JOHNSON HEALTH TECHNOLOGY CO., LTD. Balance Sheets December 31, 2005 and 2004

JOHNSON HEALTH TECHNOLOGY CO., LTD. Balance Sheets December 31, 2005 and 2004 (Expressed in Thousands of New Taiwan Dollars) Assets Current Assets Cash and cash equivalents (Notes 2 and 4.a) $661,350 $518,228 Notes receivable, net (Notes 2 and 4.b) 7,690 5,011 Accounts receivable, net (Notes 2 and 4.b) 96,874 196,009 Accounts receivable- related parties (Notes 2, 4.b and 5.b) 879,141 1,464,655 Other accounts receivable- related parties (Note 5.b) 758,149 341,008 Inventories, net (Notes 2 and 4.c) 185,532 179,573 Other current assets (Note 4.d) 119,798 125,304 Total Current Assets 2,708,534 2,829,788 Long-term Investments (Notes 2 and 4.e) Property, Plant and Equipment, net (Notes 2, 4.f and 6) Intangible Assets Deferred pension costs (Note 2 and 4.l) Other Assets 2,445,882 2,009,287 403,061 371,552-10,398 Refundable deposits 12,747 6,910 Deferred charges (Note 2) 8,230 6,966 Deferred income tax assets- noncurrent (Notes 2 and 4.n) - 41,254 Total Other Assets 20,977 55,130 Total Assets $5,578,454 $5,276,155 (The accompanying notes are an integral part of financial statements) (Continued on next page) 3

JOHNSON HEALTH TECHNOLOGY CO., LTD. Balance Sheets (coutinued) December 31, 2005 and 2004 (Expressed in Thousands of New Taiwan Dollars) Current Liabilities Liabilities and Stockholders' Equity Short-term borrowings (Note 4.g) $231,064 $642,661 Notes and accounts payable (Note 4.h) 270,663 488,749 Accounts payable-related party (Note 5.b) 143,932 887,779 Income tax payable 64,430 58,561 Accrued expenses (Note 4.i) 212,112 187,041 Long-term loans payable- current prtion (Note 4.k) 10,500 10,500 Deferred profit- current (Note 2) 137,755 208,567 Other current liabilities (Note 4.j) 342,830 271,246 Total Current Liabilities 1,413,286 2,755,104 Long-term liabilities Long-term loans (Note 4.k) 422,625 13,125 Reserve Reserve for land value incremental tax 36,212 36,212 Other Liabilities Accrued pension liabilities (Notes 2 and 4.l) 18,770 35,398 Deferred income tax liabilities- noncurrent (Notes 2 and 4.n) 71,448 - Deferred profit- noncurrent (Note 2) 20,296 21,592 Total Other Liabilities 110,514 56,990 Total Liabilities 1,982,637 2,861,431 Stockholders' Equity (Notes 2 and 4.m) Common stock 1,264,500 1,050,000 Capital surplus 26,204 26,204 Legal reserve 245,029 168,829 Other special reserve 106,058 8,220 Retained earnings 1,945,815 1,267,530 Cumulative translation adjustments 8,211 (95,080) Unrecognized pension cost - (10,979) Total Stockholders' Equity 3,595,817 2,414,724 Total Liabilities and Stockholders' Equity $5,578,454 $5,276,155 (The accompanying notes are an integral part of financial statements) 4

JOHNSON HEALTH TECHNOLOGY CO., LTD. Statements of Income For the Years Ended December 31, 2005 and 2004 (Expressed in Thousands of New Taiwan Dollars Except Earnings Per Share Data) Net Sales (Notes 2 and 4.p) $4,428,144 $4,500,311 Cost of Goods Sold (3,647,639) (3,715,016) Gross Profit 780,505 785,295 Realized Intercompany Profit 70,812 2,827 Net Gross Profit 851,317 788,122 Operating Expenses (600,335) (512,977) Operating Income 250,982 275,145 Non-operating Income Interest income 11,692 9,232 Investment income (Note 2 and 4.e) 1,128,476 607,175 Gain on disposal of property, plant and equipment 159 119 Gain on physical inventory - 86 Foreign exchange gain 7,299 - Other income 33,895 33,656 Subtotal 1,181,521 650,268 Non-operating Expenses Interest expense (14,296) (2,037) Loss on disposal of property, plant and equipment (1,340) (1,366) Loss on physical inventory (126) - Foreign exchange loss - (105,771) Other losses (11,898) (10,221) Subtotal (27,660) (119,395) Income Before Income Tax 1,404,843 806,018 Income Tax Expense (Notes 2 and 4.n) (171,020) (44,015) Net Income $1,233,823 $762,003 Earnings Per Common Share (Note 4.o) $9.76 $6.03 (The accompanying notes are an integral part of financial statements) 5

JOHNSON HEALTH TECHNOLOGY CO., LTD. Statements of Changes in Stockholders' Equity For the Years Ended December 31, 2005 and 2004 (Expressed in Thousands of New Taiwan Dollars) Cumulative Translation Unrecognized Pension Description Common Stock Captial Surplus Legal Reserve Other Special Reserve Retained Earnings Total Adjustments Cost Balance, January 1, 2004 $840,000 $37,968 $111,374 $1,776 $882,782 $(1,641) $(6,579) $1,865,680 Distribution of 2002 earnings: Legal reserve 57,455 (57,455) - Special Reserve 6,444 (6,444) - Bonus to directors and supervisors (4,000) (4,000) Bonus to employees-cash (9,500) (9,500) Cash dividends (84,000) (84,000) Stock dividends 210,000 (210,000) - Disproportionately acquire subsidiaries' number of newly issued shares (11,764) (5,856) (17,620) Cumulative translation adjustments (93,439) (93,439) Unrecognized pension cost (4,400) (4,400) Net income, 2004 762,003 762,003 Balance, December 31, 2004 1,050,000 26,204 168,829 8,220 1,267,530 (95,080) (10,979) 2,414,724 Distribution of 2004 earnings: Legal reserve 76,200 (76,200) - Special reserve 97,838 (97,838) - Bonus to employees-stock 4,500 (4,500) - Bonus to directors and supervisors (9,500) (9,500) Cash dividends (157,500) (157,500) Stock dividends 210,000 (210,000) - Cumulative translation adjustments 103,291 103,291 Unrecognized pension cost 10,979 10,979 Net income, 2005 1,233,823 1,233,823 Balance, December 31, 2005 $1,264,500 $26,204 $245,029 $106,058 $1,945,815 $8,211 $ - $3,595,817 (The accompanying notes are an integral part of financial statements) 6

JOHNSON HEALTH TECHNOLOGY CO., LTD. Statements of Cash Flows For the Years Ended December 31, 2005 and 2004 (Expressed in Thousands of New Taiwan Dollars) Cash Flows from Operating Activities: Net Income $1,233,823 $762,003 Adjustments to reconcile net income to net cash provided by Provision of bad debts expense - 3,400 Amortization 6,507 7,493 Depreciation 42,469 35,887 Loss on disposal of property, plant and equipment 1,181 1,247 Investment dividends 1,220,823 277,020 Investment income (1,128,476) (607,175) Decrease (Iecrease) in notes and accounts receivable, net 96,456 (43,842) Decrease (Increase) in accounts receivable-related parties, net 585,514 (29,130) Decrease (Increase) in other receivable-related parties (347,628) 8,556 Decrease (Increase) in inventories, net (5,959) 299 Increase in other current assets (33,235) (3,636) Decrease (Increase) in deferred income tax asset 14,722 (13,203) Increase in accurred pension liabilities 8,408 8,350 Increase (Decrease) in notes and accounts payable, net (961,933) 370,932 Increase in accrued expenses 25,071 686 Increase in income tax payable 5,869 945 Increase in deferred income tax liabilities 98,631 - Increase in other current liabilities 54,905 77,037 Decrease in defferred profit (72,108) (13,222) Net Cash Provided by Operating Activities 845,040 843,647 Cash Flows from Investing Activities: Increase in long-term investments (391,220) (402,566) Purchase of property, plant and equipment (58,756) (30,095) Proceeds from sales of property, plant and equipment 276 245 Increase in refundable deposits (5,837) (4,587) Current account with related parties (69,513) (55,782) Increase in deferred charges (7,771) (4,854) Net Cash Used in Investing Activities (532,821) (497,639) (The accompanying notes are an integral part of financial statements) (Continued on next page) 7

JOHNSON HEALTH TECHNOLOGY CO., LTD. Statements of Cash Flows (Continued) For the Years Ended December 31, 2005 and 2004 (Expressed in Thousands of New Taiwan Dollars) Cash Flows from Financing Activities: Increase (Decrease) in short-term borrowings (411,597) 135,873 Increase (Decrease) in long-term borrowings 409,500 (10,500) Decrease in short-term bills payable - (74,815) Bonus to employees and directors and supervisors (9,500) (13,500) Cash dividends (157,500) (84,000) Net Cash Used in Financing Activities (169,097) (46,942) Net Increase in Cash and Cash Equivalents 143,122 299,066 Cash and Cash Equivalents, Beginning of Year 518,228 219,162 Cash and Cash Equivalents, End of Year $661,350 $518,228 Supplementary Disclosure of Cash Flow Information: Interest paid (net amount of capitalized) $14,048 $2,157 Income tax paid $52,152 $56,114 Supplemental Schedule of Non-cash Investing and Financing Activities: Capitalization of retained earnings $210,000 $210,000 Partial cash flow transaction from investing activities Acquisition of property, plant and equipment $75,435 $44,042 Payable on equipment, Beginning of Year 21,859 7,912 Payable on equipment, End of Year (38,538) (21,859) Cash Paid $58,756 $30,095 (The accompanying notes are an integral part of financial statements) 8

JOHNSON HEALTH TECHNOLOGY CO., LTD. FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT AUDITORS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 1

Report of Independent Auditors The Board of Directors and Shareholders Johnson Health Technology Co., Ltd. We have audited the accompanying balance sheets of Johnson Health Technology Co., Ltd. as of December 31, 2005 and 2004, and the related statements of income, changes in shareholders' equity, and cash flows for the years then ended. 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 Guidelines for Certified Public Accounts Examination and Reporting on Financial Statements and auditing standards generally accepted in the Republic of China on Taiwan. 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 statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Johnson Health Technology Co., Ltd. at December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of China on Taiwan. As stated in Note 3 to the Financial Statements, Johnson Health Technology Co., Ltd. adopted the Statement of Financial Accounting Standards (SFAS) No.5 of Tainwan Accounting for Long-term Investments, and No.35 of Taiwan Accounting for Asset Impairment in 2005. March 11, 2006 Taichung, Taiwan Republic of China 2

JOHNSON HEALTH TECHNOLOGY CO., LTD. Notes to Financial Statements December 31, 2005 and 2004 (Expressed in Thousand of New Taiwan Dollars, unless Noted Otherwise Stated) 1.ORGANIZATION AND OPERATIONS Johnson Health Technology Co., Ltd. (the Company) was incorporated in 1975. The main activities of the Company are manufacturing and selling sports equipments cardiovascular, strength training machinery, and some related electronic parts. The shares of the Company were listed on Taiwan Stock Exchange Corporation on January 9, 2003. As of December 31, 2005 and 2004, the Company had 642 and 710 employees, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and all highly liquid investments purchased with an original maturity of three months or less. (2) Foreign-currency Transactions a. The accounts of the Company are maintained in New Taiwan Dollars. Transactions denominated in foreign currencies are translated into New Taiwan Dollars at the rates of exchange in effect when the transactions occur. b. Foreign exchange gain or loss resulted from the exchange rate fluctuations between the transaction date and the actual settlement date are recognized as follows: (a) When the transaction date and the actual settlement date fall in the same accounting period, the differences between the recorded amount and the settled amount are credited to or charged against current income. (b) When the transaction date and the actual settlement date fall in different accounting periods, receivables and payables denominated in foreign currencies are restated using the spot rates prevailing on the balance sheet 9

date. Any resulted gains or losses are reflected in current income. c. The financial statements of all foreign subsidiaries were prepared in their respective local currencies and translated into New Taiwan Dollars. Assets and liabilities are translated from the foreign subsidiary's functional currency using the current exchange rate at the balance sheet date. Equity accounts are translated at their historical exchange rates. Profit and loss accounts are translated using the weighted average exchange rate for the period. Gains or losses from translation of foreign currency financial statements are recorded as translation adjustment and are reported as a separate component of stockholders' equity. d. Forward exchange contracts entered into for hedging purposes are recorded using the spot rate on the contract date. Discounts or premiums on forward contracts are amortized over the periods of the contract. Gains or losses on forward contracts are determined by the difference between the spot rate at the balance sheet date and the spot rate at the date of inception of the contract. Exchange gains or losses are included in current net income. (3) Allowance for Doubtful Accounts Allowance for doubtful accounts represents estimates of the uncollectable amount out of the outstanding notes receivable and accounts receivable at the balance sheet date. (4) Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the weighted-average method, while market value is net realizable value for finished goods and merchandise, and replacement cost for raw materials, supplies and work in process. (5) Long-term Investments a. Long-term investments are stated at cost. b. Long-term investments in which the Company owns less than 20% of the voting rights of the investee company and has no significant influence on the investee company s operational decision are accounted for by the lower of cost or market value method, if the investee company is listed, and by the cost method if the investee company is not listed. If the Company owns at least 20% of the voting rights of the investee company, the investment is accounted for by the equity method, unless there is evidence that the Company cannot exercise significant influence over the investee company. The unrealized gains or losses arising from transactions between the Company and investee companies are eliminated in preparing the financial statements. 10

c. Foreign investment in which the Company owns less than 20% of the voting rights of the investee company are accounted for by the cost method. The original cost is accounted for based on actual remittance amount. Investments in foreign currency are translated into New Taiwan dollar at the rates of exchange prevailing at the balance sheet date; unrealized exchange gains or losses (and subsequent recoveries to the extent they do not exceed original cost) is treated as translation adjustment of long-term investments under stockholders equity. The Company s proportionate share of the foreign investor s cumulative translation adjustments related to the translation of the foreign investee s financial statements into New Taiwan dollar is recognized by the Company and is included in a cumulative translation adjustment account in the stockholders equity. d. Under the equity method, the excess of investment cost over the net asset of the investee companies at the date of the investment is amortized over 10 years. (6) Property, Plant and Equipment With the exception of land, which is carried at appraised value, property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives allowed by local Income Tax Laws and Regulations. The useful lives are summarized as follows: Items Buildings Machinery and equipment Transportation equipment Furniture, fixtures and equipment Other equipment Useful Lives 3 ~ 40 years 4 ~ 12 years 5 years 3 ~ 8 years 2 ~ 20 years Major replacements, renewals and betterments are capitalized, while maintenance and repairs are expensed currently. Interest incurred in connection with the construction or acquisition of property, plant and equipment is capitalized as part of the cost of the assets. The cost and accumulated depreciation of property, plant and equipment are removed from account at the time of abandonment or disposal and the resulting gains or losses are categorized as non-operating income or expenses. 11

(7) Deferred Charges Deferred charges such as electricity installation fees, software cost and right of trademark fees are record at cost and amortized using the straight-line method over 3 or legal life. (8) Asset Impairment Pursuant to SFAS No. 35, the Company assesses indicators for impairment for all its assets within the scope of SFAS No. 35 at each balance sheet date. If impairment indicators exist, the Company shall then compare the carrying amount with the recoverable amount of the assets or the cash-generating unit ( CGU ) and write down the carrying amount to the recoverable amonut where applicable. Recoverable amount is defined as the higher of fair values less costs to sell and the values in use. For previously recognized losses, the Company shall assess, at each balance sheet date, whether there is any indication that the impairment loss may no longer exist or may have decreased. If there is any such indication, the Company has to recalculate the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company shall reverse the impairment loss to the extent that the carrying amount after the reversal would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the assets in prior years. Impairment loss reversal is classified as non-operating losses or gains. (9) Pensions According to the Labor Standards Law of the Republic of China ( the Law ), the Company established an Employee Retirement Fund ("the Fund"); Its contributions to the Fund are appropriated at 5% of the total salaries and wages from January 1, 2004 to June 30, 2005 and 3% for the six-month ended December 31, 2005. The Fund has been administered by the Employee Retirement Fund Committee of the Company as prescribed by the Law, and is maintained under the Committee s name with a government-approved financial institution. The Fund is totally independent from the Company, and is hence excluded from the financial statements. Effective from 1999, the Company adopted, on a prospective basis, Statement of Financial Accounting Standards (SFAS) No.18 of Taiwan Accounting for Pensions. Based on the actuarial report with measuring date of December 31, 1999, the excess of accumulated benefit obligation over plan assets is recognized as the minimum pension liability in the balance sheets. Net pension costs based on the actuarial report are recognized from January 1, 2000, and the unrecognized net asset or obligation at transition is amortized equally at the straight-line method. 12

(10) Legal Reserve Legal reserve is appropriated at 10% of the Company s net income (11) Special Reserve Special reserve is created to account for deficit balances in other components of shareholders equity. The special reserve will be subsequently adjusted once the other balances are no longer in a deficit position. (12) Income Tax The Company adopted SFAS No. 22, "Accounting for Income Taxes." Under SFAS No.22, a current income tax liability or asset is recognized for the estimated taxes payable or refundable for the current year, and a deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences, tax credits, and loss carryforwards. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company s undistributed retaining earnings are subjected to an additional 10% income tax which is expensed as of the date of the shareholders meeting when the appropriation of earnings is resolved. The Company adopted SFAS NO.12, Income Tax Credit. Under SFAS No.12 income tax credit resulted from acquisition of equipment, expenditures on technique research and development, and personnel training are recognized in the current period. (13) Recognition of Revenue The company adopted NO.32 of Taiwan, Accounting for Recognition of Revenue. (14) Deferred Profit The Company estimated the deferred profit using actual gross profit in the year ended according to the amount of the inventory, which was purchased from the Company still in the investee company under equity method. (15) Earnings Per Common Share Computation of earnings per share is based on the weighted average number of common shares outstanding during the period. Shares issued for cash are weighted for the portion of the period they were outstanding, whereas shares issued as a result of a stock dividends, capitalization of employee dividends or capitalization of capital surplus are weighted given retroactive recognition to the appropriate equivalent change in capital structure for the entire period. 13

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES Pursuant to the amendments of the R.O.C. SFAS No.5, Accounting for Long-term Investments under Equity Method, certain investees were recognized based on the gains or losses incurred in the current period, instead of the prior period. There is no effect over the Company s income before income taxes and earnings-per-share for 2005. Effective from January 1, 2005, the Company adopted SFAS No.35, Accounting for Asset Impairment to account for the impairment of its assets on financial statements. No retroactive adjustment is required under SFAS No. 35. Such a change in accounting principles has resulted in a loss of $8,781 in the Company s income before income tax and $0.07 (in NT Dollars) in earnings-per-share for the year ended December 31, 2005. 4. SUMMARY OF SIGNIFICANT ACCOUNTS a. Cash and Cash Equivalents Cash and cash equivalents as of December 31, 2005 and 2004 consisted of the following: Cash on hand $1,118 $594 Cash in banks 640,598 520,609 Total 641,716 521,203 Add(Less): Allowance for foreign 19,634 (2,975) exchange gain (loss) Net $661,350 $518,228 b. Notes and Accounts Receivable, Net Accounts receivables as of December 31, 2005 and 2004 consisted of the following: Notes receivable, net $7,690 $5,011 Accounts receivable 109,455 211,958 Less: Allowance for foreign (1,181) (4,549) exchange loss Less: Allowance for doubtful (11,400) (11,400) accounts Accounts receivables, net 96,874 196,009 Accounts receivables-related parties 878,231 1,549,477 Add(Less): Allowance for foreign 10,649 (75,083) exchange gain (loss) Less: Allowance for doubtful (9,739) (9,739) accounts Accounts receivable, net 879,141 1,464,655 Notes and accounts receivable, net $983,705 $1,665,675 14

c. Inventories, Net Inventories as of December 31, 2005 and 2004 are categorized as follows: Finished goods $55,031 $55,149 Raw materials 51,869 47,771 Work in process 49,378 58,041 Merchandises 29,254 18,612 Total $185,532 $179,573 Inventories were insured for possible fire losses in the sum of $144,100 and $91,300 as of December 31, 2005 and 2004, respectively. d. Other Current Assets Prepaid expenses $61,927 $28,290 Deferred income tax assets-current 37,677 76,418 Restricted Deposits 7,699 7,500 Others 12,495 13,096 Total $119,798 $125,304 e. Long-term Investments Long-term investment as of December 31, 2005 and 2004 consisted of the following: Investee Stock share% Amount Stock share% Amount Valuation method JOHNSON INTERNATIONAL HOLDING CORP. LIMITED 100% $2,445,882 100% $2,009,287 Equity method Since 2000, the Company has established JOHNSON INTERNATIONAL HOLDING CORP. LIMITED (J.I.H.), a British Virgin Island company, to hold EPIX, INC., D/B/A VISION FITNESS, JOHNSON HEALTH TECH. U.K. LTD. J&E TRADING CO., LTD. J&S TRADING CO., LTD. JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. STYLE FITNESS EQUIPMENT CO., LTD.. In 2002, J.I.H invested HORIZON FITNESS INC. MATRIX FITNESS SYSTEMS INC. STYLE FITNESS GMBH. In 2003, J.I.H invested JOHNSON HEALTH TECH. FRANCE SAS STYLE FITNESS SPAIN, S.L. In 2004, J.I.H invested JOHNSON HEALTH TECH. JAPAN K.K., JOHNSON HEALTH TECH DEUTSCHLAND GMBH, JOHN HEALTH TECH (THAILAND) CO., LTD.. In 2005 J.I.H invested JOHNSON HEALTH TECH. ITALIA SPA, JOHNSON FITNESS (MALAYSIA) SDN. BHD., JOHNSON HEALTH TECH. USA HOLDING CO., LTD.. JOHNSON HEALTH TECH (SCHWEIZ) GMBH. Investment income for 2005 and 2004 of J.I.H, amounted to $1,128,476 and $607,175, respectively. Cumulative translation adjustments increased (decreased) in the amount of $137,722 and $(124,584) in 2005 and 2004, respectively. In 2005 and 2004 J.I.H. declared cash dividends amounted for $1,220,823 and $227,020, respectively. 15

f. Property, Plant, and Equipment, Net (1) Property, plant and equipment as of December 31, 2005 and 2004 consisted of the following: Land $70,189 $62,240 Buildings 236,642 234,638 Machinery and equipment 79,389 75,412 Transportation equipment 11,273 10,580 Furniture, fixtures and equipment 36,536 26,429 Tooling 80,557 68,887 Leasehold improvement 33,311 11,268 Other equipment 14,691 15,084 Revaluation increment of land 61,374 61,374 Prepayments for equipment 11,263 790 Total 635,225 566,702 Less: Accumulated depreciation (232,164) (195,150) Net $403,061 $371,552 (2) As of December 31, 2005 and 2004, insurance coverage for property, plant, and equipment amounted to $211,953 and $278,563, respectively. g. Short-term Borrowings Short-term borrowings as of December 31, 2005 and 2004 are summarized as follows: Interest Rate Balance Interest Rate Balance Credit loan 1.50% $230,000 1.40%~1.48% $580,000 Usance L/C loan 4.97%~5.10% 1,064 3.30% 2,817 Secured loan - - 1.50% 60,000 Total 231,064 642,817 Less: Allowance for foreign - (156) exchange gain Net $231,064 $642,661 16

h. Notes and Accounts Payable, Net Notes and Accounts Payable as of December 31, 2005 and 2004 consisted of the following: Notes payable $79,180 $126,418 Accounts payable 191,578 363,019 Less: Allowanced for foreign exchange gains (95) (688) Accounts payable, net 191,483 362,331 Notes and accounts payable, net $270,663 $488,749 i. Accrued Expenses Accrued expenses as of December 31, 2005 and 2004 are summarized as follows: Payroll $59,093 $43,329 Warranty expense 44,956 41,851 Advertising expense 27,552 14,826 Assembly expense 19,298 30,265 Loss on export sales 16,359 8,167 Supply expense 6,675 10,582 Others 38,344 43,800 Total 212,277 192,820 Less: Allowance for foreign exchange (165) (5,779) gain $212,112 $187,041 j. Other Current Liabilities Other current Liabilities as of December 31, 2005 and 2004 are summarized as follows: Other payables $137,357 $109,657 Other payables-related parties 125,039 111,485 Payables on equipment 38,539 21,859 Advance from customers 21,276 11,372 Receipts under custody 18,288 18,853 Others 1,441 1,936 Total 341,940 275,162 Add(Less): Allowance for foreign exchange loss (gain) 890 (3,916) Total $342,830 $271,246 17

k. Long-term Liabilities Long-term loans as of December 31, 2005 are summarized as follows: Creditors Type Amount Interest Collateral Rate Taiwan Cooperative Syndicated $262,500 2% - Bank Loan Hua Nan commercial Credit 170,625 2% Land & Bank Loan Building Less: current portion (10,500) Net $422,625 Long-term loans as of December 31, 2004 are summarized as follows: Creditors Type Amount Interest Collateral Rate Hua Nan commercial Credit $23,625 2% - Bank loan Less: current portion (10,500) Net $13,125 l. Accrued Pension Liabilities (1) The Company has adopted SFAS NO.18 of Taiwan Accounting for Pensions and recognized net pension costs. The net pension costs for 2005 and 2004 consisted of the following: Service cost $9,722 $12,087 Interest cost 3,731 3,808 Expected returns on plan assets (2,348) (2,356) Amortization of transitional net 1,040 1,040 obligations Amortization of pension loss 1,095 1,485 Net pension cost $13,240 $16,064 (2) The reconciliation between the funding status of pension plan and accrued pension liabilities as of December 31, 2005 and 2004 were follows: Benefit obligations: Vested benefits Non-vested benefits $(23,849) (68,857) $(51,985) (60,147) Accumulated benefit obligations (92,706) (112,132) Effect of projected future salary increase (26,993) (22,960) Projected benefit obligations (119,699) (135,092) Fair value of plan assets 81,451 76,217 Status of pension plan (38,248) (58,875) Unrecognized transitional net 9,358 10,398 obligations Unrecognized pension losses 9,800 37,598 Recognition of a minimum liability - (25,036) Accrued pension liabilities $(19,090) $(35,915) As of December 31, 2005 and 2004, accrued pension liabilities were recorded as accrued expenses in the amount of $320 and $517 and as 18

accrued pension liabilities in the amount of $18,770 and $35,398, respectively. (3) The balance of the pension fund of the Company, which is deposited with the Central Trust of China, was $81,451 and $76,217 as of December 31, 2005 and 2004, respectively. (4) As of December 31, 2005 and 2004, vested benefits of the Company s pension plan were $23,849and $51,985, respectively. (5) The underlying assumptions for determining the actuarial present value are as follows: Discount rate 3.50% 3.50% Rate of increase in future compensation level 2.00% 2.00% Expected long-term rate of return on plan assets 2.50% 3.50% m. Stockholders Equity (1) Capital stock As of January 1, 2004, the Company s capital stock authorized and outstanding was $840,000, divided into 84,000,000 shares with par value of $10 (in NTD) each. Based on the resolution adopted at the annual shareholders meeting on June 30, 2004, the Company declared stock dividends paid out of retained earnings in the amount of $210,000. The Ministry of Economic Affairs approved the change in registered capital stock on August 25, 2004. As of September 14, 2004, the Company s capital stock authorized and outstanding was $1,050,000 divided into 105,000,000 shares with par value of $10 (in NTD) each. Based on the resolution adopted at the annual shareholders meeting on June 24, 2005, the Company declared stock dividends paid out of retained earnings in the amount of $210,000 and capitalized bouns to employees in the amount of $4,500. The Ministry of Economic Affairs approved the change in registered capital stock on September 12, 2005. As of December 31, 2005, the Company s capital stock authorized and outstanding was $1,264,500 divided into 126,450,000 shares with par value of $10 (in NTD) each. (2) Capital surplus Capital surplus as of December 31, 2005 and 2004 consisted of the following: Paid-in capital in excess of par value $25,000 $25,000 Increment in assets revaluation 1,162 1,162 Gain on sale of property, plant and 42 42 equipment Total $26,204 $26,204 As prescribed by the Company Law of Taiwan, capital surplus can only be applied to offset accumulated deficits, except that paid-in capital in excess of par value and donated capital can be applied to increase capital. 19

(3) Legal reserve The Company Law stipulates that companies must retain at least 10% of their annual earnings, as defined in the Law, until such retention equals the amount of paid-in capital. This retention is accounted for as a legal reserve account. Once the balance of legal reserve equals or exceeds one-half of the amounts of paid-in capital, 50% of the reserve may be transferred to common stock. The legal reserve cannot be distributed as cash dividends to stockholders. However, it can be used at any time to cover deficit. (4) Distribution of earning (a) According to the applicable Company s Articles of Incorporation in 2005 and 2004, after paying income tax and offsetting the accumulated deficit, the Company in prescribed to appropriate 10% of legal reserve, and then declare minimum 1% of employee bonuses and maximum 5% of directors and supervisors bonuses in sequence. (b) The appropriation of 2004 earnings resolved by Board of Directors on April 7, 2005 and approved by the annual meeting of shareholders on June 24, 2005 is as follows: Item As Adopted at the Shareholders Meeting 20 As Resolved by the Board of Directors Differences Bonus to directors and supervisors $9,500 $9,500 $ - Employees bonus $ - $4,500 $(4,500) Employees bonus by issurance of new shares. a. Amount $4,500 $ - $4,500 b. Number of shares ($10 par value 450,000(shares) - 450,000(shares) per share) c. Percentage on total number of outstanding shares at end of year 0.43% - % 0.43% Cash dividends Stock dividends($10 in NTD each) $157,500 21,000,000(shares) $157,500 21,000,000(shares) $ - - Earning per share taking into $7.12 $7.12 $ - consideration of the employees bonus and bonus to directors and supervisors. (Note) Note: Net Income (2004) - Employees bonus Directors and supervisors bonus Weighted average common shares outstanding (2004) (c) Information on board of directors resolution and shareholders approvals can be obtained from the Market Observation Post System on the website of Taiwan Stock Exchange Corporation.

n. Income Tax Expense The Company s income tax returns through 2002 have been assessed by the Tax Authority. The Company adopt, SFAS No. 22 of Taiwan, Accounting for Income Taxes. The enacted tax rate for the current year is 25%. Additional tax on undistributed earnings of prior year and alternative minimum taxable income are 10%. Disclosures required under the statement are summarized as follows: (1) Total deferred income tax liabilities $87,506 $ - Total deferred income tax assets $53,735 $117,672 Valuation allowance for deferred income tax assets Temporary differences attributing to the deferred income tax assets/liabilities: Unrealized foreign currency exchange gain (loss) $ - $ - $25,166 $(55,447) Accrued pension cost $(18,770) $(2,012) Allowance for doubtful accounts $(6,880) $(2,417) Cumulative translation adjustments $10,948 $(126,774) Unrealized product warranty expense $(31,239) $(39,239) Unrealized Investment Income $784,774 $ - Unrealized intercompany profits $(137,755) $(208,567) Unrealized miscellaneous income $(20,296) $(21,592) Urrecognized pension cost $ - $(14,638) (2) Deferred income tax assets-current $43,968 $76,418 Valuation allowance - - (3) Deferred income tax assets-current $43,968 76,418 Deferred income tax liabilities-current (6,291) - Net deferred income tax assets-current $37,677 $76,418 Deferred income tax assets-noncurrent $9,767 $41,254 Valuation allowance - - Deferred income tax assets-noncurrent 9,767 41,254 Deferred income tax liabilities-noncurrent (81,215) - Net deferred income tax liabilities -noncurrent $(71,448) $41,254 21

(4) Income tax provision for the years ended December 31, 2005 and 2004 are as follows: Income tax-current $57,668 $57,217 Deferred Income tax expenses (benefit) Unrealized foreign currency exchange gain 20,153 (14,215) (loss) Unrealized product warranty gain (loss) 2,000 (1,248) Allowance for doubtful accounts (1,116) (474) Employee welfare - 48 Accrued pension cost (4,190) (619) Reversal of intercompany profits 17,703 707 Unrealized miscellaneous income 324 2,599 Unrealized Investment Income 78,478 - Deferred income tax benefits 113,352 (13,202) Income tax expense $171,020 $44,015 (5) As of December 31, 2005 and 2004, the information related to tax credits available to stockholders under imputation system of taxation are as follows: Balance of tax credit available to stockholders $80,594 $91,741 Projected/actual percentage of tax credit available 7.37% 11.32% The projected percentage of tax credit available is computed including current income tax provision and additional 10% income tax arisen from 2004 s undistributed retained earnings. (6) As of December 31, 2005 and 2004, the Company s undistributed earnings are summarized as follows: Undistributed earnings resulted in year 1997 and before Undistributed earnings resulted in year 1998 and after $853 $853 1,944,962 1,266,677 Total $1,945,815 $1,267,530 22

o. Earnings Per Common Share (1) For year ended December 31, 2005 Weighted Number of Shares Outstanding common shares, beginning of 105,000,000 shares year Plus: Stock dividends, 2004 21,450,000 Weighted average common shares outstanding for year 2005 126,450,000 shares Net income $1,233,823 Earnings per common share (in NTD) $9.76 (2) For year ended December 31, 2004 Weighted Number of Shares Outstanding common shares, beginning of 84,000,000 shares year Plus: Stock dividends, 2003 21,000,000 Weighted average common shares 105,000,000 shares outstanding for year 2004 Retroactive adjustment 1.2043 * Weighted average common shares outstanding for the year ended December 31, 2004 after retroactive adjustment 126,450,000 shares Net income $762,003 Earnings per common share (in NTD) $6.03 *:1.2043=1+(2004distributing rate=21,450,000/105,000,000=0.2043) p. Operating Revenues Operating revenues for years ended December 31, 2005 and 2004 are summarized as follows: Product sales $4,513,734 $4,555,658 Less: Sales returns and allowances (85,590) (55,347) Total $4,428,144 $4,500,311 23

q. Operating Costs Nature Operating costs for year ended December 31, 2005 and 2004 are summarized as follows: Function Operating Costs Operating Operating Operating Subtotal Expenses Costs Expenses Subtotal Personal expenses Salary $153,745 $198,094 $351,839 $168,693 $162,176 $330,869 Insurance 10,117 11,012 21,129 11,049 9,518 20,567 Pension 7,986 10,340 18,326 7,973 8,091 16,064 Other 5,909 4,426 10,335 6,839 3,500 10,339 Depreciation 21,021 21,448 42,469 18,331 17,556 35,887 Amortization - 6,507 6,507-7,493 7,493 5. RELATED PARTY TRANSACTIONS a. Names and Relationships of Related Parties Related Parties EPIX, INC. D/B/A VISION FITNESS JOHNSON HEALTH TECH.U.K. LTD. J&E TRADING CO., LTD. J&S TRADING CO., LTD. JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. HORIZON FITNESS INC. STYLE FITNESS GMBH MATRIX FITNESS SYSTEMS INC. JOHNSON HEALTH TECH. FRANCE SAS STYLE FITNESS EQUIPMENT CO., LTD. STYLE FITNESS SPAIN, S.L. JOHNSON HEALTH TECH. JAPAN K.K. JOHNSON HEALTH TECH. DEUTSCHLAND GMBH JOHNSON HEALTH TECH. (THAILAND) CO., LTD. JOHNSON HEALTH TECH. ITALIA SPA JOHNSON FITNESS (MALAYSIA) SDN. BHD. JOHNSON HEALTH TECH. USA HOLDING CO., LTD. JOHNSON HEALTH TECH. (SCHWEIZ) GMBH Lo, Kun-Chuan Relationships The Company s Chairman b. Significant Related Parties Transactions (1) Purchase Name of Related Party Amount % Amount % J&S TRADING CO. LTD. $2,483,950 73.83 $2,380,805 70.09 24

(2) Sales Name of Related Parties Amount % Amount % HORIZON FITNESS INC. $1,399,266 31.60 $1,260,181 28.00 J&E TRADING CO., LTD. 704,053 15.90 1,043,871 23.19 JOHNSON HEALTH TECH. U.K. 331,653 7.49 361,740 8.04 LTD. STYLE FITNESS GMBH 152,957 3.45 168,551 3.75 JOHNSON HEALTH TECH. 72,563 1.64 37,362 0.83 DEUTSCHLAND GMBH JOHNSON HEALTH TECH. JAPAN 68,219 1.54 23,659 0.53 K.K. J&S TRADING CO., LTD. 66,962 1.51 58,894 1.31 MATRIX FITNESS SYSTEMS INC. 63,175 1.43 84,735 1.88 JOHNSON HEALTH TECH. 50,290 1.14 - - ITALIA SPA STYLE FITNESS SPAIN, S.L. 48,768 1.10 19,184 0.43 JOHNSON HEALTH TECH. (THAILAND) CO., LTD. 45,958 1.04 5,127 0.11 JOHNSON HEALTH TECH. 29,411 0.66 28,085 0.62 FRANCE SAS JOHNSON FITNESS (MALAYSIA) 8,347 0.19 - - SDN. BHD. EPIX, INC. 2,630 0.06 3,411 0.08 Total $3,044,252 68.75 $3,094,800 68.77 (3) Accounts receivable a. As of December 31, 2005 Name of Related Parties Balance Not Received Reclassed to Other Receivable Accounts Receivable Balance % Trade Terms HORIZON FITNESS INC. $332,096 $ - $332,096 34.03 120 days T/T JOHNSON HEALTH TECH. U.K. 200,137 31,507 168,630 17.28 180 days T/T LTD. J&E TRADING CO., LTD. 150,491-150,491 15.42 120 days T/T STYLE FITNESS GMBH 129,617 99,024 30,593 3.13 150 days T/T JOHNSON HEALTH TECH. 77,475 60,008 17,467 1.79 180 days T/T FRANCE SAS MATRIX FITNESS SYSTEMS INC. 67,161 39,234 27,927 2.86 180 days T/T STYLE FITNESS SPAIN, S.L. 63,536 36,964 26,572 2.72 180 days T/T JOHNSON HEALTH TECH. JAPAN 52,752 20,024 32,728 3.35 180 days T/T K.K. JOHNSON HEALTH TECH. 50,342 21,979 28,363 2.90 180 days T/T ITALIA SPA JOHNSON HEALTH THCH. 41,516 18,387 23,129 2.37 150 days T/T DEUTSCHLAND GMBH J&S TRADING CO., LTD. 38,723 2 38,721 3.97 180 days T/T JOHNSON HEALTH TECH 24,947 24,947 - - T/T (THAILAND) CO., LTD. JOHNSON FITNESS (MALAYSIA) 8,349 6,835 1,514 0.16 60 days T/T SDN. BHD. EPIX, INC. 106 106 - - 120 days T/T Total 1,237,248 359,017 878,231 89.98 Add: Allowance for exchange gain 10,649-10,649 1.09 Less: Alllowance for doubtful (9,739) - (9,739) (1.00) accounts Net $1,238,158 $359,017 $879,141 90.07 25

b. As of December 31, 2004: Name of Related Parties Balance Not Received Reclassed to Other Receivable Accounts Receivable Balance % Trade Terms HORIZON FITNESS INC. $598,362 $12 $598,350 36.03 180 days T/T J&E TRADING CO., LTD. 521,504-521,504 31.40 150 days T/T JOHNSON HEALTH TECH. U.K. 239,224 15,473 223,751 13.47 180 days T/T LTD. STYLE FITNESS GMBH 124,892 21,387 103,505 6.23 150 days T/T MATRIX FITNESS SYSTEMS INC. 62,068 31,218 30,850 1.86 180 days T/T JOHNSON HEALTH TECH. 48,450 26,471 21,979 1.32 180 days T/T FRANCE SAS STYLE FITNESS SPAIN, S.L. 19,184 9,760 9,424 0.57 180 days T/T JOHNSON HEALTH THCH. 14,755 17 14,738 0.89 150 days T/T DEUTSCHLAND GMBH JOHNSON HEALTH TECH. JAPAN 14,213 88 14,125 0.85 180 days T/T K.K. J&S TRADING CO., LTD. 6,365 241 6,124 0.37 150 days T/T JOHNSON HEALTH TECH 5,127-5,127 0.31 180 days T/T (THAILAND) CO., LTD. EPIX, INC. 1,126 1,126 - - 150 days T/T Total 1,655,270 105,793 1,549,477 93.30 Less: Allowance for exchange loss (75,083) - (75,083) (4.52) Less: Allowance for doubtful (9,739) - (9,739) (0.58) accounts Net $1,570,448 $105,793 $1,464,655 88.20 (4) Other accounts receivable Name of Related Parties Amount % Amount % MATRIX FITNESS SYSTEMS INC. $244,255 31.99 $180,508 52.73 STYLE FITNESS GMBH 101,373 13.28 34,848 9.30 J&S TRADING CO., LTD. 72,536 9.50 29,352 8.58 JOHNSON HEALTH TECH. 71,524 9.37 30,771 8.99 FRANCE SAS HORIZON FITNESS INC. 50,393 6.60 22,896 6.69 STYLE FINTESS SPAIN, S.L. 46,148 6.05 20,420 5.97 JOHNSON HEALTH TECH. 36,319 4.76 - - ITALIA SPA JOHNSON HEALTH TECH. U.K. 34,847 4.56 15,547 4.54 LTD. JOHNSON FITNEXX (MALAYSIA) 32,035 4.20 - - SDN. BHD. JOHNSON HEALTH TECH. 27,058 3.54 (TAILAND) CO., LTD. 1,898 0.56 JOHNSON HEALTH TECH. JAPAN 20,024 2.62 3,813 1.11 K.K. JOHNSON HEALTH TECH. 18,406 2.41 633 0.18 DEUTSCHLAND GMBH JOHNSON HEALTH TECH. 3,967 0.52 - - (SCHWEIZ) GMBH EPIX, INC. 1,933 0.25 8,210 2.40 J&E TRADING CO., LTD. 703 0.09 - - JOHNSON HEALTH 390 0.05 4,202 1.23 TECHNOLOGY (SHANGHAI) CO., LTD. STYLE FITNESS EQUIPMENT 23-345 0.10 CO., LTD. Total 761,934 99.79 350,443 102.38 Less: Allowance for exchange Loss (3,785) (0.05) (9,435) (2.76) Net $758,149 99.29 $341,008 99.62 26

(5) Notes and accounts payable December 31 Name of Related Parties Amount % Amount % J&S TRADING CO., LTD. $144,340 43.03 $920,687 73.65 Less: Allowance for foreign exchange (408) (0.12) (32,908) (2.63) gain Net $143,932 42.91 $887,779 71.02 (6) Accrued expenses December 31 Name of Related Parties Amount % Amount % HORIZON FITNESS INC. $45,461 21.43 $11,544 6.17 JOHNSON HEALTH TECHNOLOGY 4,534 2.14 2,615 1.40 (SHANGHAI) CO., LTD. STYLE FITNESS EQUIPMENT CO., 3,488 1.64 1,295 0.69 LTD. JOHNSON HEALTH TECH. U.K. LTD. 3,299 1.56 306 0.16 STYLE FITNESS GMBH 2,167 1.02 816 0.44 MATRIX FITNESS SYSTEMS INC. 1,344 0.63 1,031 0.55 EPIX, INC. 956 0.45 10,314 5.51 JOHNSON HEALTH TECH. JAPAN 278 0.13 141 0.08 K.K. STYLE FINTESS SPAIN, S.L. 193 0.09 73 0.04 JOHNSON HEALTH TECH. ITALIA 75 0.04 SPA JOHNSON HEALTH TECH. 36 0.02 22 0.01 DEUTSCHLAND GMBH J&S TRADING CO., LTD. - - 2,335 1.25 Total 61,831 29.15 30,492 16.30 Less: Allowance for foreign exchange (165) (0.08) (5,779) (3.09) gain Net $61,666 29.07 $24,713 13.21 (7) Payables for P&E Acquired December 31 Name of Related Parties Amount % Amount % 27

J&S TRADING CO., LTD. $32,311 83.84 $21,687 99.21 28

(8) Other payables December 31 Name of Related Parties Amount % Amount % J&S TRADING CO., LTD. $107,551 40.85 $62,658 28.62 JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. 12,890 4.90 8,978 4.10 HORIZON FITNESS INC. 3,978 1.51 19,915 9.10 STYLE FITNESS GMBH 610 0.23 727 0.33 STYLE FITNESS EQUIPMENT CO., LTD. 10 - - - J&E TRADING CO., LTD. - - 13,831 6.32 JOHNSON HEALTH TECH. U.K. LTD. - - 4,758 2.17 MATRIX FITNESS SYSTEMS INC. - - 618 0.27 Total 125,039 47.49 111,485 50.91 Less: Allowance for exchange gain - - (2,179) (0.99) Net $125,039 47.49 $109,306 49.92 (9) Expenses Name of Related Parties Nature HORIZON FITNESS INC. Advertisement $44,960 $26,348 Expense MATRIX FITNESS SYSTEMS INC. Advertisement 20,123 12,373 Expense EPIX, INC. Advertisement 19,515 30,946 Expense JOHNSON HEALTH TECH. U.K. Freight Expense 9,457 346 LTD. JOHNSON HEALTH TECH. Freight Expense 3,552 199 DEUTSCHLAND GMBH JOHNSON HEALTH TECHNOLOGY Freight Expense 2,536 2,271 (SHANGHAI) CO., LTD. STYLE FITNESS EQUIPMENT CO., Advertisement 2,193 1,295 LTD. Expense STYLE FITNESS GMBH Freight Expense 2,153 1,304 JOHNSON HEALTH TECH. JAPAN Sample Expense 351 1,683 K.K. STYLE FINTESS SPAIN, S.L. Freight Expense 120 73 JOHNSON HEALTH TECH. ITALIA Freight Expense 75 - SPA J&S TRADING CO., LTD. Freight Expense - 1,808 Total $105,035 $78,646 29

(10) Miscellaneous Income Name of Related Parties Nature MATRIX FITNESS SYSTEMS INC. J&S TRADING CO., LTD. EPIX, INC. HORIZON FITNESS INC. Mould design and manufacture $8,405 $2,252 Purchase on behalf of 4,106 5,745 others Mould design and 2,825 1,122 manufacture Mould design and - 272 manufacture Total $15,336 $9,391 The unrealized intercompany profit resulted from these transactions is amortized over the period of useful life of mould. (11) Financing transactions The company entered into the following financing transactions with related parties as of December 31, 2005. Name of Related Parties Date Maximum Balance Year-end Balance Interest Revenue MATRIX FITNESS SYSTEMS 09/09 $175,329 $175,329 $ - INC. JOHNSON FITNESS 12/05 24,513 24,513 240 (MALAYSIA) SDN. BHD. JOHNSON HEALTH TECH. 07/14 12,152 12,152 244 ITALIA SPA JOHNSON HEALTH TECH. 09/26 11,087 11,087 341 FRANCE SAS STYLE FITNESS SPAIN, S.L. 01/01 10,376 8,396 502 STYLE FITNESS GMBH 01/01 9,349-452 JOHNSON HEALTH TECH 12/02 3,967 3,967 - (SCHWEIZ) GMBH JOHNSON HEALTH TECH. 01/01 3,146-17 JAPAN K.K. JOHNSON HEALTH TECH. U.K. 04/01 1,980-28 LTD. Total $235,444 $1,824 30

The company entered into the following financing transactions with related parties as of December 31, 2004. Name of Related Darties Date Maximum Balance Year-end Balance Interest Revenue MATRIX FITNESS SYSTEMS 12/13 $138,808 $138,808 $3,784 INC. STYLE FITNESS GMBH 1/1 29,461 9,349 908 JOHNSON HEALTH TECH. 3/31 24,184-910 DEUTSCHLAND GMBH STYLE FITNESS SPAIN, S.L. 9/29 10,376 10,376 284 STYLE FITNESS FRANCE SAS 2/12 4,252 4,252 221 STYLE FITNESS JAPAN K.K. 2/9 3,146 3,146 165 Total $165,931 $6,272 (12) Financial Guarantees In 2005, the Company provides guaranty in the amount of $1,262 and $799,565 for MATRIX FITNESS SYSTEMS INC. and JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. respectively. In 2004, the Company provides guaranty in the amount of $6,426 and $709,010 for MATRIX FITNESS SYSTEMS INC. and JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. respectively. (13) Other 6. ASSETS PLEDGED In 2005 and 2004 the Company s chairman gratuitously provide his own agricultural land, registered under the name of Zen-Jin Lo who is a farmer, for the use of warehouse and container entrepot. As of December 31, 2005 and 2004, the following assets were pledged to banks as collateral for borrowings and hiring foreign labors: Land (including land appraised $63,364 $63,364 incremental value, net) Buildings, net 66,918 68,373 Certificated of deposit-restricted 7,699 7,500 Total $137,981 $139,237 31

7. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITY The significant commitments and contingent liabilities of the company as of December 31, 2005 and, 2004 were as follows: a. The Company had an amount of USD5,024.7 issued but unused letter of credits as of December 31, 2004. There is no such transaction in 2005. b. The Company issued guaranty notes as security for borrowings in the sum of $253,125 and $364,625 as of December 31, 2005 and 2004, respectively. c. In 2005, the Company provides guaranty in amount of $1,262 and $799,565 for MATRIX FITNESS SYSTEMS INC. and JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. respectively. In 2004, the Company provides guaranty in amount of $6,426 and $709,010 for MATRIX FITNESS SYSTEMS INC. and JOHNSON HEALTH TECHNOLOGY (SHANGHAI) CO., LTD. respectively. 8. SIGNIFICANT CASUALTY LOSS None. 9. SIGNIFICANT SUBSEQUENT EVENTS None. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (1) The information related to derivative instruments are as follows: a. The purposes and strategies of using derivative financial instruments: The Company uses the above derivatives to manage risks related to exchange rate fluctuations. Forward contract was designated as exchange rate hedge purposes. The company s exchange rate risk management strategy is to stabilize the exchange gains on losses incurred from the market. By entering into reverse transactions, the risk exposure is minimized. b. Credit risk: Credit risk means the possible loss that may be incurred in the event that the counter parties default. As the counterparties of the Company are all financial institutions with good credit ratings, credit risk is considered to be remote. 32