining any components or raw materials. Management
believes alternative sources of supply are readily available for almost all
necessary raw materials. Therefore, the Company has not historically entered
into any long-term contracts with suppliers. While the Company does enter into
volume-based contract arrangements for the supply of certain hardware and
software used in its principal products, management believes alternative sources
could be found for these materials, if necessary.

Generally, the Company does not consider its backlog to be a significant factor
in its operations.

PATENTS AND LICENSES

The Company continuously focuses its efforts towards improving existing products
and developing new designs and technology. As these improvements and designs are
developed, the Company regularly files for exclusive patent applications both
domestically and internationally. When necessary, the Company will protect its
patents and patent rights through legal recourse. Nevertheless, the Company does
not believe that patent protection or the expiration of a patent will have a
significant impact on its operations. The Company believes that its position in
the exercise equipment industry depends on its expertise in designing,
engineering, production and marketing skills achieved through 26 years of
experience.

COMPETITION

The Company's Strength Systems product line has extensive competition from other
companies selling institutional weight training and exercise equipment. However,
the Company continues to be a leading manufacturer of strength systems and has
the resources to continue increasing market share through its emphasis on
product development and marketing.

CYBEX cardiovascular systems have extensive competition from other companies who
have much larger market share positions than CYBEX in this product category and
who sell into both commercial fitness and rehabilitation markets.

The Company believes its leadership positions and future growth is largely
dependent upon new product innovation, product quality, diversity of features,
customer service and pricing. No single customer accounted for more than 10% of
net sales in 1994, 1995 or 1996.

7
<PAGE>

GOVERNMENTAL REGULATION

The "Good Manufacturing Practices for Medical Devices" of the Food and Drug
Administration (the "FDA") sets forth standards for the Company's manufacturing
processes, which require the maintenance of certain records and provide for
unscheduled inspections of the Company's facilities. In addition, the Company
has instituted systems and procedures relative to the Medical Device Reporting
(MDR) rule implemented by the FDA in December 1984. This rule requires a device
manufacturer to report to the FDA when it becomes aware that one of its devices
may have caused or contributed to a death or serious injury. State, local and
foreign governments have also adopted regulations relating to the manufacture
and marketing of medical health care products. The Company believes that it is
presently in material compliance with all applicable regulations.

The Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act
and regulations issued or proposed thereunder, provide for regulation by the FDA
of the manufacture of medical devices including some of the Company's products.
These regulations include requirements that owners and operators of
establishments engaged in the manufacture of medical devices must register with
the FDA and furnish lists, updated periodically, of devices manufactured by
them. There are also certain requirements of state, local and foreign
governments which must be complied with in the manufacture and marketing of the
Company's products. To date, the Company has not experienced any significant
difficulty in complying with the requirements imposed upon it by the FDA or
other government agencies.

The Company's operations are subject to federal, state and local laws and
regulations relating to the environment. The Company regularly monitors and
reviews its operations and practices for compliance with these laws and
regulations, and the Company is in material compliance with such environmental
laws and regulations. Despite these compliance efforts, some risk of liability
is inherent in the operation of the business of the Company as it is with other
companies engaged in similar businesses. There can be no assurance that the
Company will not incur significant costs in the future for environmental
compliance.

ASSOCIATES

The Company employed 573 associates as of December 31, 1996, of whom 437 are
engaged in various manufacturing, quality control, engineering, research and
development, shipping and warehousing operations. There are 136 associates
engaged in administration, marketing and sales. Approximately 47 of the
associates who are directly engaged in manufacturing and other production at the
Company's Ronkonkoma facility are covered by a collective bargaining agreement
which expires in 1999.

RECENT DEVELOPMENTS

Merger Agreement - On December 27, 1996, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") whereby a wholly-owned subsidiary of
the Company would be merged with and into Trotter Inc. ("Trotter"), a
manufacturer of premium quality cardiovascular and strength equipment for the
home and commercial fitness markets. Pursuant to the terms of the Merger
Agreement all of the shares of the common stock, $.01 par value ("Trotter Common
Stock"), of Trotter issued and outstanding at the effective time shall be
converted into the right to receive, and shall be exchanged for, the number of
fully-paid and non-assessable CYBEX Common Shares (rounded upward to the nearest
whole share) which, upon issuance together with the holders of options to
purchase Trotter Common Stock, shall equal 50.001% of all CYBEX Common Shares
issued and outstanding on a fully diluted basis, calculated using the treasury
stock method for outstanding stock options and assuming a price of $9.75 per
share for the CYBEX Common Stock, immediately following

8
<PAGE>

the effective time. The Merger is subject to the satisfaction of certain
conditions including the approval by the Company's shareholders.

Sale of Ronkonkoma, New York Facility - The Company has signed an agreement to
sell its manufacturing, warehouse and office facilities located in Ronkonkoma,
New York for $4.5 million. The facility is subject to an industrial revenue bond
with an outstanding principal balance of $615,000. The sale of this facility is
expected to be finalized in the second quarter of 1997 and result in a gain for
financial statement purposes. The Company plans on moving its Ronkonkoma
operations, including manufacturing, to a smaller leased facility in the same
geographic area.

Isokinetics Rehabilitation Product Line - As part of its strategic planning
process, the Company is evaluating its isokinetic rehabilitation product line.
Potential alternatives including relocating and continuing operations,
downsizing, selling or merging this product line. The Company's isokinetic
products, sold principally to private practice physical therapists, sports
medicine facilities and hospitals, have come under severe pressure in recent
years primarily due to changes in the U.S. healthcare reimbursement system.

European Joint Venture - In 1996, the Company entered into a joint venture
agreement to form a new company, CYBEX Forza International, Ltd., to coordinate,
expand and improve its sales and servicing efforts in Europe, as well as Russia,
Africa and the Middle East. The joint venture is equally owned by the Company
and The Forza Group Ltd. ("Forza"), the Company's distributor in the United
Kingdom. Under the terms of the agreement, the Company sells its products to the
joint venture on a cost-plus basis while Forza will manage the sales, marketing
and administrative efforts of the joint venture. The new venture will also
pursue selective European based manufacturing opportunities. In addition to the
Company's products, the joint venture will distribute other notable fitness
products, including but not limited to, Cross Conditioning, The Step Company,
Quinton, Tectrix and Reebok fitness products (U.K.). Both Forza and the Company
will share equally in the net profits of the joint venture. Upon consummation of
the merger, the existing joint venture arrangement will be terminated and be
replaced by a new agreement with Forza with different transfer pricing, terms
and geography.

9
<PAGE>

ITEM 2. PROPERTIES

The following table describes the Company's major facilities:
<TABLE>
<CAPTION>

Approximate
Area
Location (sq. ft) Use
- --------------------------------------------------- ------------------ ------------------------------------------------
<S> <C> <C>
Owned Facilities:
Ronkonkoma, New York 110,000 Executive offices, manufacturing and warehouse
facility
Owatonna, Minnesota 210,000 Offices, manufacturing and warehouse facility

Leased Facilities:
Woodinville, Washington 30,270 Offices, manufacturing and warehouse facility

Colorado Springs, Colorado 27,000 Executive, sales and admin. offices
Colorado Springs, Colorado 3,700 Research and development
Limburgerhof, Germany 6,100 Sales and administration
</TABLE>

The Company has agreed to sell its Ronkonkoma, New York facility. See "Recent
Developments" for additional information.

The Company is also closing its Woodinville, Washington facility in the first
quarter of 1997, transferring its treadmill manufacturing operations to another
facility. For additional information see Note C to the Company's consolidated
financial statements.

All the facilities are well maintained and kept in good repair.

Additional information concerning the financing of the Company's owned
facilities is described in Note E to the Company's consolidated financial
statements.

ITEM 3. LEGAL PROCEEDINGS

The Company is not presently involved in any legal proceedings which, in its
opinion, are material to its financial condition.

As a manufacturer of fitness and rehabilitation products, the Company is
inherently subject to the hazards of product liability litigation; however, the
Company has maintained, and expects to continue to maintain, insurance coverage
which the Company believes is adequate to protect against these risks.

The Company and Fuqua have disagreed with respect to certain proposed
adjustments to the purchase price in connection with the sale of the Lumex
Division and have determined to proceed to arbitration to resolve this dispute.
Fuqua has also notified the Company of claims for breaches of certain of the
Company's representations and warranties in the asset sale agreement involving
substantially the same matters submitted to the arbitrator. For additional
information see Note B to the Company's consolidated financial statements.

10
<PAGE>

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

No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 1996.
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's common shares are traded on the American Stock Exchange (AMEX).
The Company's Amex symbol is CYB.

The following table shows the high and low market prices as reported by the
AMEX:
<TABLE>
<CAPTION>

1996 1995
---- ----
Calendar High Low High Low
- -------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 14.13 9.13 15.13 11.25
Second Quarter 12.88 10.25 13.75 10.50
Third Quarter 12.13 9.75 12.13 9.50
Fourth Quarter 11.88 9.00 11.75 8.63
</TABLE>

As of February 28, 1997 there were approximately 556 common shareholders of
record. This figure does not include stockholders with shares held under
beneficial ownership in nominee name.

The Company has not paid any dividends since August 1990. The Company's ability
to pay dividends is limited to 20% of its net income by the terms of its
financing arrangements with the Town of Islip Industrial Development Agency (see
Note E to the Company's consolidated financial statements).

On December 31, 1996, the Company issued 1,250 shares of its common stock from
treasury to John C. Spratt, for serving as Chairman of the Board of the
Directors. In issuing these shares, the Company relied on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following information has been extracted from the Company's consolidated
financial statements for the five years ended December 31, 1996. This selected
financial data should be read in conjunction with the consolidated financial
statements of the Company and the related notes included in Item 8 of this
report. Statement of operations data has been restated to reflect only the
results from continuing operations (see Note B to the consolidated financial
statements).
<TABLE>
<CAPTION>

Year Ended December 31,
----------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $53,849 $54,780 $70,420 $75,448 $80,711
Cost of sales 28,891 32,225 41,757 45,624 48,405
-------------- -------------- -------------- --------------- ---------------
Gross profit 24,958 22,555 28,663 29,824 32,306
Selling, general and administrative
expenses 22,325 25,960 28,440 44,143 32,718
-------------- -------------- -------------- --------------- ---------------
Operating income (loss) 2,633 (3,405) 223 (14,319) (412)
Interest expense (245) (367) (1,143) (1,723) (882)
Interest income 685 1,134 2,048 1,582 650
Loss from joint venture -- -- -- -- (159)
-------------- -------------- -------------- --------------- ---------------
Income (loss) from continuing operations
before income tax provision (benefit)
3,073 (2,638) 1,128 (14,460) (803)
Income tax provision (benefit) 854 (1,333) 135 (3,344) 32
-------------- -------------- -------------- --------------- ---------------

Income (loss) from continuing operations
$ 2,219 $ (1,305) $ 993 $(11,116) $(835)
============== ============== ============== =============== ===============

Income (loss) per share of Common
Stock from continuing operations $ .51 $ (.31) $ .23 $ (2.55) $(.19)
============== ============== ============== =============== ===============

Weighted average number of
common shares 4,325 4,201 4,315 4,351 4,392
============== ============== ============== =============== ===============
<CAPTION>

December 31
---------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $30,863 $31,702 $37,158 $27,692 $24,629
Net assets of discontinued
operations -- -- -- 37,214 --
Total assets 69,037 85,766 94,168 98,918 63,487
Long-term debt (net of current
maturities) 5,131 12,076 12,771 2,715 1,986
Stockholders' equity 47,970 48,736 52,637 40,634 35,538

</TABLE>

12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

On April 3, 1996, the Company completed the sale of substantially all the assets
of its Lumex Division for $40,750,000 in cash. Accordingly, the results of
operations of the Lumex Division have been reclassified as discontinued
operations.

The following discussion, including statistics presented, refers solely to
continuing operations unless otherwise stated.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, statement of
operations data from the Selected Financial Data in Item 6 of this Report,
presented both as a percentage of net sales and as a percentage change from the
prior year:
<TABLE>
<CAPTION>
Year Ended December 31, % Inc. (Dec.)
----------------------- -------------
1995 vs. 1996 vs.
--------- --------
1994 1995 1996 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 7.1% 7.0%
Cost of sales 59.3 60.5 60.0 9.3 6.1
-------------- ------------ -------------
Gross profit 40.7 39.5 40.0 4.1 8.3
Selling, general and administrative
expenses 40.4 58.5 40.5 55.2 (25.9)
-------------- ------------ -------------
Operating income (loss) .3 (19.0) (0.5) * *
Interest expense (1.6) (2.3) (1.1) 50.7 (48.8)
Interest income 2.9 2.1 0.8 (22.8) (58.9)
Loss from joint venture -- -- (0.2)
-------------- ------------ -------------
Income (loss) from continuing operations
before income taxes 1.6% (19.2)% (1.0)% * *
============== ============ =============
</TABLE>
* Not meaningful

1996 VS. 1995:

Continuing operations in 1996 resulted in a loss of $835,000, compared to a loss
of $11,116,000 in 1995. Included in these results were $2.2 million and $10.2
million of one-time and nonrecurring charges in 1996 and 1995, respectively,
which have been reflected in selling, general and administrative expenses.

Net sales increased 7.0% in 1996, to $80,711,000, as compared to $75,448,000 in
1995. Excluding shipments of consumer fitness equipment phased out in December
1995, net sales increased 11.6%.

Shipments of the Company's institutional strength products grew 18%, fueled by
the continued strong growth of the VR2, the Company's second generation variable
resistance weight training machines; plate loaded; and free weight product
lines. Shipments of cardiovascular products grew 5%, as the growth in the
institutional treadmill line more than offset lower shipments of the Bike and
the Semi.

Sales to the domestic rehabilitation market were flat compared to the prior year
as the strong growth in shipments of both strength and cardiovascular fitness
products to this market offset the continued decline in shipments of isokinetic
rehabilitation products. The decline in isokinetic rehabilitation product
shipments resulted from the impact of less selling activity from a consolidated
sales force, national

13
<PAGE>

healthcare reimbursement issues and the continued emphasis on managed care.

International sales rose 20.5% as strong growth in shipments of both strength
and cardiovascular products more than offset a small decline in shipments of
isokinetic rehabilitation products.

Cost of sales as a percentage of sales improved to 60% in 1996, as compared to
60.5% in 1995. The improvements came primarily from a more favorable product mix
and increased production efficiencies for products introduced in the prior year,
offset by the impact of increased international shipments which have lower
margins.

Selling, general and administrative ("SG&A") expenses were $11,425,000 lower in
1996 compared to 1995. Excluding nonrecurring and one-time charges of
$10,200,000 in 1995 and $2,200,000 in 1996, SG&A expenses were $3.4 million
lower in 1996 as compared to 1995, despite higher sales levels. These expense
reductions were largely attributable to the restructuring plan initiated in the
fourth quarter of 1995 which included, among other things, the consolidation of
the separate fitness and rehabilitation sales forces, the realignment of the
customer service department, phase out of consumer fitness products and general
workforce reductions.

Included as part of the nonrecurring and infrequent charges recorded in 1996
were the following:

- - $540,000 of incremental costs incurred for the prospective merger with
Trotter Inc.

- - $900,000 of expenses related to the closing of the Company's Woodinville
manufacturing facility and phase out of the consumer fitness product line.

- - $380,000 of costs related to the relocation of the Company's head offices
to Colorado.

- - $380,000 of other expenses, including consulting fees paid related to the
completion of the first phase of the Company's overall systems upgrade
project.

Product development expenses, included in SG&A expenses, were $4.0 million in
1996, approximately $1.0 million lower than the prior year, the result of
workforce reductions after the completion in 1995 of the CYBEX Norm and VR2
product lines.

Interest expense was $841,000, or 48.8% lower in 1996 as compared to 1995
primarily due to lower average outstanding balances as the Company repaid $28
million of borrowings in April 1996 from proceeds received from the sale of the
Lumex Division.

Interest income declined $932,000, or 58.9%, in 1996 as compared to 1995 due to
lower average outstanding balances held in the Company's lease receivable
portfolio.

The Company has recorded refundable taxes of $2,718,000 resulting from net
operating losses incurred in 1995 and 1996. The Company has significant
carryforward tax losses and has not recorded any additional tax benefit for
financial statement purposes.

14
<PAGE>

1995 VS. 1994:

Continuing operations in 1995 resulted in a net loss of $11,116,000, compared to
net income in the prior year of $993,000. The loss is attributable primarily to
nonrecurring charges in 1995, which have been reflected in selling and
administrative expense.

Net sales increased 7.1% to $75,448,000 in 1995, as compared to $70,420,000 in
1994. Sales to the domestic institutional fitness market grew more than 11% in
1995 as compared to 1994, fueled by the introduction of VR2, its second
generation variable resistance weight training machines, and continued strong
growth of the CYBEX Plate Loaded Series, introduced in 1994. Sales of
cardiovascular products were lower in 1995 as severe competitive pricing
practices impacted shipments of THE BIKE and THE SEMI, more than offsetting
sales of the new Q45 institutional treadmill.

Sales to the domestic rehabilitation market were 17% lower in 1995 as the market
continued to constrict, the impact of national healthcare reimbursement issues
and the continued emphasis on managed care. During 1995, the Company introduced
NORM, its lower-priced, latest generation extremity testing and rehabilitation
system designed to provide clinicians a comprehensive rehabilitation program
with instant access to one of the world's largest on-line isokinetic normative
databases.

International sales grew 27.8% as product shipments increased significantly into
both the rehabilitation and institutional fitness market segments.

Cost of sales increased to 60.5% of sales in 1995 from 59.3% of sales in 1994 as
the benefits of increased production volume and product mix were more than
offset by start up manufacturing costs for new products, higher raw material
costs and a larger proportion of shipments being made to the international
market where product pricing is lower.

Selling, general and administrative costs rose 55.2% to $44,143,000 in 1995 as
compared to $28,440,000 in 1994, due in large part to the nonrecurring charges
recorded in the fourth quarter of 1995 of approximately $8.2 million and
additional one-time charges of approximately $2.0 million recorded earlier in
the year. Included as part of the nonrecurring charges recorded in the fourth
quarter were the following:

- - $2.3 million of costs related to the consolidation of the Company's sales
forces and elimination of approximately 75 sales, administrative and
engineering positions;

- - $3.0 million of expenses for phasing down of production and servicing of
unprofitable or older product lines;

- - $1.3 million of costs related to contractual obligations and settlements;

- - $1.6 million of other expenses related to realignment of the CYBEX
business.

One-time charges incurred earlier in 1995 included a $750,000 settlement to a
contractual dispute, approximately $700,000 in severance and paid recruitment
costs for senior executive management changes, and professional fees for
corporate services provided exceeding $550,000.

Product development expenses, included in SG&A, increased 24.4% or $993,000, to
$5,058,000 in 1995 due to planned increases in spending to accelerate the
development and introduction during 1995 of major new products including the VR2
product line, NORM and the Q45 institutional treadmill.

15
<PAGE>

Selling, general and administrative costs in 1995 also included increased costs
in the expansion of international markets, the amortization of rights and
licenses acquired in 1995, higher shipping costs and were further impacted by
favorable experience in self-insurance reserves in 1994 not repeated in 1995.

Interest expense rose to $1,723,000 in 1995 compared to $1,143,000 in 1994
principally due to increased borrowings.

Interest income was 22.8% lower in 1995 than 1994 due to lower average balances
held in the Company's lease portfolio as the Company regularly sold portions of
its portfolio to provide continued funding for its leasing activities.

The effective tax benefit rate for continuing operations in 1995 was 23.1%, the
result of a deferred tax valuation allowance of $2,698,000.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the Company's working capital was approximately $24.6
million, including cash and cash equivalents of $7.1 million; its current ratio
was 2.0 to 1; and total long-term borrowings were less than $5.8 million. The
Company's financial condition was improved by the sale of the Lumex Division,
completed on April 3, 1996, for $40.75 million in cash.

Cash used in operating activities in 1996 was $8.3 million. Excluding the impact
of the leasing activities of CFC and payments made related to $8.2 million of
nonrecurring charges recorded in the fourth quarter of 1995, the continuing
operations provided $4.5 million of cash. The Company's lease financing programs
for customers resulted in $9.7 million of new leases being written during 1996,
which have been or are expected to be refinanced through periodic sales of
bundled leases to third party financial institutions. Proceeds received from the
sales of the leases are included in financing activities discussed below. During
1996, the Company also made payments totaling more than $3.1 million related to
nonrecurring charges. Cash was generated from improved asset management,
including a $1.9 million reduction in trade receivables and a $2.1 million
reduction in inventories.

In 1995, cash used in operating activities, excluding leasing activities and
payments made for nonrecurring charges, was $8.8 million, primarily resulting
from a $5.7 million increase in trade receivables from strong fourth quarter
shipments and an increase of $2.6 million in inventories related to new products
introduced in 1995. Cash used for new leases written in 1995 was $9.2 million
and payments for nonrecurring charges totaled $500,000.

Cash provided by investing activities in 1996 was $37.8 million principally
resulting from the sale of the Lumex Division in April, 1996. Cash used in
investing activities in 1995 was $2.0 million, the result of capital
expenditures and the purchase of certain licenses and rights related to the
Fastex product.

Capital expenditures, principally funded from operations and long-term debt,
were $2,089,000, $3,638,000 and $1,061,000 in 1994, 1995 and 1996, respectively.

Cash used in financing activities was $20.3 million in 1996, reflecting the net
effect of the repayment of $30 million of short and long-term debt from the
proceeds from the sale of the Lumex Division and the proceeds received from
sales of lease receivables of $7.0 million and $2.5 million of a term loan
secured by lease receivables. In 1995, financing activities provided $24.0
million in cash principally from $15.7 million of net short and long-term
borrowings and $8.3 million from the sale of leases.

16
<PAGE>

The Company sells portions of its lease portfolio under several different
limited or full recourse programs. Leases are secured by the equipment sold as
well as personal guarantees and often require cash down payments. These
provisions, combined with the Company's ability to refurbish and re-market
returned equipment, have effectively limited the Company's exposure to losses on
lease defaults. Losses under these programs were not significant during the past
three years.

At December 31, 1996, the Company's long-term debt represented 6% of total
equity. The Company has a $5 million bank line of credit under which, subsequent
to the sale of the Lumex Division, there have been no outstanding borrowings.
Management expects the cash flow generated from its operations and the sale of
its Ronkonkoma, New York manufacturing facility, together with vendor financing
available for capital equipment purchases will be sufficient to meet its capital
expenditure requirements (including $900,000 for a new powder coating system)
and working capital needs, including the balance of payments of approximately
$1.8 million, related to nonrecurring and one-time charges. CFC, the Company's
finance subsidiary, is expected to support its operations through periodic sales
of its lease portfolios to third party financial institutions. The sale of
leases have varying recourse provisions and at December 31, 1996, the maximum
contingent liability under such provisions was $9.2 million.

The merger requires the consents of Trotter and Company lenders and will result
in the Company and Trotter not being in compliance with certain financial ratios
and certain other restrictive covenants of their long-term debt agreements and
credit facilities. In addition, the ongoing operations of CYBEX Financial Corp.
require arrangements with third party financial institutions to provide funding
to support its leasing programs.

The Company and Trotter believe they will be successful in obtaining the
necessary waivers and consents from their lending institutions and in securing
commitments from other financial institutions to continue to participate in
purchasing portions of the Company's lease receivables. If such waivers and
arrangements are not obtained, the Company and Trotter believe that other
sources of financing will be available to support the needs of the combined
operations.

17
<PAGE>

F-1

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)
<TABLE>
<CAPTION>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<S> <C>
Report of Independent Auditors..................................................................................F-2
Financial Statements:
Consolidated Balance Sheets--December 31, 1995 and 1996.......................................................F-3
Consolidated Statements of Operations--Years ended December 31,
1994, 1995 and 1996.........................................................................................F-4
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1994, 1995 and 1996............................................................................F-5
Consolidated Statements of Cash Flows---Years ended
December 31, 1994, 1995 and 1996............................................................................F-6
Notes to Consolidated Financial Statements....................................................................F-7

</TABLE>

All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission that are not required under
the related instructions or are inapplicable have been omitted.

<PAGE>

F-2

Report of Independent Auditors

Board of Directors and Stockholders
CYBEX International, Inc.

We have audited the accompanying consolidated balance sheets of CYBEX
International, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CYBEX
International, Inc. at December 31, 1995 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP

Melville, New York
March 6, 1997

<PAGE>

F-3
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)
<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31,
-------------------------------
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $1,798 $7,068
Investments 2,476 --
Accounts receivable 22,482 20,364
Inventories 12,024 9,934
Lease receivables 574 2,144
Property held for sale -- 3,051
Net assets of discontinued operations 37,214 --
Refundable income taxes 2,782 2,718
Other current assets 2,684 3,729
------------- -------------
Total Current Assets 82,034 49,008
Property, Plant and Equipment
Land 586 253
Buildings and improvements 9,034 4,559
Machinery and equipment 17,481 18,695
------------- -------------
27,101 23,507
Less accumulated depreciation (13,810) (13,849)
------------- -------------
13,291 9,658
Lease receivables 1,402 2,270
Intangible assets 1,687 1,215
Other assets 504 1,336
------------- -------------
$98,918 $63,487
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $15,250 $ --
Current maturities of long-term debt 14,330 3,776
Accounts payable 10,874 7,136
Accrued liabilities 13,888 13,467
------------- -------------
Total Current Liabilities 54,342 24,379
Deferred income taxes 1,227 1,584
Long-term debt 2,715 1,986
Stockholders' Equity
Common Stock, par value $.10 per share, authorized 15,000,000
shares, issued 4,458,354 shares in 1995; 4,510,068 shares in 1996 446 451
Capital surplus 17,128 17,591
Retained earnings 24,101 19,252
Treasury stock, at cost (54,897 shares in 1995; 131,689 shares in 1996) (629) (1,531)
Unearned compensation expense (412) (225)
------------- -------------
Total Stockholders' Equity 40,634 35,538
------------- -------------
$98,918 $63,487
============= =============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

F-4

CYBEX INTERNATIONAL, INC.,
(FORMERLY LUMEX, INC.)
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $70,420 $75,448 $80,711
Cost of sales 41,757 45,624 48,405
------------- ------------- --------------
Gross profit 28,663 29,824 32,306
Selling, general and administrative expenses 28,440 44,143 32,718
------------- ------------- --------------

Operating income (loss) 223 (14,319) (412)
Interest expense (1,143) (1,723) (882)
Interest income 2,048 1,582 650
Loss from joint venture -- -- (159)
------------- ------------- --------------

Income (loss) from continuing operations before income taxes 1,128 (14,460) (803)
Income taxes 135 (3,344) 32
------------- ------------- --------------

Income (loss) from continuing operations 993 (11,116) (835)

Discontinued operations:
Income (loss) from discontinued operations net of income tax
provision of $1,437 in 1994 and $792 in 1995 2,489 1,350 --
Loss on disposal, net of income tax benefit of $199 in 1995 -- (3,138) (4,014)
------------- ------------- --------------

Net income (loss) $3,482 $(12,904) $(4,849)
============= ============= ==============

Net income (loss) per share of common stock:
Continuing operations $ .23 $ (2.55) $ (.19)
Discontinued operations .58 (.41) (.91)
============= ============= ==============

Net income (loss) $ .81 $ (2.96) $ (1.10)
============= ============= ==============

</TABLE>

See notes to consolidated financial statements.

<PAGE>
F-5

<TABLE>
<CAPTION>
CYBEX INTERNATIONAL, INC. Unrealized Unearned
(formerly Lumex, Inc.) Common Stock Capital Retained Gains/Losses Treasury Compensation ESOP Loan
Shares Par Value Surplus Earnings on Investments Stock Expense Receivable
------ --------- ------- -------- -------------- ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,305 $430 $15,829 $33,522 $(879) $(165)
Net Income 3,482
Stock allocated under ESOP 310
Loan to repurchase ESOP shares distributed (60)
Loan to repurchase 6,554 shares from
Treasury 13 72 (85)
Exercise of stock options 66 7 325
Purchase of common shares (57)
Retirement of common shares (10) (1) (120) 119
Unrealized loss on investments ($225)
Tax benefit derived from stock option plan 120
------ ------ ------- ----- ----- ----- -----
Balance at December 31, 1994 4,361 436 16,167 37,004 (225) (745) ---
Net loss (12,904)
Stock allocated under ESOP 291
Loan to repurchase ESOP shares distributed (159)
Loan to repurchase shares from Treasury (32) 164 (132)
Exercise of stock options 15 2 75
Retirement of common shares (2)
Unrealized gain on investments 225
Restricted stock issued 65 6 673 $(673)
Restricted stock canceled (62) 55
Common stock issued to Directors 6 1 64 14
Common stock issued as compensation 11 1 152
Tax benefit derived from stock option plan 31
Amortization of unearned compensation 206
Other 1
------ ------ ------- ----- ----- ----- -----
Balance at December 31, 1995 4,458 446 17,128 24,101 --- (629) (412) ---

Net loss (4,849)
Stock allocated under ESOP 168
Repurchase of common shares (1,016)
Exercise of stock options 44 4 307
Restricted stock canceled 14 (110) 105
Common stock issued to Directors 8 1 94 56
Tax benefit derived from stock option plan 48
Amortization of unearned compensation 82
------ ---- ------- ------- ----- ----- ----- -----
Balance at December 31, 1996 4,510 $451 $17,591 $19,252 $ --- $(1,531) $(225) $ ---
====== ===== ======== ======== ====== ======== ====== =====

</TABLE>

See notes to consolidated financial statements.

<PAGE>

F-6
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $3,482 $(12,904) $(4,849)
Non cash items included in net income(loss):
Depreciation and amortization 3,224 5,231 2,940
Contribution of Common Stock to ESOP 311 291 --
Deferred income taxes 648 551 --
Provisions for losses on accounts and lease receivables 11 368 767
Discontinued operations -- 2,690 3,867
Changes in operating assets and liabilities:
Accounts receivable (8,020) (6,278) 1,897
Inventories (373) (5,373) 2,090
Refundable income taxes -- (2,782) 64
Other current assets 355 (1,080) (1,720)
Lease receivables (15,605) (14,527) (9,698)
Accounts payable 2,793 7,773 (3,738)
Accrued liabilities 371 7,503 (3,826)
------------ ------------- ------------
NET CASH USED IN OPERATING ACTIVITIES (12,803) (18,537) (12,206)
------------ ------------- ------------

INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations
net of closing and other costs -- -- 36,800
Purchases of property, plant and equipment (3,614) (9,593) (1,061)
Purchases of investments (1,003) -- --
Proceeds from sales and maturities of investments 7,105 2,633 2,476
Decrease (increase) in other assets 1,881 (348) (429)
Increase in intangible assets (792) (6,083) (36)
------------ ------------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
3,577 (13,391) 37,750
------------ ------------- ------------

FINANCING ACTIVITIES:
Proceeds from short-term debt -- 15,250 --
Repayment of short-term debt -- -- (15,250)
Proceeds from sale of leases 16,803 8,344 6,954
Proceeds from long-term debt 5,000 4,500 3,517
Principal payments of long-term debt (3,305) (4,030) (14,800)
Common shares reacquired (57) -- (927)
Other 271 (84) 232
------------ ------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,712 23,980 (20,274)
------------ ------------- ------------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,486 (7,948) 5,270
CASH AND CASH EQUIVALENTS -- January 1 260 9,746 1,798
------------ ------------- ------------

CASH AND CASH EQUIVALENTS -- December 31 $9,746 $1,798 $7,068
============ ============= ============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

F-7

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation: The consolidated financial statements include the
accounts of CYBEX International, Inc., formerly Lumex, Inc., and its
subsidiaries (the "Company") after elimination of all significant intercompany
accounts and transactions. The Company accounts for its 50% ownership in CYBEX
Forza International Ltd. under the equity method of accounting as the Company
does not have a controlling voting interest.

Prior year financial statements have been restated to reflect the results of
operations of the Lumex Division, which was sold in April 1996, as discontinued
operations - see Note B. All amounts included in these notes to consolidated
financial statements pertain to continuing operations unless otherwise stated.

Business: The Company operates in one industry, the exercise equipment industry,
where it designs, manufactures and markets a wide variety of exercise equipment
for the fitness, rehabilitation and sports medicine markets.

Cash and cash equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents.

Investments: In May 1993, the Financial Accounting Standards Board issued
Statement No. 115, Accounting for Certain Debt and Equity Securities ("SFAS
115"). The Company adopted the provisions of the new standard for investments
held as of or acquired after January 1, 1994. SFAS 115 requires the Company to
evaluate its investment policies and classify individual securities held for
investment as either held to maturity, trading or available-for-sale. Management
has determined that all of the Company's investments (consisting of various debt
securities) are available-for-sale. Available-for-sale securities are stated at
fair value, with unrealized gains and losses, net of income tax, reported as a

<PAGE>

F-8
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

separate component of stockholders' equity. In accordance with SFAS 115 prior
period financial statements have not been restated to reflect the change in
accounting principle. The Cumulative effect as of January 1, 1994, of adopting
SFAS 115, was not material to the Company's financial condition or results of
operations.

Inventories: Inventories are stated at the lower of cost or market. Inventory
costs have been determined by the last-in first-out ("LIFO") method for
approximately 33% and 23% of inventories at December 31, 1995 and 1996,
respectively. Costs for the remaining inventories have been determined using the
first-in first-out ("FIFO") method.

Impairment of Long-Lived Assets: In 1995, The Financial Accounting Standards
Board issued Statement No. 121, Accounting for Impairment of Long-Lived Assets
and for Long Lived Assets to Be Disposed Of, ("SFAS 121"), which the Company
adopted effective January 1, 1996. SFAS 121 requires that long-lived assets and
certain identifiable intangibles held and used by a company be reviewed for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. SFAS 121 also requires
that long-lived assets and certain identifiable intangibles held for sale be
reported at the lower of carrying amount or fair value less cost to sell. The
effect of adoption of SFAS 121 was not material to the Company's financial
statements.

Property, plant and equipment: Property, plant and equipment, including
expenditures for renewals and betterments, are recorded at cost. Depreciation
and amortization of plant and equipment is computed using the straight-line
method over their related estimated useful lives (buildings, 40 years; building
improvements, 15 years; machinery and equipment, 3 to 10 years).

Intangibles: Intangibles consist principally of an exclusive license and patent
rights recorded at cost and amortized over their estimated useful lives by the
straight-line method for periods ranging from 3 to 30 years. Accumulated
amortization at December 31, 1995 and 1996 was $756,000 and $1,264,000,
respectively.

Fair value of financial instruments: To meet the reporting requirements of FASB
Statement 107, Disclosures about Fair Value of Financial Instruments, the
Company calculates the fair value of financial instruments and includes this
additional information in the notes to the financial statements when the fair
value is different than the carrying value of those financial instruments. When
the fair value is equal to the carrying value, no additional disclosure is made.
The Company uses quoted market prices whenever available to calculate these fair
values.

<PAGE>

F-9
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income taxes: The Company adopted the provisions of the Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes ("SFAS 109") as
of January 1, 1993. Under SFAS 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities using tax rates and laws that will be in effect when the
differences are expected to reverse.

Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Stock Based Compensation: The Company has four stock-based compensation plans
which are described in Note F to the consolidated financial statements. The
Company has elected to continue to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its stock-based compensation plans rather than
the alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation
("SFAS 123"). Under APB 25, because the exercise price of the Company's employee
stock options granted equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

Net income (loss) per common share: Net income (loss) per share of Common Stock
is computed by dividing net income (loss) by the weighted average number of
common shares and common share equivalents (dilutive stock options) outstanding
during each year (4,315,000 in 1994, 4,351,000 in 1995 and 4,392,000 in 1996).

Reclassifications: Certain reclassifications have been made to the 1994 and 1995
consolidated financial statements to conform to the current year's presentation.

NOTE B--DISCONTINUED OPERATIONS

On April 3, 1996, the Company completed the sale of substantially all the assets
of its Lumex Division to Fuqua Enterprises, Inc. ("Fuqua") for $40,750,000 in
cash. Accordingly, the Company has reclassified its consolidated financial
statements to reflect the net assets as of December 31, 1995 and operating
results for all years presented of the Lumex Division as discontinued
operations. Net sales for the Lumex Division were $60,777,000, $63,295,000 and
$13,444,000 for the years ended December 31, 1994 and 1995 and for the first
quarter of 1996, respectively. The net losses from discontinued operations for
the period between the measurement date (October 1, 1995) and December 31, 1995
of $1,247,000, and for the period from January 1, 1996 to April 3, 1996 of
approximately $984,000, have been included in the loss on disposal of $3,138,000
for the year ended December 31, 1995, as shown in the consolidated statements of
operations.

<PAGE>

F-10
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B--DISCONTINUED OPERATIONS (CONTINUED)

The net assets of discontinued operations at December 31, 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $20,782
Property, plant and equipment 12,758
Lease receivables 13,593
Other assets 5,995
Current liabilities (13,224)
Accrued loss on disposal (2,690)
------------
Net assets $37,214
============
</TABLE>

The asset sale agreement with Fuqua provides for a post-closing adjustment to
the sales price based on the change in the net assets of the Lumex Division from
December 31, 1995, through the closing date. The Company has received notice
from Fuqua that Fuqua believes the stated amount of the net assets of the Lumex
Division as of the closing date are overstated by $9.3 million. The Company has
determined to proceed to arbitration to resolve this dispute. An initial
submission to the arbitrator was made by Fuqua in March 1997, and the Company's
initial submission is due on or about April 25, 1997. Fuqua has also notified
the Company of claims for breaches of certain of the Company's representations
and warranties in the asset sale agreement involving substantially the same
matters submitted to the arbitrator. The Company recorded a $4.0 million charge
to discontinued operations in 1996 ($3.6 million in the fourth quarter)
representing a change in its estimated loss on the sale of the Lumex Division
including accruals for professional fees and other expenses.

NOTE C--NONRECURRING AND CERTAIN INFREQUENT CHARGES

In 1995, the Company recorded pre-tax nonrecurring charges totaling $10.2
million which have been reflected in selling, general and administrative
expenses. Of these charges, $8.2 million were recorded in the fourth quarter of
1995, including the estimated costs associated with a restructuring plan. Under
the plan, the Company consolidated its sales forces, phased down the production
of unprofitable product lines and eliminated approximately 75 sales,
administrative and engineering positions. Included in the nonrecurring charges
are costs related to, among other things, severance payments and related
personnel costs of $2.3 million, phasing down production of unprofitable or
older product lines of $3.0 million, contractual obligations of $1.3 million and
other expenses totaling $1.6 million related to the restructuring of its CYBEX
business, of which $.9 million was paid or charged against the reserves in 1995.
At December 31, 1995, $5.1 million and $2.3 million of these reserves were
reflected in accrued liabilities and inventory reserves, respectively, in the
Company's consolidated balance sheet.

During 1996, the Company made payments and incurred charges against the reserves
for severance and related costs of $1.1 million, contractual obligations of
$491,000, discontinued product lines of $700,000 and other expenses of
$1,110,000. Adjustments were made to decrease the reserve in 1996 for severance
and contractual obligations of $370,000 and $229,000, respectively. Adjustments
were made to increase the reserve in 1996 for discontinued product lines and
other expenses of $856,000 and $60,000, respectively. The remaining balance in
the reserves for nonrecurring charges at December 31, 1996, was $4.2 million and
was comprised of $800,000 for severance, $3.1 million for

<PAGE>

F-11
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C--NONRECURRING AND CERTAIN INFREQUENT CHARGES (CONTINUED)

discontinued product lines and $300,000 for other expenses. The non-cash portion
of the balance of nonrecurring charges is approximately $3.1 million and the
cash portion is approximately $1.1 million.

In 1996, the Company recorded pre-tax nonrecurring and certain infrequent
charges of $2.2 million which have been reflected in selling, general and
administrative expenses. Included in these charges are costs related to, among
other things, the prospective merger with Trotter Inc. of $540,000 (including
bonuses to Directors of $325,000), closing the Woodinville manufacturing
facility and phase out of the consumer fitness product line of $900,000,
relocation costs for the Company's head offices of $380,000 and other costs of
$380,000, including consulting fees related to the completion of the first phase
of the Company's overall systems upgrade project. Payments made in 1996 totaled
$900,000, principally related to relocation and systems upgrade, leaving a
balance remaining at December 31, 1996 of $1.3 million, all of which is expected
to be utilized in 1997.

At December 31, 1996, the outstanding balance of the remaining reserves were
included in the Company's consolidated balance sheet in the following accounts:
$2.5 million in inventory reserves; $.6 million in accounts receivable reserves;
$.3 million in accounts payable and $2.1 million in accrued liabilities.

NOTE D--INVESTMENTS

The Company has determined that all of its investment securities are classified
as available-for-sale. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other than temporary on available-for-sale
securities are included in other income. The cost of securities sold is based on
the specific identification method. Interest and dividends are included in
interest income.

Available-for-sale securities held by the Company at December 31, 1995 were
comprised of obligations of states and other political subdivisions. Proceeds
received from sales of securities available-for-sale were $2,633,000 in 1995 and
$2,476,000 in 1996. Gross gains and gross losses on such sales were not
significant.

<PAGE>

F-12

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E--LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Bank term loans $13,525 $ 2,012
Industrial development revenue bond 1,245 615
Industrial development revenue note 2,275 2,100
Note payable ____ 1,035
------------ ------------
17,045 5,762
Less current portion 14,330 3,776
------------ ------------
$ 2,715 $ 1,986
============ ============
</TABLE>

In May 1996, the Company borrowed $2,465,000 from a bank pursuant to a five
year, 9.48% fixed rate term loan agreement. The term loan is payable in fifty
seven principal installments plus interest which commenced June 15, 1996. The
term loan is secured by an equivalent amount of specific lease receivables which
are included in lease receivables in the Company's consolidated balance sheet.

The industrial development revenue bond provided the funds to construct and
equip the manufacturing facility in Ronkonkoma, New York. The bond is
collateralized by land, building and equipment with a net book value of
$5,388,000 at December 31, 1996, bears interest at 60% of the bank's prime rate
and has a final payment of $615,000 due on June 30, 1997. The effective interest
rate at December 31, 1996 was 4.95%. Under the terms of the bond agreement, the
Company is subject to certain restrictive covenants including limitations on
additional borrowings, limitation on the payment of cash dividends to 20% of net
income and compliance with certain financial ratios. The Company was not in full
compliance with certain of these financial covenants at December 31, 1996 and
received the appropriate waivers from the bank.

The industrial development revenue note was used to construct and equip the
manufacturing facility in Owatonna, Minnesota. The note is collateralized by
land, building and equipment with a net book value of $6,757,000 at December 31,
1996, bears interest at 62.5% of the bank's prime rate and requires annual
principal payments of $175,000 on each January 1 through 2003 with a final
payment of $875,000 on January 1, 2004. The effective interest rate at December
31, 1996 was 5.16%. The note agreement requires compliance with certain
financial ratios. The Company's current ratio at December 31, 1996 was not in
compliance with the required ratio of 2.5 to 1.0. The bank has waived this
default and amended the terms of the agreement giving the bank the ability to
call the loan in its entirety during the first 90 days of any calendar year
beginning in 1998. The Company has classified this note as current at December
31, 1996 due to the uncertainty of obtaining the bank's approval for the merger
with Trotter.

The note payable bears interest at a fixed rate of 8.9% and is collateralized by
certain manufacturing equipment with a net book value of $894,000 at December
31, 1996.

<PAGE>

F-13

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E--LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS (CONTINUED)

Annual principal payments of long-term debt are as follows (in thousands):

1997 $3,776
1998 979
1999 452
2000 322
2001 233
-----------
$5,762
===========

The Company has a bank line of credit which provides up to $5 million of
available credit. Any borrowings under this Agreement would bear interest at the
bank prime rate plus 1/4% at the time of borrowing. The credit facility is
principally secured by the Company's trade accounts receivable and inventories.

Selected data on the Company's short-term borrowings are as follows (dollars in
thousands):
<TABLE>
<CAPTION>

1995 1996
-------------- --------------
<S> <C> <C>
Balance at December 31 $15,250 ___
Weighted average interest
rate at December 31 7.42% ___
Maximum amount outstanding
at any month end $15,250 $15,250
Average amount outstanding $8,813 1,271
Weighted average interest
rate for the year 7.50% 7.41%
</TABLE>

Cash paid for interest was $1,103,000, $1,730,000 and $975,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.

NOTE F--STOCKHOLDERS' EQUITY

The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

<PAGE>

F-14
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

Proforma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options granted in 1995 and 1996 under the fair value method of
that Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

The fair values of these options at the date of grant was estimated with the
following weighted-average assumptions for 1995 and 1996: risk-free interest
rate of 5.9%, no dividend yield, volatility factor of the expected market price
of the Company's common stock of 33% and a weighted-average expected life of the
option of five years.

For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over five years. The Company's proforma information follows
(in thousands except for earnings per share information):
<TABLE>
<CAPTION>
December 31
1995 1996
--------------- --------------
<S> <C> <C>
Proforma loss from continuing operations $ (11,133) $ (889)
Proforma net loss $ (12,921) $ (4,903)
Proforma loss per share from continuing operations $ (2.57) $ (.20)
Proforma net loss per share $ (2.98) $ (1.12)
</TABLE>

Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994 and employee stock options granted vest over a four year period, its
proforma effect may not be representative of the effect in future years when
the effect would include the impact of multiple awards.

<PAGE>

F-15

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

Omnibus Incentive Plan: In June 1995, shareholders approved the 1995 Omnibus
Incentive Plan ("Omnibus Plan"), designed to provide incentives which will
attract and retain individuals key to the success of the Company through direct
or indirect ownership of the Company's Common Stock. Benefits under the Omnibus
Plan may be granted in any one or a combination of stock options, stock
appreciation rights, stock awards, performance awards and bonus stock purchase
awards. The Ominibus Plan has 250,000 shares of Common Stock reserved for
issuance and provides that the terms and conditions of each award are to be
determined by a committee of the Board of Directors charged with administering
the Omnibus Plan. Under the Omnibus Plan, the committee may grant either
incentive or nonqualified stock options with a term not to exceed ten years from
the grant date and at an exercise price per share that the committee may
determine (which in the case of incentive stock options may not be less than the
fair market value of a share of Common Stock on the date of grant). The
committee may also grant stock appreciation rights either in tandem with, or
independently of, an award of stock options. Under the Omnibus Plan, the
committee is authorized to permit key employees selected by the committee to
elect to convert up to a maximum percentage, as determined by the committee, of
their annual cash bonus incentive into Common Stock of the Company at a price
per share fixed by the committee, which will not be less than 85% of the fair
market value of the Common Stock on the regular bonus payment date. Options
granted under the Omnibus Plan become exercisable over a four year period
following the grant date and expire after ten years.

At December 31, 1996, there were 50,521 shares outstanding under restricted
stock awards granted in 1995. There were no restricted stock awards granted in
1996. Restricted stock awards vest in one to five years from the date of grant.
Upon the issuance of restricted stock, unearned compensation equal to fair
market value at the date of grant is charged to stockholders' equity and
amortized to expense over the period in which the restrictions lapse.
Amortization expense of $206,000 and $82,000 were charged to operations in 1995
and 1996, respectively.

1987 Stock Option Plan: The Company also has shares available for the granting
of options under the 1987 Stock Option Plan. Under this plan, a committee of the
Board of Directors charged with administering the plan may grant either
incentive or nonqualified stock options with a term not to exceed ten years from
the grant date, at an exercise price per share that the committee may determine
(which in the case of incentive stock options may not be less than the fair
market value of a share of Common Stock on the date of grant), and with such
other conditions as the committee determines. The committee may also grant stock
appreciation rights either in tandem with, or independently of, an award of
stock options under the plan. Options granted under this plan become exercisable
over a four year period following the grant date and expire after ten years.

<PAGE>

F-16

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

The following is a summary of activity in the 1995 Omnibus Incentive Plan and
1987 Stock Option Plan:
<TABLE>
<CAPTION>

1995 Omnibus Incentive Plan 1987 Stock Option Plan
------------------------------- --------------------------------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Option Exercise
Shares Price Shares Price Price
-------------- -------------- --------------- -------------- --------------

<S> <C> <C> <C> <C> <C>
Outstanding at Jan. 1, 1994 246,950 $ 5 - $19
Granted 144,600 $10 - $11
Exercised (65,900) $ 5
Forfeited (48,800) $10 - $14
---------------
Outstanding at Dec. 31, 1994 ___ 276,850 $ 5 - $19
Granted 40,000 $10 70,100 $11
Exercised ___ (15,050) $ 5
Forfeited ___ (70,625) $10 - $14
--------------
---------------
Outstanding at Dec. 31, 1995 40,000 $10 261,275 $ 5 - $19 $10.49
Granted ___ 16,000 $ 9 $ 9.00
Exercised ___ (43,650) $ 5 - $10 $ 7.34
Forfeited (7,500) $10 (109,075) $10 - $14 $10.74
Expired ___ (6,000) $14 $14.00
-------------- ---------------
Outstanding at Dec. 31, 1996 32,500 $10 118,550 $ 9 - $19 $11.88
============== ===============

Exercisable at Dec. 31:
1996 13,750 $10 70,675 $13.20
1995 ___ 119,681 $11.48

Shares available for future
issuance at Dec. 31:
1996 166,979 156,400
1995 150,009 57,325

</TABLE>

The weighted average fair value of options granted during 1995 and 1996 were
$4.03 per share and $3.70 per share, respectively.

<PAGE>

F-17

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>

Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Range of Number Contractual Life Exercise Number Exercise
Exercise Outstanding Price Outstanding Price
Price at 12/31/96 at 12/31/96
--------------------- ------------------ ----------------- ----------------- ------------------ ------------------

<S> <C> <C> <C> <C> <C>
$ 9.38-$10.70 94,050 8.7 years $ 9.98 27,425 $10.03
$12.13-$13.88 47,000 4.8 12.94 47,000 12.94
$18.75 10,000 .1 18.75 10,000 18.75
------------------ ------------------
$ 9.38-$18.75 151,050 6.9 years $11.48 84,425 $12.68
================== ==================
</TABLE>

Stock Retainer Plan for Nonemployee Directors: In June 1995, the shareholders
approved the Stock Retainer Plan for Nonemployee Directors ("Retainer Plan"),
which provides that each nonemployee director will receive 70% of their annual
retainer or, in the case of the Chairman of the Board of Directors, shall
receive 50% of his annual retainer, in shares of Common Stock of the Company.
The number of shares to be issued will be computed by dividing the applicable
amount of the annual retainer to be paid in stock by the fair market value of a
common share on January 1 of each calendar year. Up to 35,000 shares of Common
Stock may be issued pursuant to the Retainer Plan. The issuance of shares in
payment of annual retainers will result in compensation expense based on the
fair market value of such shares. The Company issued 6,223 shares in 1995 and
8,064 shares in 1996 under the Retainer Plan representing $65,000 and $95,000
for director fees paid in 1995 and 1996, respectively. The Company also reissued
1,250 shares in 1995 and 5,000 shares in 1996 from Treasury representing $14,000
and $56,000 in director fees in 1995 and 1996, respectively, which were not part
of the Retainer Plan.

Leveraged Employee Stock Ownership Plan: The Company maintains a leveraged
Employee Stock Ownership Plan (ESOP) which is a noncontributory plan covering
substantially all employees meeting a one year length of service requirement.
The plan is designed to give employees a proprietary interest in the Company
through Common Stock ownership.

<PAGE>

F-18

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

In 1989, the ESOP borrowed $1,297,000 from the Company to acquire 108,100 shares
previously held in treasury. Each year the Company contributes amounts to the
ESOP sufficient for the ESOP to reduce its loan balance and release a portion of
its unallocated shares to eligible employees. In addition the ESOP has made
periodic borrowings from the Company to repurchase shares distributed to former
participants. Contributions by the Company to the ESOP are charged to expense.
During 1994 the remaining unallocated shares held by the ESOP were allocated to
eligible employees and the remaining loan balance was eliminated. During 1995
and 1996, 14,972 and 15,181 shares, respectively, of the Company's Common Stock
were transferred from treasury stock to the ESOP. In 1994, 1995 and 1996,
25,900, 25,900 and 15,181 shares, respectively, were allocated to eligible
employees and $310,000, $291,000 and $168,000, respectively, were charged to
expense by the Company.

For financial statement purposes the Company's loan receivable had been
reflected as a reduction in stockholders' equity.

Shareholders' Rights Plan: In May 1988, as further amended by the Board of
Directors in March 1989, a Shareholders Rights Plan (the "Rights Plan") was
adopted to insure that any acquisition of the Company would be on terms that are
fair to and in the best interest of all shareholders. Under the Rights Plan,
holders of Common Stock are entitled to receive one right for each share of
Common Stock held. Separate rights certificates would be issued and become
exercisable in the event an acquiring party accumulates 15% or more of the
Company's Common Stock or announces an offer to acquire 30% or more of the
Common Stock.

Each right will entitle a holder, except a 15% or more holder, to buy one
one-hundredth share of a newly authorized Series A Preferred Stock at an
exercise price of $60.00. Each one one-hundredth share of such preferred stock
is essentially equivalent to one share of the Company's Common Stock. However,
if an acquiring party accumulates 15% or more of the Company's Common Stock or
certain other events occur, each right entitles the holder (other than a 15%
holder) to purchase for $60 either $120 worth of Series A Preferred Stock or
$120 worth of common stock in the entity acquiring the Company. The purchase
price per share would be the market price of the Company's Common Stock or the
common stock of such acquiring entity.

The rights expire in May 1998 and may be redeemed by the Company at a price of
$.05 per right at any time up to ten days after they become exercisable (subject
to extension in certain circumstances) or in connection with a transaction
approved by Independent Directors (as defined in the Rights Plan).

<PAGE>

F-19

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G--INCOME TAXES

The provision (benefit) for income taxes on continuing operations included in
the accompanying Consolidated Statements of Operations is summarized as follows
(in thousands):
<TABLE>
<CAPTION>

1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Current:
Federal $ (33) $ (2,816) $--
State and local 60 23 32
------------ ------------- ------------
27 (2,793) 32
Deferred 108 (551) --
------------ ------------- ------------

$ 135 $ (3,344) $32
============ ============= ============
</TABLE>

The significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>

1995 1996
---------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $ 1,022 $ 1,379
Other - net 205 205
-----------
----------
Total deferred tax liabilities 1,227 1,584

Deferred tax assets (included in other current assets):
Net operating loss carryforward -- 2,861
Nonrecurring charge 1,798 582
Discontinued operations 772 1,174
Warranty reserves 816 617
Insurance obligations 276 332
Bad debt reserves 240 407
LIFO reserves 82 45
Inventory cost capitalization 87 81
Other - net 82 4
---------- -----------
Total deferred tax assets 4,153 6,103
Valuation allowance (2,698) (4,291)
---------- -----------
Net deferred tax asset $228 $228
========== ===========
</TABLE>

The Company has recognized a benefit equal to taxes recoverable from the
utilization of net operating loss carrybacks and has recorded a valuation
allowance of $2,698,000 and $4,291,000 in 1995 and 1996, respectively. No
valuation allowance was recorded at December 31, 1994.

<PAGE>

F-20
CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G--INCOME TAXES (CONTINUED)

The reconciliation of tax computed on the results from continuing operations at
the federal statutory rate to the provision (benefit) for income taxes is as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Tax computed at statutory rate $383 $(4,916) $(273)
Tax free interest earned on
investments (107) (67) (6)
Foreign Sales Corporation
exempt income (101) (105) ___
State income taxes, net of federal tax benefit 40 15 21
Research and development tax
credit (57) ___ ___
Valuation allowance ___ 1,707 249
Other, net (23) 22 41
------------ ----------- ------------
$135 $(3,344) $32
============ =========== ============
</TABLE>

The Company received a tax benefit from the exercise of non-qualified stock
options of $31,000 and $48,000 credited directly to capital surplus during the
years ended December 31, 1995 and 1996, respectively.

At December 31, 1996, the Company had net operating loss carryforwards of
$6,705,000 expiring in 2011.

Cash paid for income taxes was $844,000, $157,000 and $254,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.

NOTE H--BENEFIT PLANS

The Company has a noncontributory defined contribution retirement plan
("Retirement Plan") covering substantially all employees. Contributions to the
Retirement Plan are based upon annual compensation for those persons employed
(as defined) at December 31 and are funded annually. Retirement Plan expense was
$267,000, $360,000 and $155,000 in 1994, 1995 and 1996, respectively.

NOTE I--LEASES

As Lessor

The Company offers lease financing of selected products to its customers under
sales-type leases. Leases are generally for three to five years at which time
title transfers to the lessee. Leases are secured by the equipment financed,
often with additional security in the form of other equipment liens, letters of
credit, cash down payments and personal guarantees.

<PAGE>

F-21

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I--LEASES (CONTINUED)

Lease receivables were comprised of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------------- --------------

<S> <C> <C>
Minimum lease payments receivable $2,467 $5,257
Less unearned interest income (430) (616)
Less allowance for uncollectible accounts (61) (227)
-------------- --------------

Lease receivables 1,976 4,414
Current portion 574 2,144
--------------
==============
Non current portion $1,402 $2,270
============== ==============

</TABLE>

Minimum lease payments receivable as of December 31, 1996 were as follows (in
thousands):

1997 $2,828
1998 1,721
1999 500
2000 174
2001 34
Thereafter --
-----------
$5,257
===========

The Company financed $10.8 million and $12.5 million of its equipment sales for
the years ended December 31, 1995 and 1996, respectively. Income from leasing
activities for the years ended December 31, 1994, 1995 and 1996 was $517,000,
$567,000 and $176,000, respectively.

The Company periodically enters into agreements, generally subject to limited
recourse, to sell lease receivables to financial institutions to provide
continuous funding for its leasing programs. The Company sold $8.3 million and
$7.0 million of lease receivables in 1995 and 1996, respectively. Under the
terms of these agreements the Company will continue to bill and collect the
monthly lease payments which are then remitted to respective lenders each month.
The Company is subject to recourse provisions which may require it to repurchase
or replace leases in default. In return, the Company receives the collateralized
lease equipment. The recourse provisions, which range from 15% to 100% of the
outstanding net lease receivables, may be reduced annually based upon the
remaining outstanding lease stream. At December 31, 1996, the maximum contingent
liability under these recourse provisions was $9.2 million. Estimated credit
losses of $323,000 under the recourse provisions have been accrued consistent
with management's expectations based upon historical and industry experience,
and are included in accrued liabilities in the accompanying Consolidated Balance
Sheet.

<PAGE>

F-22

CYBEX INTERNATIONAL, INC.
(FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I--LEASES (CONTINUED)

As Lessee

The Company has lease commitments expiring at various dates through 2001
principally for facilities and data processing equipment under noncancelable
operating leases. Future minimum payments under these leases at December 31,
1996 are as follows (in thousands):

1997 $632
1998 449
1999 340
2000 319
2001 215
-----------
$1,955
===========

Rent expense under operating leases for 1994, 1995 and 1996 was $435,000,
$591,000 and $687,000, respectively.

NOTE J--OTHER INFORMATION

Sale of Ronkonkoma, New York Facility - The Company has signed an agreement to
sell its manufacturing, warehouse and office facility located in Ronkonkoma, New
York for $4.5 million. The facility is subject to an industrial revenue bond
with an outstanding principal balance of $615,000. The sale of this facility is
expected to be finalized in the second quarter of 1997 and result in a gain for
financial statement purposes. The Company plans on moving its Ronkonkoma
operations, including manufacturing, to a smaller leased facility in the same
geographic area.

Equity Investment: - In the fourth quarter of 1996, the Company entered into a
joint venture agreement to form a new company, CYBEX Forza International Ltd.,
to coordinate, expand and improve its sales and servicing efforts in Europe, as
well as Russia, Africa and the Middle East. The joint venture is equally owned
by the Company and The Forza Group Ltd. ("Forza"), the Company's distributor in
the United Kingdom. In addition to the Company's products, the joint venture
will distribute other fitness products and will also pursue selective European
based manufacturing opportunities. At December 31, 1996, the Company's
investment in and advances to the joint venture totaled $180,000 and is
reflected in other assets in the accompanying consolidated balance sheet. Total
revenues and gross assets of the joint venture were not material to the
Company's consolidated financial statements.

<PAGE>

F-23

CYBEX INTERNATIONAL, INC. (FORMERLY LUMEX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J--OTHER INFORMATION (CONTINUED)

Receivables: Trade accounts receivable are stated net of allowances for doubtful
accounts of $943,000 in 1995 and $1,106,000 in 1996. The provision for bad debts
for the years ended December 31, 1994, 1995 and 1996 was $67,000, $633,000 and
$221,000, respectively.

Inventories: Inventories were as follows (in thousands):
1995 1996
------------ ------------

Finished goods $4,160 $3,053
Work in process 3,828 3,973
Raw materials 4,036 2,908
------------ ------------
$12,024 $9,934
============ ============

Year-end inventories valued under the LIFO method were $2,952,000 in 1995 and
$1,544,000 in 1996. The replacement cost of LIFO inventories exceeds stated LIFO
costs by approximately $1,501,000 and $953,000 at December 31, 1995 and 1996,
respectively.

Intangible Assets: In February 1995, the Company exercised an option, under an
existing distributorship agreement with Impulse Technologies, Inc. (Impulse) to
acquire the exclusive license and patent rights to certain products developed by
Impulse, including a functional activity system for testing and exercise
(FASTEX) for $1.5 million plus a royalty of 8% of net sales until expiration of
the patent rights.

Accrued Liabilities: Accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>

1995 1996
------------ ------------
<S> <C> <C>
Salaries, bonuses and commissions $1,238 $1,104
Accrued vacation 549 588
Customer deposits 1,214 1,158
Warranty reserves 710 782
Self insurance obligations 948 977
Nonrecurring charges 5,125 2,075
Discontinued operations ___ 3,453
Other 4,104 3,330
------------ ------------
$13,888 $13,467
============ ============
</TABLE>

Export Sales: Sales to foreign customers for the years ended December 31, 1994,
1995 and 1996 were $16,880,000, $21,585,000, and $26,017,000, respectively. No
single geographic area outside of the United States was material relative to
consolidated sales, operating profits or identifiable assets.

Product Development Expenses: Product development expenses, included in selling,
general and administrative expenses in the accompanying consolidated statements
of operations, for the years ended December 31, 1994, 1995 and 1996 were
$4,065,000, $5,058,000 and $3,990,000, respectively.

<PAGE>

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

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required to be furnished pursuant to this item with respect to
Directors and Executive Officers of the Company will be set forth under the
captions "MANAGEMENT OF THE COMPANY - Executive Officers and Directors" and
"OTHER MATTERS TO BE CONSIDERED AT ANNUAL MEETING - Proposal No. 4 - Election of
Directors" in the Company's definitive proxy statement, which involves the
election of directors (the "Proxy Statement"), to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this Report, and is incorporated herein by reference, or if such
Proxy Statement is not filed with the Commission on or before 120 days after the
end of the fiscal year covered by this Report, such information will be included
in an amendment to this Report filed no later than the end of such 120-day
period.

The information required to be furnished pursuant to this item with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 will be set
forth under the caption "EXECUTIVE COMPENSATION - Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement, and is incorporated
herein by reference, or if such Proxy Statement is not filed with the Commission
on or before 120 days after the end of the fiscal year covered by this Report,
such information will be included in an amendment to this Report filed no later
than the end of such 120-day period.

ITEM 11. EXECUTIVE COMPENSATION

The information required to be furnished pursuant to this item will be set forth
under the captions "MANAGEMENT OF THE COMPANY - Director Compensation" and
"EXECUTIVE COMPENSATION" in the Proxy Statement, and is incorporated herein by
reference, or if such Proxy Statement is not filed with the Commission on or
before 120 days after the end of the fiscal year covered by this Report, such
information will be included in an amendment to this Report filed no later than
the end of such 120-day period.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information required to be furnished pursuant to this item will be set forth
under the caption "OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" in the Proxy Statement, and is incorporated herein by
reference, or if such Proxy Statement is not filed with the Commission on or
before 120 days after the end of the fiscal year covered by this Report, such
information will be included in an amendment to this Report filed no later than
the end of such 120-day period.
41

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required to be furnished pursuant to this item will be set forth
under the caption "MANAGEMENT OF THE COMPANY - Certain Relationships and Related
Transactions" in the Proxy Statement, and is incorporated herein by reference,
or if such Proxy Statement is not filed with the Commission on or before 120
days after the end of the fiscal year covered by this Report, such information
will be included in an amendment to this Report filed no later than the end of
such 120-day period.

42
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

(1) (2) Financial Statements and Schedules
----------------------------------
See Index to Consolidated Financial Statements and
Schedules (Part II - Item 8).

(3) Exhibits

2(a) Asset Sale Agreement, dated as of March 13, 1996, by and
between the Company, MUL Acquisition Corp. I, MUL
Acquisition Corp. II and Fuqua Enterprises, Inc.,
incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated April 3, 1996.

2(b)(i) Agreement and Plan of Merger, dated as of December 27,
1996, by and among the Company, Trotter Inc., and CAT'S
TAIL, INC. (FILED HEREWITH)

2(b)(ii) First Amendment to Agreement and Plan of Merger, dated as
of January 16, 1997, to Agreement and Plan of Merger,
dated as of December 27, 1996, by and among the Company,
Trotter Inc., and CAT'S TAIL, INC. (FILED HEREWITH)

3(a)(1) Restated Certificate of Incorporation of the Company,
dated May 20, 1988, incorporated by reference to Exhibit
3(a)(1) to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996 (the "June 1996 10-Q").

3(a)(2) Certificate of Amendment of the Certificate of
Incorporation of the Company, dated May 30, 1988,
incorporated by reference to Exhibit 3(a)(2) to the June
1996 10-Q.

3(a)(3) Certificate of Amendment of the Certificate of
Incorporation of the Company, dated August 7, 1996,
incorporated by reference to Exhibit 3(a)(3) to the June
1996 10-Q.

3(b) By-Laws of the Company, as amended, incorporated by
reference to Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1987.

4(i)(a) Rights Agreement dated as of May 23, 1988 between the
Company and Registrar & Transfer Company, incorporated
reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K dated May 18, 1988 (the "May 1988 8-K").

4(i)(b) Amendment to Rights Agreement dated as of March 15, 1989
between the Company and Registrar & Transfer Company,
incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated March 15, 1989.

4(ii)(a) Guaranty dated as of June 1, 1982 by the Company in favor
of Citibank, N.A., incorporated by reference to Exhibit
4(ii)(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1982 (the "1982 10-K").

43
<PAGE>

4(ii)(b) Bond Purchase Agreement dated as of June 1, 1982 by and
among the Town of Islip Industrial Development Agency, the
Company and Citibank, N.A., incorporated by reference to
Exhibit 4(ii)(b) to the 1982 10-K.

4(ii)(c) Lease Agreement dated as of June 1, 1982 between the Town
of Islip Industrial Development Agency and the Company,
incorporated by reference to Exhibit 4(ii)(c) to the 1982
10-K.

4(ii)(d) Pledge and Assignment with Acknowledgement thereof by the
Company, dated as of June 1, 1982 from the Town of Islip
Industrial Development Agency to Citibank, N.A.,
incorporated by reference to Exhibit 4(ii)(d) to the 1982
10-K.

10(i)(a) Loan Agreement dated December 28, 1983 between City of
Owatonna, Minnesota and the Company, incorporated by
reference to Exhibit 10(i)(b) to the 1983 10-K.

<PAGE>

10(i)(b) Combination Mortgage, Security Agreement and Fixture
Financing Statement dated December 28, 1983 between the
Company, Mortgagor, and Norwest Bank Owatonna, National
Association, Mortgagee, incorporated by reference to
Exhibit 10(i)(c) to the 1983 10-K.

10(i)(c) Construction Loan Agreement dated December 28, 1983 by and
between the Company and Norwest Bank, National
Association, and the City of Owatonna, incorporated by
reference to Exhibit 10(i)(d) to the 1983 10-K.

10(i)(d) Assignment of Rents and Leases dated December 28, 1983
between the Company and Norwest Bank Owatonna, National
Association, incorporated by reference to Exhibit 10(i)(e)
to the 1983 10-K.

10(i)(e) Form of City of Owatonna Industrial Development Revenue
Note in the principal amount of $3,500,000 dated December
1983, incorporated by reference to Exhibit 10(i)(f) to the
1983 10-K.

10(ii) Lumex, Inc. Amended and Restated 1987 Stock Option Plan,
incorporated by reference to Exhibit 28 to the Company's
Registration Statement on Form S-8 (No. 33-48124), filed
May 26, 1992.*

10(iii)(a) Form of Severance Agreement for certain senior executives
of the Company, incorporated by reference to Exhibit 10.1
to the June 1988 8-K.*

10(iii)(b) Form of Severance Agreement for certain employees of the
Company, incorporated by reference to Exhibit 10.2 to the
June 1988 8-K.*

10(iv) Lumex, Inc. Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(v) to the Annual Report on Form
10-K for the year ended December 31, 1993 (the "1993
10-K").*

10(v) Loan Agreement, dated as of July 30, 1993, among the
Company, CYBEX Financial Corp., and Chemical Bank,
incorporated by reference to Exhibit 10(vi) to the 1993
10-K.

44
<PAGE>

10(vi) First Amendment to Loan Agreement, dated as of November
26, 1993, among the Company, CYBEX Financial Corp., and
Chemical Bank, incorporated by reference to Exhibit
10(vii) to the 1993 10-K.

10(vii) Consulting Agreement, dated May 5, 1994, between L. Cohen
and the Company, incorporated by reference to Exhibit
10(viii) to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.*

10(viii) Loan Agreement, dated as of May 18, 1994, among the
Company, CYBEX Financial Corp. and European American Bank,
incorporated by reference to Exhibit 10(ix) to the Annual
Report on Form 10-K for the year ended December 31, 1994
(the "1994 10-K").

10(ix) Ultimate Net Loss Vendor Agreement with Portfolio
Purchase, dated December 30, 1994, among the Company,
CYBEX Financial Corp. and C.I.T., incorporated by
reference to Exhibit 10(x) to the 1994 10-K.

10(x) Portfolio Purchase Agreement, dated December 30, 1994,
among the Company, CYBEX Financial Corp. and European
American Bank, incorporated by reference to Exhibit 10(xi)
to the 1994 10-K.

10(xi) Consulting Agreement, dated January 27, 1994, between JDX
Limited and the Company, incorporated by reference to
Exhibit 10(xii) to the 1994 10-K.*

10(xii) Lumex, Inc. 1995 Omnibus Incentive Plan, incorporated by
reference to the Company's definitive proxy statement,
dated May 1, 1995, for its Annual Meeting of Shareholders
held on June 5, 1995 (the "1995 Proxy").*

10(xiii) Lumex, Inc. 1995 Stock Retainer Plan for Nonemployee
Directors, incorporated by reference to the 1995 Proxy.*

10(xiv) Employment Agreement, dated August 9, 1995, between J.
Raymond Elliott and the Company, incorporated by reference
to Exhibit 10(xv) to Amendment No. 1 to the Quarterly
Report on Form 10-Q/A for the quarter ended September 30,
1995 (the "September 1995 10-Q").*

10(xv) Employment Agreement, dated August 17, 1995, between John
R. Cowin and the Company, incorporated by reference to
Exhibit 10(xvi) to the September 1995 10-Q.*

10(xvi) Employment Agreement, dated October 16, 1995, between
Robert McNally and the Company, incorporated by reference
to Exhibit 10(xvi) to Amendment No. 1 to the Company's
Annual Report on Form 10-K/A for the year ended December
31, 1995 (the "1995 10-K/A").*

10(xvii) Covenant Not to Compete, dated as of April 3, 1996, by and
among the Company, Lumex Medical Products, Inc. (f/k/a MUL
Acquisition Corp. I), MUL Acquisition Corp. II, and Fuqua
Enterprises, Inc.., incorporated by reference to Exhibit
10(xvii) to the June 1996 10-Q.

45
<PAGE>

10(xviii) Amended and Restated Employment Agreement, dated May 9,
1996, between J. Raymond Elliott and the Company,
incorporated by reference to Exhibit 10(xviii) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (the "September 1996 10-Q").*

10(xix) Severance Agreement, dated August 22, 1996, between Robert
McNally and the Company, incorporated by reference to
Exhibit 10(xix) to the September 1996 10-Q.*

21 Subsidiaries of the Registrant. (FILED HEREWITH)

23 Consent of Ernst & Young LLP. (FILED HEREWITH)

27 Financial Data Schedule. (FILED HEREWITH)

* Executive Compensation Plans and Arrangements

(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 1996.

46
<PAGE>
SIGNATURES

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

CYBEX International, Inc.
-------------------------------------------
(Registrant)

March 27, 1997 By: /s/ Robert McNally
- -------------- ---------------------------------------------
(Date) Robert McNally, on behalf of the Registrant
and as Chief Financial Officer and Sr. Vice
President of Finance.

47
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

March 27, 1997 By: /s/ J. Raymond Elliott
- --------------- -------------------------------------
J. Raymond Elliott, President and
Chief Executive Officer and Director.

March 27, 1997 By: /s/ Kay Knight Clarke
- --------------- -------------------------------------
Kay Knight Clarke, Director

March 27, 1997 By: /s/ Thomas W. Kahle
- --------------- -------------------------------------
Thomas W. Kahle, Director

March 27, 1997 By: /s/ Robert R. McMillan
- --------------- -------------------------------------
Robert R. McMillan, Director

March 27, 1997 By: /s/ Carol G. Nelson
- --------------- -------------------------------------
Carol G. Nelson, Director

March 27, 1997 By: /s/ Jack C. Spratt
- ---------------- -------------------------------------
John C. Spratt, Director

March 27, 1997 By: /s/ Alan H. Weingarten
- --------------- -------------------------------------
Alan H. Weingarten, Director

48
<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
----------- -----------

2(b)(i) Agreement and Plan of Merger, dated as of December 27,
1996, by and among the Company, Trotter Inc., and CAT'S
TAIL, INC. (FILED HEREWITH)

3(a)(2) Certificate of Amendment of the Certificate of
Incorporation of the Company, dated May 30, 1988,
incorporated by reference to Exhibit 3(a)(2) to the June
1996 10-Q.

3(a)(3) Certificate of Amendment of the Certificate of
Incorporation of the Company, dated August 7, 1996,
incorporated by reference to Exhibit 3(a)(3) to the June
1996 10-Q.

3(b) By-Laws of the Company, as amended, incorporated by
reference to Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1987.

4(ii)(c) Lease Agreement dated as of June 1, 1982 between the Town
of Islip Industrial Development Agency and the Company,
incorporated by reference to Exhibit 4(ii)(c) to the 1982
10-K.

49
<PAGE>