Health Club News ….. Cybex Gets Temporary Stay on $66 Million Judgment

Posted May 6, 2011 10:22 pm by

Cybex International, Medway, MA, received a temporary stay of enforcement on the $66 million judgment in a product liability suit, and it is filing a request for a 180-day extension with the NASDAQ Stock Market to prevent being delisted, according to Cybex Chairman and CEO John Aglialoro.

Aglialoro and Art Hicks, COO, spoke with shareholders and analysts in a financial call today to go over the company’s first quarter financials, which were released last week. Revenues were 19 percent higher in the quarter compared to the same period last year.
“I won’t mince words,” Aglialoro said. “We continue to have this dark cloud over the company for the tragic accident of a 31-year-old lady, the Barnhard suit. I believe it was a case wrongly decided in terms of amount of liability, and the amount of damages was certainly overstated.”
The Barnhard vs. Cybex International case involved a woman, Natalie Barnhard, who had a piece of Cybex equipment fall on her, rendering her a quadriplegic. The jury found Cybex 75 percent liable for the $66 million judgment.
The company filed an appeal, and the court recently granted a temporary stay of enforcement, Aglialoro said, which means that the court has temporarily blocked the plaintiff in the case from collecting on the judgment. Cybex does not have to post the $66 million maximum bond that could have been required in order to stay enforcement. Instead, Cybex has asked that its bond be set at $10 million. The court has not determined if it will agree to the $10 million bond amount.
The appeal can go forward regardless of what happens with the bond, Hicks said.
“The posting of the bond provides us with extra legal protection to prevent the plaintiff, if they decide to, to enforce the judgment,” Hicks said.
Aglialoro estimated that before the third week of May, the company would hear whether the appellate court would give a permanent stay. He also said that the appellate court decision on the appeal would take six to eight months.
Hicks announced that Cybex had received a letter from the NASDAQ Stock Market, on which the company’s stock is traded, that it now complies with the stock price requirements of the NASDAQ. Cybex had received a letter in January stating that the company’s stock price had fallen below $1 per share for more than 30 days, which put it at risk for delisting. To avoid delisting, the stock had to rise to $1 or higher before July 20, 2011. The company’s stock rose to more than $1 on April 6, a few days after its fourth quarter and year-end 2010 financials were released showing improved performance.
However, the company still is at risk of being delisted because its stockholder equity falls below the required minimum of $10 million. Cybex’s stockholder equity is at negative $15 million. NASDAQ notified Cybex on April 5 that it has until May 20 to send NASDAQ a plan for complying with the requirement. Hicks said that the company plans to file a request for a 180-day extension to meet the stockholder equity requirement.
“There is no assurance that NASDAQ will accept that,” Hicks said.
Despite these issues, the company’s numbers for the quarter were improved. Net sales were $31 million compared to $26.1 million at the same time last year. The company had a net profit of $0.4 million in the first quarter compared to a net loss of $0.8 million in first quarter 2010. Cardio equipment sales increased 16 percent to $16.6 million. Strength sales increased 23 percent to $11 million. Its other category, mostly made up of freight and parts, increased 18 percent to $3.3 million. North American sales increased 24 percent, and international sales were up 6 percent compared to first quarter 2010.
With the improved operating results, Cybex will continue to invest in marketing and new product development, Aglialoro said.
“Innovation is key above all,” he said. “The new products we’ve introduced—and will continue to do so—really tell our story through multiple avenues [and] are key elements to our business strategy.”
Building brand through the Cybex Institute also is a key, he said. He plans to use science and third-party advocates of the equipment to have studies published on the effectiveness of Cybex’s equipment. In March, Cybex announced a research partnership with the University of Massachusetts, Amherst. The university’s department of kinesiology will use Cybex equipment for research projects on exercise, fitness and wellness.
Aglialoro re-emphasized that Cybex is now focusing its marketing dollars on specialty markets, including fitness facilities in the university, military and sports-performance arenas.
“Going forward, I’m comfortable dropping the bodybuilding/health club/gym/muscle side of the marketing strategy and build the brand by concentrating on health and longevity and lifestyle as part of the equation,” he said, adding later that these markets are less price sensitive on the product cost. “They want performance, so they are willing to pay for it.”

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