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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

or

Commission file number 0-4538

Cybex International, Inc.

(Exact name of registrant as specified in its charter)

(508) 533-4300

Registrant’s telephone number, including area code

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

On July 31, 2003, the Registrant had outstanding 8,830,962 shares of Common Stock, par value $0.10 per share, which is the Registrant’s only class of Common Stock.

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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

See notes to the condensed consolidated financial statements.

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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

* Gives effect to conversion of related party loan to preferred stock on July 16, 2003 (see Note 1).

See notes to condensed consolidated financial statements.

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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

See notes to condensed consolidated financial statements.

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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 — BASIS OF PRESENTATION

Cybex International, Inc. (the “Company” or “Cybex”), a New York corporation, is a leading manufacturer of exercise equipment and develops, manufactures and markets strength and cardiovascular fitness equipment products for the commercial and consumer markets.

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with accounting principles generally accepted in the United States. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 28, 2003 are not necessarily indicative of the results that may be expected for the entire year.

The pro forma condensed consolidated balance sheet as of June 28, 2003 gives effect to the conversion of a $4,900,000 related party loan to Series B Convertible Cumulative Preferred Stock on July 16, 2003 as if such transaction had occurred on June 28, 2003 (see Note 4).

It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s reports filed with the Securities and Exchange Commission, including its Report on Form 10-K for the year ended December 31, 2002, this Report on Form 10-Q, its Current Reports on Form 8-K, and its proxy statement dated April 22, 2003.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Guarantees

In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantees. FIN 45 also requires additional disclosure about the guarantor’s obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective after December 15, 2002, and are included below.

From time to time the Company arranges for leases or other financing sources to enable certain of its customers to purchase the Company’s equipment. While most of these financings are without recourse, in certain cases, the Company provides a guaranty or other recourse provisions to the independent finance company of all or a portion of the lease payments in order to facilitate the sale of the equipment. In such situations, the Company ensures that the transaction between the independent leasing company and the end user customer represents a sales-type lease. The Company monitors the payment status of the lessee under these arrangements and provides a reserve under Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies,” in situations when collection of the lease payments is not probable. At June 28, 2003, the maximum contingent liability under all recourse and guarantee provisions, including recourse and guarantee provisions issued prior to January 1, 2003, was approximately $4,258,000. A reserve under SFAS No. 5 for estimated losses

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under recourse provisions of $57,000 has been recorded based on historical and industry experience and is included in accrued liabilities at June 28, 2003. In accordance with FIN 45, the Company also recorded a liability and corresponding reduction of revenue of $39,000 as of June 28, 2003 for the estimated fair value of the Company’s guarantees issued after January 1, 2003. The fair value of the guarantee was determined based on the estimated cost for a customer to obtain a letter of credit from a bank or similar institution. This liability will be reduced on a straight-line basis over the life of each respective guarantee. In most cases if the Company is required to fulfill its obligations under the guarantee, the Company has the right to repossess the equipment from the customer. It is not practicable to estimate the approximate amount of proceeds that would be generated from the sale of these assets.

The following table sets forth the changes in the liability for product warranties during the six months ending June 28, 2003:

Stock-Based Compensation

In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” was issued. SFAS No. 148 amended SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amended the disclosure requirements of SFAS No. 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are applicable to interim or annual periods that end after December 15, 2002, and, as such, have been incorporated below. SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and provide pro forma net earnings and earnings per share disclosures for employee stock option grants as if the fair value based method defined in SFAS No. 123 had been applied. The Company continues to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures in accordance with the provisions of SFAS No. 123 and SFAS No. 148 to its stock option plans.

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Accounting for Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”. SFAS No. 146 addresses the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. SFAS No. 146 is effective prospectively for exit or disposal activities that are initiated after December 31, 2002.

NOTE 3 — INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out) or market and consist of the following:

NOTE 4 — LONG-TERM DEBT AND RELATED PARTY LOAN

Long-term debt consists of the following:

As of June 28, 2003, long-term debt consisted primarily of borrowings pursuant to a restated credit agreement with several banks (the Restated Agreement), which consisted of an $11,000,000 revolving loan, subject to a borrowing base formula based on accounts receivable and inventory, term loans with a balance of $19,167,000 at June 28, 2003, and a letter of credit facility of $4,459,000 at June 28, 2003. Under the Restated Agreement, as amended from time to time, borrowings under the revolving loan bore interest at the Base Rate plus 2%, and borrowings under the term loans bore interest at the Base Rate plus 3%. The Base Rate was equal to the greater of the prime rate, as defined, or the Federal Funds effective rate plus 50 basis points. The Base Rate was 4.0% at June 28, 2003. Borrowings under the Restated Agreement were secured by substantially all of the Company’s assets.

Pursuant to the Restated Agreement, as amended from time to time, the Company was required to maintain certain financial and non-financial covenants, as defined, including certain cumulative minimum earnings before interest, taxes, depreciation and amortization, maximum capital expenditures and a maximum leverage ratio. The Company was out of compliance with the financial covenants from time to time, including as of March 29, 2003 and June 28, 2003. Effective April 1, 2003, the Company and the banks entered into a Forbearance Agreement (the Forbearance Agreement) pursuant to which the

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lenders agreed not to exercise, during the forbearance period, their rights with respect to certain outstanding financial covenant defaults by the Company. Additionally, pursuant to the Forbearance Agreement, all regularly scheduled principal payments required to be made on the term loans, as well as the payment of a $400,000 fee, were extended and were due upon the earlier of the expiration of the forbearance period, the consummation of a sale of the Company, or the refinancing of the facility. The forbearance period was through June 30, 2003, subject to extension through August 30, 2003, if certain conditions were met. Borrowings under the Restated Agreement were initially classified as current liabilities as of June 28, 2003 as a result of the events of default and the original maturity date of the facility of December 31, 2003.

In November 1998, the Company entered into an Interest Rate Swap Agreement whereby the Company received a variable LIBOR rate and paid a fixed rate of 5.04% through December 2003. The purpose of the swap was to fix the interest rate on the terms loans and the notional amount of the swap amortized based on the original terms of the term loans. In connection with the refinancing described below, the swap was terminated in July 2003 in exchange for a payment of $54,594 by the Company, which is included in accrued liabilities as of June 28, 2003.

During 2002, UM Holdings Ltd., a principal stockholder of the Company, lent to the Company, on a subordinated basis, $1,000,000 bearing interest at 10% and maturing on January 1, 2004. During the six months ended June 28, 2003, UM Holdings Ltd. provided an additional $3,900,000 in subordinated loans with similar terms to fund the Company’s operations.

On July 16, 2003, the Company entered into a financing agreement with The CIT Group/Business Credit, Inc. (“CIT”) (the “CIT Financial Agreement”) and a financing agreement with Hilco Capital LP (“Hilco”) (the “Hilco Financing Agreement”). The CIT Financing Agreement provides for term loans of $5,000,000 and working capital loans of up to the lesser of $14,000,000 or an amount determined by reference to a borrowing base. The Hilco Financing Agreement provides for mortgage loans of $11,000,000. Both the CIT loans and the Hilco loans are secured by substantially all of the assets of the Company. The proceeds of the CIT and Hilco Financing Agreements were used to repay, in full, all outstanding borrowings under the Restated Agreement. Additionally, the Company’s prior lenders did not require payment of the $400,000 fee. As a result of the refinancing of current obligations subsequent to June 28, 2003, in accordance with SFAS No. 6, “Classification of Short-Term Obligations Expected to be Refinanced,” $14,600,000 has been excluded from current maturities of long-term debt as of June 28, 2003.

The CIT loans bear interest rates between LIBOR plus 2.5% and LIBOR plus 3.5% or the prime rate less .25% and the prime rate plus .75% based on a performance grid, except for a $3,000,000 term loan, which bears interest of the prime plus 5%, with a minimum of 10%. The CIT term loans are due in equal quarterly installments of $350,000, with the balance due upon maturity. The Hilco loan bears interest at the prime rate plus 11.5%, with a minimum of 15.5% and is due in equal quarterly installments of $137,500 beginning on July 16, 2004, with the balance due upon maturity. The maturity date under both the CIT Financing Agreement and the Hilco Financing Agreement is July 16, 2006. The CIT and Hilco Financing Agreements require the Company to maintain certain financial covenants including maintaining a minimum fixed charge ratio and a limitation on annual capital expenditures. Both financing agreements also restrict the ability of the Company to pay cash dividends.

Pursuant to the CIT Financing Agreement, the Company issued a warrant to CIT to purchase 176,619 shares of common stock, at an exercise price of $1.35 per share. Pursuant to the Hilco Financing Agreement, the Company issued a warrant to Hilco to purchase 189,640 shares of the common stock, at an exercise price of $.10 per share. The warrants issued to CIT and Hilco have a term of five years, are exercisable immediately, and have a fair value of $41,427 and $226,309, respectively. These amounts will be recorded as deferred financing costs. The fair value of these warrants was determined using the Black-Scholes pricing model using an expected volatility of 16%, the contractual term of the warrants, and a risk-free interest rate of 2.87%.

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As part of this refinancing, on July 16, 2003, $4,900,000 of subordinated notes held by UM Holdings Ltd. (related party loans) were cancelled and converted into 32,886 shares of a newly created class of preferred stock, the Series B Convertible Cumulative Preferred Stock (the “Preferred Stock”). As a result, the Company also excluded the related party loans from current liabilities as of June 28, 2003 in accordance with SFAS No. 6, but cannot classify such amounts within stockholders’ equity at June 28, 2003 because the shares were issued subsequent to such date. The pro forma condensed consolidated balance sheet as of June 28, 2003 gives effect to the conversion of the related-party loans as if it had occurred as of June 28, 2003 (see Note 1). The Company agreed to pay UM Holdings Ltd. a commitment fee of $120,000 in connection with this conversion. The Preferred Stock has the following characteristics: holders are entitled to receive dividends of $14.90, or 10% of the issuance price, per share per annum on a cumulative and preferential basis; holders shall not be entitled to vote, except when a provision of law expressly confers a right to vote on a particular matter or when the Company wishes to alter or change any of the powers, preferences, privileges, or rights of the Preferred Stock, in which case, approval, by vote, of holders of at least 66-2/3% of the outstanding shares of the Preferred Stock needs to be obtained; and conversion rights with a conversion ratio of 100 shares of common stock for each share of Preferred Stock, convertible at the option of the holder on or after the later of six months and one day from the original issuance date, June 30, 2004, or the date on which shareholders of the Company approve the convertibility rights. The liquidation preference is equal to the original issuance price of the Preferred Stock plus any accrued but unpaid dividends. The Preferred Stock is subject to mandatory redemption upon the sale of the Company. The Company has the right to redeem the Preferred Stock at any time after June 30, 2008. Redemption of the Preferred Stock will be at the original issuance price plus any accrued but unpaid dividends. The right of holders to receive any cash payments with respect to the Preferred Stock (whether as a dividend, a liquidation, redemption payment, or otherwise) is junior and subordinate to the payment of the Company’s “Senior Debt” (as defined). As part of the CIT and Hilco Financing Agreements, UM Holdings Ltd. provided additional collateral of $3,100,000 in the form of a guarantee of certain letters of credit. In the event that UM Holdings Ltd. suffers a loss with respect to this collateral, the Company’s reimbursement obligation will be satisfied by issuance of additional shares of Preferred Stock.

In 1992, an industrial development revenue bond provided the funds to purchase, expand and equip the manufacturing and administrative facility in Medway, Massachusetts. The bonds bear interest at a rate that resets weekly (1.05% at June 28, 2003) with interest payable monthly and principal payable annually through May 2007. A letter of credit in the amount of $1,634,000 is outstanding for the benefit of the bondholders to guarantee principal and interest payments.

NOTE 5 — RESTRUCTURING CHARGES

In December 2000, Cybex announced a restructuring plan designed to streamline operations, improve efficiency and reduce costs. During the March 30, 2002 quarter, the Company adjusted the reserve for severance payments provided as part of the December 2000 restructuring plan resulting in a reduction to selling, general and administrative expenses of $358,000. This adjustment to the reserve occurred as a result of a change in required future payments which occurred during the first quarter of 2002. Management’s plans with respect to the December 2000 restructuring plan are substantially complete.

The following table summarizes accrued restructuring costs at June 28, 2003:

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NOTE 6 — EARNINGS PER SHARE

The table below sets forth a reconciliation of the shares used in the basic and diluted net income per share computations:

For the three and six months ended June 28, 2003, options to purchase 326,027 and 340,000 shares, respectively, of the Company’s common stock at exercise prices ranging from $1.51 to $11.75 and $1.30 to $11.75 per share respectively, were outstanding but were not included in the calculation of diluted net income (loss) per share since the result would be anti-dilutive. For the three and six months ended June 29, 2002, options to purchase 473,653, of the Company’s common stock at exercise prices ranging from $1.30 to $11.75 per share were outstanding but were not included in the calculation of diluted net income (loss) per share since the result would be anti-dilutive.

NOTE 7 — CONTINGENCIES

The Company is involved in certain legal actions and claims arising in the ordinary course of business, including product liability claims and disputes, patent disputes, a dispute with the seller of an acquired business and disputes pertaining to distributor agreements. At June 28, 2003, a reserve of $2,042,000 is included in accrued expenses for estimated losses to be incurred related to those matters for which it is probable that a loss has been incurred.

Kirila et al v. Cybex International, Inc., et al

This action was commenced in the Court of Common Pleas of Mercer County, Pennsylvania in May 1997 against the Company, the Company’s wholly-owned subsidiary, Trotter, and certain officers, directors and affiliates of the Company. The plaintiffs include companies which sold to Trotter a strength equipment company in 1993, a principal of the corporate plaintiffs who was employed by Trotter following the acquisition, and a company which leased to Trotter a plant located in Sharpsville, Pennsylvania. In accordance with Pennsylvania practice, the complaint in this matter was not served upon the defendants until the second quarter of 1998. The complaint, among other things, alleged wrongful closure of the Sharpsville facility, wrongful termination of the individual plaintiff’s employment and nonpayment of compensation, breach of the lease agreement and the asset purchase agreement, tortious interference with business relationships, fraud, negligent misrepresentation, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion, unfair competition and violation of the Wage Payment and Collection Law. The complaint also sought specific performance of the lease, the employment agreement and the indemnification provisions of the asset purchase agreement, and an unspecified amount of compensatory and punitive damages and expenses. The Company filed an answer to the complaint denying the material allegations of the complaint and denying liability and it further asserted counterclaims against the plaintiffs, including for repayment of over-allocations of expenses under the lease and certain excess incentive compensation payments which were made to the individual plaintiff.

A jury verdict was rendered in this litigation on February 2, 2002. While the jury found in favor of the Company with respect to the majority of the plaintiffs’ claims, it also found that the Company owes certain incentive compensation payments totaling approximately $873,000 and rent of approximately

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$38,000, plus interest. A motion is pending before the trial judge to award to the plaintiffs their attorneys fees and a further sum under the Wage Payment and Collection Law equal to 25% of the awarded compensation payments. In December 2002, plaintiff Kirila Realty and the Company agreed to enter judgment in favor of Kirila Realty in the amount of $48,750, on the claims related to lease issues. Such amount represented the approximate $38,000 jury verdict together with an agreed amount of interest due and was paid by the Company in 2002.

As of June 28, 2003, no judgement has been entered on the remainder of the jury verdict, as the post-trial proceedings remain to be completed. The Company plans to vigorously pursue the appeal of any judgment entered in this matter.

Free Motion Fitness v. Cybex International, Inc.

On December 31, 2001, Free Motion Fitness (f.k.a. Ground Zero Design Corporation) filed an action for patent infringement against the Company alleging that the Company’s FT 360 Functional Trainer infringed U.S. Patent No. 6,238,323, allegedly owned by Free Motion Fitness. The Company did not receive service on this matter until April 2, 2002. The action was filed in the United States District Court for the District of Utah. The Company has filed an answer that includes claims which the Company believes could invalidate the Free Motion patent and has also filed a counterclaim against Free Motion seeking damages. This matter has become material to the Company given the legal expenses the Company has spent in defending this matter. The Company plans to continue to vigorously contest this litigation.

Hot New Products v. Cybex International, Inc., et al

This action is in the United States District Court for the Northern District of Alabama. The plaintiff in this action is a terminated dealer of Trotter. Shortly after the termination, plaintiff filed a State action against Trotter and Cybex, alleging fraud, breach of contract, unjust enrichment and recoupment. The plaintiff also sued another Cybex dealer alleging intentional interference with business relations. In July 1998, the plaintiff filed this antitrust Complaint in federal court, alleging price discrimination and price and territory conspiracy violations; the State court case was dismissed with the State court claims refiled as part of this federal action. The plaintiff is seeking approximately $3,500,000 in compensatory damages, plus treble damages for the antitrust claims and punitive damages. The Company has filed an answer to the complaint denying the material allegations of the complaint and denying liability and has filed a counterclaim for fraud, promissory estoppel and intentional interference with business relations. The Company intends to vigorously defend this litigation.

Colassi v. Cybex International, Inc.

This action is in the United States District Court for the District of Massachusetts. The plaintiff alleges that certain of the Company’s treadmill products infringe a patent allegedly owned by the plaintiff. The plaintiff seeks injunctive relief and monetary damages. The Company has filed an answer to the complaint denying the material allegations of the complaint and has asserted counterclaims. The company intends to vigorously defend this litigation and prosecute its counterclaims.

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CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION

Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made below. These include, but are not limited to, competitive factors, technological and product developments, market demand, economic conditions, the ability of the Company to comply with the terms of its credit facilities and uncertainties relating to the implementation of the Company’s restructuring plan. Further information on these and other factors which could affect the Company’s financial results can be found in the Company’s reports filed with the Securities and Exchange Commission, including its Report on Form 10-K, including Part I thereof, its Current Reports on Form 8-K, this Form 10-Q and its proxy statement dated April 22, 2003.

OVERVIEW

Cybex International, Inc. (the “Company” or “Cybex”), a New York corporation, is a leading manufacturer of exercise equipment and develops, manufactures and markets strength and cardiovascular fitness equipment products for the commercial and consumer markets. Cybex is comprised of three formerly independent companies, Cybex, Trotter Inc. (“Trotter”) and Tectrix Fitness Equipment, Inc. (“Tectrix”).

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. In particular, the continued uncertainties in US and global economic conditions and in the fitness industry, together with the Company’s reliance on newly-introduced products, make it particularly difficult to predict product demand and other related matters, and may preclude the Company from achieving expected results.

Cybex’s net sales increased by 13% during the first six months of 2003 compared to the corresponding prior year period. While Cybex does not expect that net sales will continue to increase at this rate during the balance of 2003, it anticipates that net sales for the full year 2003 will exceed 2002 net sales by more than its prior guidance of 3% to 5%.

RESULTS OF OPERATIONS

NET SALES

Cybex’s net sales increased $3,109,000, or 17%, to $21,114,000 for the second quarter 2003 from $18,005,000 for the second quarter 2002. For the six months ended June 28, 2003, net sales increased $4,804,000, or 13%, to $41,722,000 from $36,918,000 for the same period in 2002. For the second quarter of 2003, sales of cardiovascular products increased $3,669,000, or 61%, to $9,668,000 and sales of strength products decreased $683,000, or 7%, to $8,929,000. For the six months ended June 29, 2003, sales of cardiovascular products increased $6,005,000, or 50%, to $18,112,000 and sales of strength products decreased $1,385,000, or 8%, to $18,352,000. The sales increases are attributable to the Company’s new cardiovascular product, the ArcTrainer, which began full production in the third quarter of 2002. ArcTrainer sales totaled $4,158,000 and $7,607,000 for the quarter and six months ended June 28, 2003, respectively. Freight and other revenue decreased $37,000, or 4%, to $802,000 in the second quarter of 2003 and $189,000, or 10%, to $1,682,000 for the six months ended June 28, 2003. Sales of parts increased $160,000, or 10%, to $1,715,000 in the second quarter of 2003 and $374,000, or 12%, to $3,577,000 for the six months ended June 28, 2003.

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GROSS MARGIN

Gross margin decreased to 34.2% in the second quarter of 2003 from 34.7% in the prior year second quarter. Higher warranty costs (3.0%) as a result of a 2002 favorable reserve adjustment and inventory write-offs (1.2%) were offset by production and labor efficiencies (3.7%). The production and labor efficiencies are primarily due to higher sales level for the quarter.

Gross margin for the six months ended June 28, 2003, decreased to 33.4% from 36.6% for the same period in 2002 predominantly due to higher warranty costs (1.6%), changes in product mix (1.4%), inventory write-offs (1.1%) and higher material costs (.7%). These costs were offset by production efficiencies (1.6%) due primarily to higher sales levels.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased by $594,000, or 9%, to $6,387,000 in the second quarter 2003 compared to $6,981,000 in the second quarter 2002, predominantly due to decreased sales and marketing expenses ($300,000) and product development costs ($138,000) in the second quarter 2003 along with severance costs ($198,000) recorded in the second quarter of 2002. For the six months ended June 28, 2003, selling, general and administrative expenses increased by $401,000, or 3% predominantly due to increased legal costs ($595,000) in 2003 and two reductions of reserves in 2002 which reduced selling, general and administrative expenses in such period. The 2002 results included a second quarter reduction of $470,000 to a product liability reserve as a result of favorable claims experience and a first quarter reduction of $358,000 to the reserve for severance payments provided as part of the December 2000 restructuring plan reflecting lower than anticipated severance payments. The increase in 2003 selling, general and administrative expenses was offset in part by decreased product development ($404,000), marketing expenses ($385,000) and severance costs ($248,000) in 2003 compared to 2002.

INTEREST AND OTHER

Net interest expense decreased by $222,000 in the second quarter due to amortization of deferred financing costs of $202,000 in the second quarter 2002 compared to no amortization of deferred financing costs recorded in the second quarter 2003. For the six months ended June 28, 2003, net interest expense increased by $186,000 due to the accelerated amortization of deferred financing costs in the first quarter of 2003 and higher debt levels in 2003.

INCOME TAXES

In the second quarter of 2002, the Company established a valuation allowance for all deferred taxes in accordance with SFAS No. 109. Deferred tax assets of $20,773,000 are available to the Company to offset future tax liabilities. Management will re-evaluate the need for the valuation allowance in future periods. The Company does not expect to recognize a significant tax provision until a substantial portion of the net operating losses are utilized. The benefit recorded in 2003 relates to a state tax refund received from filing amended returns.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of June 28, 2003, the Company had negative working capital of $2,989,000 compared to $21,439,000 of negative working capital at December 31, 2002. Working capital at June 28, 2003 was favorably impacted by the refinancing of the Company’s prior credit facility subsequent to the end of second quarter 2003 resulting in a reclassification of its debt between a current and long-term liability. At December 31, 2002, the entire credit facility had been classified as a current liability.

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For the six months ended June 28, 2003, the Company used $226,000 of cash from operating activities compared to generating $2,586,000 of cash in the first six months of 2002. The difference is primarily due to a decrease in accounts receivable of $2,932,000 during the first six months of 2002 compared to a decrease of $475,000 during the first six months of 2003. Cash used in investing activities during the first six months of 2003 was for $628,000 of equipment purchases, compared to $835,000 in 2002. The 2003 purchases relate primarily to manufacturing equipment, equipment and tooling for the manufacturing of new products and improvements to the Company’s computer network.

At June 28, 2003, there was outstanding under the Company’s prior credit facility $16,000,000 in term loans, $7,874,000 in revolving loans and $1,634,000 in letters of credit. Availability under the revolver loan fluctuates daily, and for much of the second quarter there was little unused availability. At June 28, 2003, there was $1,767,000 in unused availability under the revolving loan.

The Company’s principal stockholder, UM Holdings Ltd. (“UM”), advanced $1,500,000 to the Company in the first quarter of 2003 and $2,400,000 in the second quarter of 2003, represented by subordinated notes. At June 28, 2003, an aggregate of $4,900,000 of subordinated notes were held by UM.

The Company on July 16, 2003, refinanced in full its prior credit facility. As part of such refinancing, the Company’s prior lenders did not require payment of $400,000 of deferred fees.

On July 16, 2003, the Company entered into a financing agreement with The CIT Group/Business Credit, Inc. (“CIT”) (the “CIT Financial Agreement”) and a financing agreement with Hilco Capital LP (“Hilco”) (the “Hilco Financing Agreement”). The CIT Financing Agreement provides for term loans of $5,000,000 and working capital loans of up to the lesser of $14,000,000 or an amount determined by reference to a borrowing base. The Hilco Financing Agreement provides for mortgage loans of $11,000,000. Both the CIT loans and the Hilco loans are secured by substantially all of the assets of the Company and mature on July 16, 2006. As a result of the refinancing, $14,600,000 has been excluded from current maturities of long-term debt as of June 28, 2003.

Pursuant to the CIT Financing Agreement, CIT was issued a warrant to purchase 176,619 shares of Common Stock of the Company, at an exercise price of $1.35 per share. Pursuant to the Hilco Financing Agreement, Hilco was issued a warrant to purchase 189,640 shares of the Common Stock of the Company, at an exercise price of $.10 per share. The warrants issued to CIT and Hilco have a term of five years, are exercisable immediately, and have a fair value of $41,427 and $226,309, respectively. These amounts will be recorded as additional deferred financing cost in the third quarter of 2003. The fair value of these warrants was determined using the Black-Scholes pricing model using an expected volatility of 16%, the contractual term of the warrants, and a risk-free interest rate of 2.87%

As part of this refinancing, $4,900,000 of subordinated notes held by UM (related party loans) were cancelled and converted into 32,886 shares of a newly-created class of preferred stock, the Series B Convertible Cumulative Preferred Stock (the “Preferred Stock”). As a result, the Company also excluded the related party loans from current liabilities as of June 28, 2003. The Company agreed to pay UM a commitment fee of $120,000 in connection with such debt conversion. The Preferred Stock issued to UM accrues cumulative dividends at the rate of 10% per annum on the original issuance price ($4,900,000), has a liquidation preference equal to its original issuance price plus any accrued but unpaid dividends, and is convertible at the later of June 30, 2004 or the date on which the Company’s shareholders approve the convertibility feature, into 3,288,600 shares of common stock. UM also provided, as part of the refinancing, additional collateral support of $3,100,000 in the form of a guarantee of certain letters of credit. If UM suffers a loss with respect to this collateral support, the Company’s reimbursement obligation will be satisfied by issuance of additional shares of Preferred Stock.

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The Company relies upon cash flows from its operations and borrowings under its credit facilities to fund its working capital and capital expenditure requirements. A decline in sales or margins or a failure to remain in compliance with the terms of the credit facilities could result in the Company having insufficient funds for such purposes. Management believes that the Company’s cash flows and the availability under its credit facilities are sufficient to fund its general working capital and capital expenditure needs.

CONTRACTUAL OBLIGATIONS

The following is an aggregated summary of the Company’s obligations and commitments to make future payments under debt, royalty and lease agreements as of June 28, 2003:

OFF-BALANCE SHEET ARRANGEMENTS

The Company has a lease financing program, through its wholly-owned subsidiary, for certain commercial customers for selected products. Leases written by Cybex are accounted for as sales-type leases and are generally for terms of three to five years, at which time title transfers to the lessee. Prior to 2001, the Company entered into agreements, generally subject to limited recourse, to sell lease receivables to financial institutions in a two-step process through a bankruptcy-remote entity. Under limited recourse provisions, the Company may be required to repurchase or replace leases in default. In return, the Company would receive the collateral position in the defaulted leases. The recourse provisions, which are generally equal to 15% of the outstanding net lease receivables, may be reduced annually based upon the remaining outstanding lease payment streams. In 2001, the Company changed its practice whereby it now arranges equipment leases and other financing and no longer originates and holds leases. While most of these financings are without recourse, in certain cases the Company may offer a guaranty or other recourse provisions. At June 28, 2003, the maximum contingent liability under all recourse provisions was approximately $4,258,000. A reserve for estimated losses under recourse provisions has been recorded based upon historical and industry experience, and is included in accrued liabilities at June 28, 2003 and December 31, 2002.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgements, including those related to the allowance for doubtful accounts, realizability of inventory, reserve for warranty obligations, legal matters, impairment of goodwill, and valuation of deferred tax assets. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, which could materially impact the Company’s results of operations and financial position. These critical accounting policies and estimates have been discussed with the Company’s audit committee.

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Allowance for doubtful accounts.    Management performs ongoing credit evaluations of customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. Management continuously monitors collections and payments from customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. If the financial condition of a specific customer or the Company’s general customer base were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Realizability of inventory.    The Company values inventory at the lower of cost or market. Management regularly reviews inventory quantities on-hand and records a provision for excess and obsolete inventory based primarily on estimated forecasts of product demand and historical usage, after considering the impact of new products. If actual market conditions and product demand are less favorable than projected, additional inventory write-downs may be required.

Warranty reserve.    Since January 1, 2001, all products are warranted for one to three years for labor and ten years for structural frames. Warranty periods for parts range from one to three years depending on the part and the type of equipment. Prior to December 31, 2000, the Company generally provided a three year warranty on cardiovascular products. A warranty liability is recorded at the time of product sale based on estimates that are developed from historical information and certain assumptions about future events. Future warranty obligations are affected by product failure rates, usage and service costs incurred in addressing warranty claims. These factors are impacted by the level of new product introductions and the mix of equipment sold to the commercial and consumer markets. If actual warranty costs differ from management’s estimates, adjustments to the warranty liability would be required.

Legal matters.    The Company has recorded a reserve related to certain legal matters for which it is probable that a loss has been incurred and the range of such loss can be determined. With respect to other matters, management has concluded that a loss is only possible or remote and, therefore, no loss is recorded. In addition, there are certain gain contingencies for which the Company has not recorded an asset because realization is not considered highly likely as of the balance sheet date. As additional information becomes available, the Company will continue to assess whether losses from legal matters are probable, possible, or remote, the adequacy of accruals for probable loss contingencies and the status of gain contingencies.

Impairment of goodwill.    In assessing the recoverability of goodwill, management is required to make assumptions regarding estimated future cash flows and other factors to determine whether the fair value of the business supports the carrying value of goodwill and net operating assets. This analysis includes assumptions and estimates about future sales, costs, working capital, capital expenditures, and cost of capital. If these assumptions and estimates change in the future, the Company may be required to record an impairment charge related to goodwill.

Valuation of deferred tax assets.    During the second quarter 2002, the Company established a valuation allowance of $20,773,000 against the carrying value of the net deferred tax assets. Approximately $56,000,000 of future taxable income is needed prior to the expiration of the net operating losses to fully realize the Company’s net deferred tax assets. If the estimates and related assumptions relating to the likely utilization of the deferred tax asset change in the future, the valuation allowance may change accordingly.

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RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Guarantees

In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantees. FIN 45 also requires additional disclosure about the guarantor’s obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective after December 15, 2002, and are included below.

From time to time the Company arranges for leases or other financing sources to enable certain of its customers to purchase the Company’s equipment. While most of these financings are without recourse, in certain cases, the Company provides a guaranty or other recourse provisions to the independent finance company of all or a portion of the lease payments in order to facilitate the sale of the equipment. In such situations, the Company ensures that the transaction between the independent leasing company and the end user customer represents a sales-type lease. The Company monitors the payment status of the lessee under these arrangements and provides a reserve under Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies,” in situations when collection of the lease payments is not probable. At June 28, 2003, the maximum contingent liability under all recourse and guarantee provisions including recourse and guarantee provisions issued prior to January 1, 2003 was approximately $4,258,000. A reserve under SFAS No. 5 for estimated losses under recourse provisions of $57,000 has been recorded based on historical and industry experience and is included in accrued liabilities at June 28, 2003. In accordance with FIN 45, effective January 1, 2003, the Company also recorded a liability and corresponding reduction of revenue of $39,000 for the estimated fair value of the Company’s guarantees. The fair value of the guarantee was determined based on the estimated cost for a customer to obtain a letter of credit from a bank or similar institution. This liability will be reduced on a straight-line basis over the life of each respective guarantee. In most cases, if the Company is required to fulfill its obligations under the guarantee, the Company has the right to repossess the equipment from the customer. It is not practicable to estimate the approximate amount of proceeds that would be generated from the sale of these assets.

The following table sets forth the changes in the liability for product warranties during the six months ending June 28, 2003:

Stock-Based Compensation

In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” was issued. SFAS No. 148 amended SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are applicable to interim or annual periods that end after December 15, 2002, and, as such, have been incorporated below. SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting

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for Stock Issued to Employees,” and related interpretations, and provide pro forma net earnings and earnings per share disclosures for employee stock option grants as if the fair value based method defined in SFAS No. 123 had been applied. The Company continues to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures in accordance with the provisions of SFAS No. 123 and SFAS No. 148 to its stock option plans. Had compensation cost for the Company’s stock option plans been determined based upon the fair value of the options at the date of grant, as prescribed under SFAS No. 123, the Company’s net income (loss) and basic and diluted net income (loss) per share would have been adjusted.

Accounting for Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”. SFAS No. 146 addresses the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination of benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. SFAS No. 146 is effective prospectively for exit or disposal activities that are initiated after December 31, 2002.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in quantitative and qualitative market risk from the disclosure within the December 31, 2002 Form 10-K.

ITEM 4.    CONTROLS AND PROCEDURES

Within ninety days prior to the filing of this Report, the Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, which are designed to insure that the Company records, processes, summarizes and reports in a timely and effective manner the information required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission. Based upon this evaluation, they concluded that, as of the date of the evaluation, the Company’s disclosure controls are effective. Since the date of this evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Kirila et al v. Cybex International, Inc. et al

See Part 1 Item 3 of the Company’s Report on Form 10-K for the year ended December 31, 2002 for a description of these proceedings.

Hot New Products v. Cybex International, Inc. et al

See Part 1 Item 3 of the Company’s Report on Form 10-K for the year ended December 31, 2002 for a description of these proceedings.

Creighton et al v. Cybex International, Inc., et al

See Part 1 Item 3 of the Company’s Report on Form 10-K for the year ended December 31, 2002 for a description of these proceedings.

Free Motion Fitness v. Cybex International, Inc.

See Part 1 Item 3 of the Company’s Report on Form 10-K for the year ended December 31, 2002 for a description of these proceedings.

Colassi v. Cybex International, Inc.

See Part 2 Item 1 of the Company’s Report on form 10-Q for the period ending March 29, 2003 for a description of these proceedings.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company amended its Certificate of Incorporation on July 8, 2003, to provide for a new class of Preferred Stock, representing 100,000 shares of the Series B Convertible Cumulative Preferred Stock, $1.00 par value (“Series B Preferred Stock”).

On July 16, 2003, the Company issued 32,886 shares of the Series B Preferred Stock to a subsidiary of UM Holdings Ltd., in cancellation and exchange of $4,900,000 of subordinated notes. 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, in that the issuance thereof did not involve a public offering.

The Series B Preferred Stock has no voting rights except as required by law and when the Company wishes to alter or change any of the powers, preferences, privileges, or rights of the Series B Preferred Stock, in which case, approval, by vote, of at least 66 2/3% of the outstanding shares of Preferred Stock needs to be obtained. The Series B Preferred Stock accrues dividends at the per annum rate of 10% of the original issuance price, has a liquidation preference equal to its original issuance price plus any accrued but unpaid dividends, and will become convertible at the later of June 30, 2004 or the date on which the Company’s shareholders approve the convertibility feature, at the rate of 100 shares of Common Stock for each share of Series B Preferred Stock.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

The Company failed to meet certain financial covenants contained in its credit facility, which was refinanced after the end of the quarter ended June 28, 2003. In April 2003, the Company entered into a Forbearance Agreement with its lenders, pursuant to which the lenders agreed not to exercise their rights with respect to such defaults through June 30, 2003. Pursuant to the Forbearance Agreement, the lenders also agreed to defer

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principal payments on the term loans under the credit agreement and a $400,000 fee payable thereunder to the earlier of the expiration of the forbearance period, the consummation of a sale of the Company, or the refinancing of the facility. The $400,000 fee was not required to be paid and the debt under this credit facility was repaid in full on July 16, 2003.

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

The Annual Meeting of Shareholders of the Company was held on May 20, 2003. At the meeting, action was taken on the following matters:

The number of shares cast for, against or withheld, as well as the number of abstentions and broker non-votes, on each matter considered at the meeting, were as follows:

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ITEM 5.    OTHER INFORMATION

None

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 10.1—Subordinated Promissory Note dated April 17, 2003, in the principal amount of $2,400,000, payable to the order of UM Holdings Ltd.

Exhibit 10.2—Forbearance Agreement dated as of April 1, 2003, among the Company, the Company’s subsidiaries which are parties thereto, Wachovia Bank National Association, as agent, and the Lenders which are parties thereto.

Exhibit 10.3—First Amendment to Forbearance Agreement dated as of April 1, 2003, among the Company, the Company’s subsidiaries which are parties thereto, Wachovia Bank National Association, as agent, and the Lenders which are parties thereto.

Exhibit 10.4—Employment Agreement dated April 8, 2003, between the Company and John Aglialoro.

Exhibit 10.5—Subordinated Promissory Note dated May 19, 2003, in the principal amount of $990,000, payable to the order of UM Holdings Ltd.

Exhibit 10.6—Subordinated Promissory Note dated June 20, 2003, in the principal amount of $510,000 payable to the order of UM Holdings Ltd.

Exhibit 31.1—Certification of Chief Executive Officer.

Exhibit 31.2—Certification of Chief Financial Officer.

Exhibit 32.1—Statement of Chief Executive Officer.

Exhibit 32.2—Statement of Chief Financial Officer.

The following Current Reports on Form 8-K were filed during the quarter ended June 28, 2003:

The Current Report on Form 8-K dated May 12, 2003, with respect to the Company’s press release reporting on its results of operations for the quarter ended March 29, 2003, and providing information on the status of its credit arrangements.

Current Report on Form 8-K dated June 12, 2003 with respect to its press release providing a financing update and providing guidance for the Company’s second quarter 2003.

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SIGNATURES

Pursuant to the requirements 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.

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