|                                                        |                                                                                         
|------------------------------------------------------- | ----------------------------------------------------------------------------------------
|UNITED
STATES                                          
|SECURITIES
AND EXCHANGE COMMISSION                     
|WASHINGTON,
D.C. 20549                                 
|                                                       
|FORM 10-K/A                                            
|Amendment No. 1                                        
|                                                        |                                                                                         
|þ                                                       | ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                        | For the fiscal year ended
December 31, 2009                                             
|                                                        |                                                                                         
|                                                        | OR                                                                                      
|o                                                       | TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                        | For the transition period
from ____________ to ____________                             
|                                                        |                                                                                         
|Commission
 file number: 001-33207                     
|                                                       
|Universal Power Group, Inc.                            
|(Exact
 name of registrant as specified in its charter)

|                                                                                    |  |                    
|----------------------------------------------------------------------------------- |  | -------------------
|TEXAS                                                                               |  | 75-1288690         
|(State or other jurisdiction of                                                     |  | (I.R.S. Employer   
|incorporation or organization)                                                      |  | Identification No.)
|                                                                                    |  |                    
|1720 Hayden Drive, Carrollton, Texas                                                |  | 75006              
|(Address of principal executive offices)                                            |  | (Zip Code)         
|                                                                                    |  |                    
|(469) 892-1122                                                                     
|(Registrants
 telephone number, including area code)                              
|                                                                                   
|None                                                                               
|(Former
 name, former address and former fiscal year, if changed since last report)
|                                                                                   
|Securities registered
 pursuant to Section 12(b) of the Act:                       

|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------
|Common
 Stock, $0.01 Par Value                                                                                                                                                                                                                                                                                                                                                              |  | NYSE
 Amex                                 
|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            
|(Title
of Each Class)                                                                                                                                                                                                                                                                                                                                                                       |  | (Name
of each exchange on which registered)
|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            
|Securities registered
 pursuant to Section 12(g) of the Act: None                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark if
 the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
 Securities Act     Yes o     No þ                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark if
 the registrant is not required to file reports pursuant to Section 13 or
 Section 15(d) of the Exchange Act.     Yes o     No þ                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                           
|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 þ     No o           
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark
 whether the registrant has submitted electronically and posted on its
 corporate Web site, if any, every Interactive Data File required to be
 submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
 chapter) during the preceding 12 months (or for such shorter period that the
 registrant was required to submit and post such files).
|Yes
 o     No o                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate
 by check mark if disclosure of delinquent filers
 pursuant to Item 405 of Regulation S-K is not contained herein, and will not
 be contained, to the best of registrants knowledge, in definitive proxy or
 information statements incorporated by reference in Part III of this Form
 10-K or any amendment to this Form 10-K.     þ                                           
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark
 whether the registrant is a large
 accelerated filer, an accelerated filer, a non-accelerated filer or smaller
 reporting company. See definitions of large accelerated filer, accelerated
 filer and smaller reporting company in Rule 12b-2 of the Exchange Act.                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                           
|Large
 accelerated filer o          Accelerated
 filer o          Non-accelerated
 filer o          Smaller Reporting Company þ                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark whether the registrant is a shell
 company (as defined in Rule 12b-2 of the Exchange
 Act).     Yes o     No þ                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                           
|The aggregate market value
 of the voting and non-voting common equity held by non-affiliates of the
 registrant was $4,861,522 based on the price at which the common equity was
 last sold on the NYSE Amex as of June 30, 2009, the last business day of the
 registrants most recently completed second fiscal quarter.                                                               
|                                                                                                                                                                                                                                                                                                                                                                                           
|The number of shares
 outstanding of the registrants classes of common equity as of March 29, 2010
 was 5,000,000.                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                           
|DOCUMENTS INCORPORATED BY REFERENCE                                                                                                                                                                                                                                                                                                                                                        
|None                                                                                                                                                                                                                                                                                                                                                                                       

---



EXPLANATORY NOTE

We are filing
  this Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the
  year ended December 31, 2009 (the Annual Report), originally filed on March 31, 2010 to revise
(i) the auditors reports to explicitly state that their audits have been conducted in accordance with the standards of the Public Oversight Accounting Board (United States); (ii) pages F-3, F-4 and F-10 to reflect the fact that we have three
subsidiaries, of which two are inactive and one, Monarch Outdoor Adventures, LLC, d/b/a as Monarch Hunting is active; and (iii) the certifications required by Exchange Act 13a-14(a), Exhibits 31.1 and 31.2, to include the phrase including its
consolidated subsidiaries, in paragraph 4(a). No other material changes
have been made to the Annual Report. This amendment is not intended to update
other information presented in the Annual Report as originally filed.

1

---



|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information
required by this Item begins on page F-1 and is incorporated herein by
reference.

PART IV

|         |                                                                
|-------- | ---------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | -------- | ----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                   | (a) | 1.       | Financial Statements.                                            
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|The
 following financial statements of Universal Power Group, Inc. are submitted
 as a separate section of this report (See F-pages) and are incorporated by
 reference in Item 8:
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Report of
 Independent Registered Public Accounting Firm                                                  
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Report of
 Independent Registered Public Accounting Firm                                                  
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Consolidated
 Balance Sheets as of December 31, 2009 and 2008                                             
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Consolidated
 Statements of Operations for the years ended December 31, 2009 and 2008                     
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Consolidated
 Statement of Changes in Shareholders Equity for the years ended December 31,
 2009 and 2008
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Consolidated
 Statements of Cash Flows for the years ended December 31, 2009 and 2008                     
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     |          |                                                                  | Notes to
 Consolidated Financial Statements                                                               
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     | 2.       | Financial Statement Schedules  See response to Item 15(c) below.
|                                                                                                                                                                                   |     |          |                                                                   |                                                                                                           
|                                                                                                                                                                                   |     | 3.       | Exhibits.  See response to Item 15(b) below.                    
|                                                                                                                                                                                   |     |          |                                                                  
|                                                                                                                                                                                   | (b) | Exhibits

The
following exhibits are furnished as part of this report or incorporated herein
as indicated.

|             |  |                                                                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                                                                                                  
|             |  |                                                                                                                                                                                              
|3(i)         |  | Amended and
 Restated Certificate of Formation (including Amended and Restated Articles of
 Incorporation) (1)                                                                               
|             |  |                                                                                                                                                                                              
|3(ii)        |  | Amended and
 Restated Bylaws (1)                                                                                                                                                             
|             |  |                                                                                                                                                                                              
|4.1          |  | Specimen
 stock certificate (1)                                                                                                                                                              
|             |  |                                                                                                                                                                                              
|4.2          |  | Form of
 representatives warrant (1)                                                                                                                                                        
|             |  |                                                                                                                                                                                              
|10.1(a)**    |  | Form of 2006
 Stock Option Plan (1)                                                                                                                                                          
|             |  |                                                                                                                                                                                              
|10.1(b)      |  | Form of
 Stock Option Agreement (1)                                                                                                                                                          
|             |  |                                                                                                                                                                                              
|10.1(c)**    |  | Amendment to
 the 2006 Stock Option Plan (6)                                                                                                                                                 
|             |  |                                                                                                                                                                                              
|10.2         |  | Separation
 Agreement between UPG and Randy Hardin (2)                                                                                                                                       
|             |  |                                                                                                                                                                                              
|10.3**       |  | Form of Ian
 Edmonds Employment Agreement (7)                                                                                                                                                
|             |  |                                                                                                                                                                                              
|10.7         |  | Real
 Property Lease for 1720 Hayden Drive, Carrollton, Texas (1)                                                                                                                            
|             |  |                                                                                                                                                                                              
|10.8         |  | Real
 Property Lease for 11605-B North Santa Fe, Oklahoma City, Oklahoma (1)                                                                                                                 
|             |  |                                                                                                                                                                                              
|10.9         |  | Real
 Property Lease for Las Vegas, Nevada (1)                                                                                                                                               
|             |  |                                                                                                                                                                                              
|10.10        |  | Termination
 Agreement with Stan Battat d/b/a Import Consultants (3)                                                                                                                         
|             |  |                                                                                                                                                                                              
|10.13        |  | Third Party
 Logistics & Purchase Agreement, dated as of November 3, 2008, with Brinks
 Home Security, Inc., (currently Broadview Security, Inc.) (4)                                        
|             |  |                                                                                                                                                                                              
|10.14        |  | Credit
 Agreement with Wells Fargo Bank, National Association (8)                                                                                                                            
|             |  |                                                                                                                                                                                              
|10.15        |  | Security
 Agreement with Wells Fargo Bank, National Association (8)                                                                                                                          
|             |  |                                                                                                                                                                                              
|23.1         |  | Consent of
 Independent Registered Public Accounting Firm*                                                                                                                                   
|             |  |                                                                                                                                                                                              
|23.2         |  | Consent of
 Independent Registered Public Accounting Firm*                                                                                                                                   
|             |  |                                                                                                                                                                                              
|31.1         |  | Certification
 of the Principal Executive Officer pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002*                                                                                
|             |  |                                                                                                                                                                                              
|31.2         |  | Certification
 of the Principal Financial Officer pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002*                                                                                
|             |  |                                                                                                                                                                                              
|32.1         |  | Certification
 of the Principal Executive Officer and Principal Financial Officer Pursuant
 to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
 Sarbanes-Oxley Act of 2002*

|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                        
|*   | Filed
 herewith.                                                                                                                                                       
|    |                                                                                                                                                                        
|**  | Management
 Contract, compensatory plan or arrangement.                                                                                                                
|    |                                                                                                                                                                        
|(1) | Incorporated
 by reference to the Exhibit with the same number to our Registration
 Statement on Form S-1 (SEC File No. 333-137265) effective as of December 20,
 2006.
|    |                                                                                                                                                                        
|(2) | Incorporated
 by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
 January 23, 2009.                                                               
|    |                                                                                                                                                                        
|(3) | Incorporated
 by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March
 17, 2009.                                                                 
|    |                                                                                                                                                                        
|(4) | Incorporated
 by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
 November 7, 2008.                                                               
|    |                                                                                                                                                                        
|(5) | Incorporated
 by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
 September 25, 2008.                                                             
|    |                                                                                                                                                                        
|(6) | Incorporated
 by reference to Exhibit 10.1(c) to our Annual Report on Form 10-K for the
 year ended December 31, 2008.                                                 
|    |                                                                                                                                                                        
|(7) | Incorporated
 by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the
 period ended June 30, 2009.                                                   
|    |                                                                                                                                                                        
|(8) | Incorporated
 by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
 December 23, 2009.                                                              

(c)
Other Financial Statement Schedules.

The
information required by the schedules called for under Regulation S-X is either
not applicable or is included in the financial statements or notes thereto.

2

---



Signatures

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

| |                              |                   
| | ---------------------------- | ------------------
| | Date: September 22, 2010    
| |                              |                   
| | Universal
 Power Group, Inc.
| |                              |                   
| | By:                          | /s/ Ian
 Edmonds  
| |                              |                   
| |                              | Ian Edmonds       
| |                              | President
 and CEO

3

---



ITEM 15 (A) (1) 
FINANCIAL STATEMENTS AND 
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS 
UNIVERSAL POWER GROUP, INC.

DECEMBER 31, 2009

F-1

---



INDEX TO FINANCIAL STATEMENTS 
UNIVERSAL POWER GROUP, INC.

|                                                                                                           |  |     
|---------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                           |  | Page
|                                                                                                           |  |     
|Report of
 Independent Registered Public Accounting Firm  BKD LLP                                         |  | F-3 
|Report of
 Independent Registered Public Accounting Firm  KBA Group LLP                                   |  | F-4 
|Consolidated
 Balance Sheets at December 31, 2009 and 2008                                                 |  | F-5 
|Consolidated
 Statements of Operations for the years ended December 31, 2009 and 2008                      |  | F-7 
|Consolidated
 Statement of Changes in Shareholders Equity for the years ended December 31,
 2009 and 2008 |  | F-8 
|Consolidated
 Statements of Cash Flows for the years ended December 31, 2009 and 2008                      |  | F-9 
|Notes to
 Consolidated Financial Statements                                                                |  | F-10

F-2

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee, Board of Directors and Stockholders of
Universal Power Group, Inc.

We have audited the accompanying consolidated balance sheet of Universal Power Group, Inc. and subsidiaries (the Company) as of December 31, 2009 and the related statements of
operations, changes in shareholders equity, and cash flows for the year 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Power Group, Inc. and subsidiaries, as of
December 31,2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/BKD, LLPDallas, TexasMarch 31, 2010

F-3

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee, Board of Directors and Stockholders of
Universal Power Group, Inc.

We have audited the accompanying
consolidated balance sheet of Universal Power Group, Inc. and subsidiaries (the Company)
as of December 31, 2008 and the related consolidated statements of operations,
 changes in shareholders equity, and cash flows for the year 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Universal Power Group, Inc. and subsidiaries,
as of December 31, 2008, and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally accepted
in the United States of America.

/s/KBA GROUP LLPDallas, TexasMarch 31, 2009

F-4

---



UNIVERSAL POWER
GROUP, INC. 
CONSOLIDATED BALANCE SHEETS 
ASSETS

|                                                                                          |  |               |            |      |   |            |  
|----------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---- | - | ---------- | -
|                                                                                          |  | December
 31, |           
|                                                                                          |  |               |           
|                                                                                          |  | 2009          |            | 2008 |  
|                                                                                          |  |               |            |      |  
|CURRENT ASSETS                                                                            |  |               |            |      |   |            |  
|Cash and cash equivalents                                                                 |  | $             | 2,059,475  |      | $ | 326,194    |  
|Restricted cash                                                                           |  |               |           |      |   | 900,000    |  
|Accounts receivable:                                                                      |  |               |            |      |   |            |  
|Trade, net of allowance for doubtful
 accounts of $452,200 and $1,143,213                 |  |               | 11,440,179 |      |   | 12,423,279 |  
|Other                                                                                     |  |               | 13,561     |      |   | 50,303     |  
|Inventories  finished goods, net of
 allowance for obsolescence of $756,671 and $358,350 |  |               | 30,977,213 |      |   | 37,304,500 |  
|Current deferred tax asset                                                                |  |               | 1,151,635  |      |   | 1,555,173  |  
|Income tax receivable                                                                     |  |               |           |      |   | 193,386    |  
|Prepaid expenses and other current assets                                                 |  |               | 1,064,152  |      |   | 880,528    |  
|                                                                                          |  |               |            |      |   |            |  
|Total current assets                                                                      |  |               | 46,706,215 |      |   | 53,633,363 |  
|PROPERTY AND EQUIPMENT                                                                    |  |               |            |      |   |            |  
|Logistics and distribution systems                                                        |  |               | 1,807,069  |      |   | 1,795,935  |  
|Machinery and equipment                                                                   |  |               | 984,918    |      |   | 651,916    |  
|Furniture and fixtures                                                                    |  |               | 385,940    |      |   | 436,424    |  
|Leasehold improvements                                                                    |  |               | 388,334    |      |   | 388,334    |  
|Vehicles                                                                                  |  |               | 222,549    |      |   | 155,630    |  
|                                                                                          |  |               |            |      |   |            |  
|Total property and equipment                                                              |  |               | 3,788,810  |      |   | 3,428,239  |  
|Less accumulated depreciation and
 amortization                                           |  |               | (1,940,715 | )    |   | (1,407,712 | )
|                                                                                          |  |               |            |      |   |            |  
|Net property and equipment                                                                |  |               | 1,848,095  |      |   | 2,020,527  |  
|OTHER ASSETS                                                                              |  |               | 313,754    |      |   | 86,879     |  
|NON-CURRENT DEFERRED TAX ASSET                                                            |  |               | 771,490    |      |   |           |  
|                                                                                          |  |               |            |      |   |            |  
|TOTAL ASSETS                                                                              |  | $             | 49,639,554 |      | $ | 55,740,769 |  
|                                                                                          |  |               |            |      |   |            |  

The accompanying
notes are an integral part of these financial statements.

F-5

---



UNIVERSAL POWER GROUP, INC. 
CONSOLIDATED BALANCE SHEETS (Continued) 
LIABILITIES AND SHAREHOLDERS EQUITY

|                                                                                                       |  |               |            |      |   |            |  
|------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | ---- | - | ---------- | -
|                                                                                                       |  | December
 31, |           
|                                                                                                       |  |               |           
|                                                                                                       |  | 2009          |            | 2008 |  
|                                                                                                       |  |               |            |      |  
|CURRENT LIABILITIES                                                                                    |  |               |            |      |   |            |  
|Line of credit                                                                                         |  | $             | 15,174,305 |      | $ | 14,351,775 |  
|Accounts payable                                                                                       |  |               | 11,971,502 |      |   | 16,418,768 |  
|Income taxes payable                                                                                   |  |               | 698,654    |      |   | 24,712     |  
|Accrued liabilities                                                                                    |  |               | 384,976    |      |   | 175,388    |  
|Interest rate swap liability                                                                           |  |               |           |      |   | 484,131    |  
|Current portion of notes payable to
 Zunicom, Inc.                                                     |  |               |           |      |   | 1,462,500  |  
|Current portion of settlement expenses                                                                 |  |               | 955,730    |      |   |           |  
|Current portion of capital lease and note
 obligations                                                 |  |               | 25,535     |      |   |           |  
|Current portion of deferred rent                                                                       |  |               | 92,040     |      |   | 57,984     |  
|                                                                                                       |  |               |            |      |   |            |  
|Total current liabilities                                                                              |  |               | 29,302,742 |      |   | 32,975,258 |  
|LONG-TERM LIABILITIES                                                                                  |  |               |            |      |   |            |  
|Notes payable to Zunicom, Inc. , less
 current portion                                                 |  |               |           |      |   | 3,656,250  |  
|Settlement expenses, less current portion                                                              |  |               | 985,027    |      |   |           |  
|Capital lease and note obligations, less
 current portion                                              |  |               | 50,606     |      |   |           |  
|Deferred rent, less current portion                                                                    |  |               | 36,103     |      |   | 168,317    |  
|Non-current deferred tax liability                                                                     |  |               | 233,654    |      |   | 230,611    |  
|                                                                                                       |  |               |            |      |   |            |  
|Total long-term liabilities                                                                            |  |               | 1,305,390  |      |   | 4,055,178  |  
|                                                                                                       |  |               |            |      |   |            |  
|TOTAL LIABILITIES                                                                                      |  |               | 30,608,132 |      |   | 37,030,436 |  
|COMMITMENTS AND CONTINGENCIES                                                                          |  |               |            |      |   |            |  
|SHAREHOLDERS
     EQUITY                                                                              |  |               |            |      |   |            |  
|Common stock - $0.01 par value, 50,000,000
 shares authorized, 5,000,000 shares issued and outstanding |  |               | 50,000     |      |   | 50,000     |  
|Additional paid-in capital                                                                             |  |               | 15,951,626 |      |   | 15,529,783 |  
|Retained earnings                                                                                      |  |               | 3,314,887  |      |   | 3,450,076  |  
|Accumulated other comprehensive loss                                                                   |  |               | (285,091   | )    |   | (319,526   | )
|                                                                                                       |  |               |            |      |   |            |  
|Total shareholders equity                                                                             |  |               | 19,031,422 |      |   | 18,710,333 |  
|                                                                                                       |  |               |            |      |   |            |  
|                                                                                                       |  |               |            |      |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                             |  | $             | 49,639,554 |      | $ | 55,740,769 |  
|                                                                                                       |  |               |            |      |   |            |  

The accompanying
notes are an integral part of these financial statements.

F-6

---



UNIVERSAL POWER
GROUP, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                    |  |               |             |      |   |             |  
|------------------------------------------------------------------- |  | ------------- | ----------- | ---- | - | ----------- | -
|                                                                    |  | December
 31, |            
|                                                                    |  |               |            
|                                                                    |  | 2009          |             | 2008 |  
|                                                                    |  |               |             |      |  
|Net sales                                                           |  | $             | 111,170,726 |      | $ | 117,897,644 |  
|Cost of sales                                                       |  |               | 91,797,823  |      |   | 99,599,576  |  
|                                                                    |  |               |             |      |   |             |  
|Gross profit                                                        |  |               | 19,372,903  |      |   | 18,298,068  |  
|Operating expenses                                                  |  |               | 14,714,680  |      |   | 15,063,398  |  
|Settlement expenses                                                 |  |               | 2,529,345   |      |   |            |  
|                                                                    |  |               |             |      |   |             |  
|Total operating expenses                                            |  |               | 17,244,025  |      |   | 15,063,398  |  
|                                                                    |  |               |             |      |   |             |  
|Operating income                                                    |  |               | 2,128,878   |      |   | 3,234,670   |  
|Other income (expense)                                              |  |               |             |      |   |             |  
|Interest expense (including $310,000 and $346,000 to Zunicom, Inc.) |  |               | (953,251    | )    |   | (1,003,195  | )
|Other, net                                                          |  |               | (2,623      | )    |   | 45,638      |  
|                                                                    |  |               |             |      |   |             |  
|Total other expense, net                                            |  |               | (955,874    | )    |   | (957,557    | )
|                                                                    |  |               |             |      |   |             |  
|Income before provision for income taxes                            |  |               | 1,173,004   |      |   | 2,277,113   |  
|Provision for income taxes                                          |  |               | (1,308,193  | )    |   | (1,050,990  | )
|                                                                    |  |               |             |      |   |             |  
|Net income (loss)                                                   |  | $             | (135,189    | )    | $ | 1,226,123   |  
|                                                                    |  |               |             |      |   |             |  
|Net income (loss) per share Basic and diluted                       |  | $             | (0.03       | )    | $ | 0.25        |  
|                                                                    |  |               |             |      |   |             |  
|Weighted average shares outstanding Basic and diluted               |  |               | 5,000,000   |      |   | 5,000,000   |  
|                                                                    |  |               |             |      |   |             |  

The accompanying
notes are integral part of these financial statements.

F-7

---



UNIVERSAL POWER
GROUP, INC. 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

|                                                                                               |  |              |           |                              |   |                    |  |                                        |            |       |   |           |   |   |          |   |   |            |  
|---------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---------------------------- | - | ------------------ |  | -------------------------------------- | ---------- | ----- | - | --------- | - | - | -------- | - | - | ---------- | -
|                                                                                               |  | Common Stock |           | Additional Paid-
 in Capital |   | Retained
 Earnings |  | Accumulated Other
 Comprehensive
 Loss |            | Total |  
|                                                                                               |  |              |           |                              |   |                    | 
|                                                                                               |  | Shares       |           | Amount                       |   |                    |  |                                        |           
|                                                                                               |  |              |           |                              |   |                    |  |                                        |            |       |   |           |  
|Balances at January 1, 2008                                                                    |  |              | 5,000,000 |                              | $ | 50,000             |  | $                                      | 15,381,684 |       | $ | 2,223,953 |   | $ |         |   | $ | 17,655,637 |  
|Stock-based compensation expense                                                               |  |              |          |                              |   |                   |  |                                        | 148,099    |       |   |          |   |   |         |   |   | 148,099    |  
|Unrealized loss on hedging instrument, net of income taxes of $164,605                         |  |              |          |                              |   |                   |  |                                        |           |       |   |           |   |   | (319,526 | ) |   | (319,526   | )
|Net income                                                                                     |  |              |          |                              |   |                   |  |                                        |           |       |   | 1,226,123 |   |   |         |   |   | 1,226,123  |  
|                                                                                               |  |              |           |                              |   |                    |  |                                        |            |       |   |           |   |   |          |   |   |            |  
|Balances at December 31, 2008                                                                  |  |              | 5,000,000 |                              |   | 50,000             |  |                                        | 15,529,783 |       |   | 3,450,076 |   |   | (319,526 | ) |   | 18,710,333 |  
|Stock-based compensation expense                                                               |  |              |          |                              |   |                   |  |                                        | 36,969     |       |   |          |   |   |         |   |   | 36,969     |  
|Gain on settlement of Zunicom, Inc. notes payable, net of income taxes
 of $102,558            |  |              |          |                              |   |                   |  |                                        | 199,083    |       |   |          |   |   |         |   |   | 199,083    |  
|Cumulative tax effect of tax adjustment recorded as a capital
 contribution from Zunicom, Inc. |  |              |          |                              |   |                   |  |                                        | 185,791    |       |   |          |   |   |         |   |   | 185,791    |  
|Net change in fair value of hedging instrument, net of income taxes of
 $146,868               |  |              |          |                              |   |                   |  |                                        |           |       |   |          |   |   | 34,435   |   |   | 34,435     |  
|Net loss                                                                                       |  |              |          |                              |   |                   |  |                                        |           |       |   | (135,189  | ) |   |         |   |   | (135,189   | )
|                                                                                               |  |              |           |                              |   |                    |  |                                        |            |       |   |           |   |   |          |   |   |            |  
|Balances at December 31, 2009                                                                  |  |              | 5,000,000 |                              | $ | 50,000             |  | $                                      | 15,951,626 |       | $ | 3,314,887 |   | $ | (285,091 | ) | $ | 19,031,422 |  
|                                                                                               |  |              |           |                              |   |                    |  |                                        |            |       |   |           |   |   |          |   |   |            |  

The accompanying notes are an integral part
of these financial statements.

F-8

---



UNIVERSAL POWER
GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                 |  |               |            |      |   |            |  
|------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | ---- | - | ---------- | -
|                                                                                                 |  | December
 31, |           
|                                                                                                 |  |               |           
|                                                                                                 |  | 2009          |            | 2008 |  
|                                                                                                 |  |               |            |      |  
|CASH FLOWS
 FROM OPERATING ACTIVITIES                                                            |  |               |            |      |   |            |  
|Net income
 (loss)                                                                               |  | $             | (135,189   | )    | $ | 1,226,123  |  
|Adjustments
 to reconcile net income (loss) to net cash provided by operating activities:        |  |               |            |      |   |            |  
|Depreciation and amortization                                                                    |  |               | 802,454    |      |   | 547,256    |  
|Provision for bad debts                                                                          |  |               | 415,808    |      |   | 1,143,213  |  
|Provision for obsolete inventory                                                                 |  |               | 599,145    |      |   | 180,000    |  
|Deferred income taxes                                                                            |  |               | (196,857   | )    |   | (202,298   | )
|Loss on disposal of property and equipment                                                       |  |               | 2,623      |      |   | 6,064      |  
|Stock-based compensation                                                                         |  |               | 36,969     |      |   | 148,099    |  
|Changes in
 operating assets and liabilities:                                                    |  |               |            |      |   |            |  
|Accounts receivable  trade                                                                      |  |               | 592,626    |      |   | (973,062   | )
|Accounts receivable  other                                                                      |  |               | 36,742     |      |   | 98,959     |  
|Inventories                                                                                      |  |               | 5,945,535  |      |   | (5,139,123 | )
|Income tax receivable/payable                                                                    |  |               | 867,328    |      |   | (193,386   | )
|Prepaid expenses and other current assets                                                        |  |               | (183,624   | )    |   | 379        |  
|Other assets                                                                                     |  |               | (60,716    | )    |   | (42,920    | )
|Accounts payable                                                                                 |  |               | (4,448,443 | )    |   | 4,161,418  |  
|Accrued liabilities                                                                              |  |               | (222,367   | )    |   | (337,148   | )
|Settlement expenses                                                                              |  |               | 1,940,758  |      |   |           |  
|Deferred rent                                                                                    |  |               | (98,159    | )    |   | (18,921    | )
|                                                                                                 |  |               |            |      |   |            |  
|Net cash
 provided by operating activities                                                       |  |               | 5,894,633  |      |   | 604,653    |  
|                                                                                                 |  |               |            |      |   |            |  
|CASH FLOWS
 FROM INVESTING ACTIVITIES                                                            |  |               |            |      |   |            |  
|Purchase of property and equipment                                                               |  |               | (56,761    | )    |   | (851,766   | )
|Proceeds from sale of equipment                                                                  |  |               | 1,000      |      |   | 1,134      |  
|Escrow deposit                                                                                   |  |               | 900,000    |      |   | (900,000   | )
|Net cash paid in Monarch acquisition                                                             |  |               | (892,000   | )    |   |           |  
|                                                                                                 |  |               |            |      |   |            |  
|Net cash
 used in investing activities                                                           |  |               | (47,761    | )    |   | (1,750,632 | )
|                                                                                                 |  |               |            |      |   |            |  
|CASH FLOWS
 FROM FINANCING ACTIVITIES                                                            |  |               |            |      |   |            |  
|Net activity on line of credit                                                                   |  |               | 822,530    |      |   | 1,518,744  |  
|Payments on capital lease and note
 obligations                                                  |  |               | (16,454    | )    |   | (6,609     | )
|Payment on notes to Zunicom, Inc.                                                                |  |               | (4,919,667 | )    |   | (731,250   | )
|                                                                                                 |  |               |            |      |   |            |  
|Net cash
 provided by (used in) financing activities                                             |  |               | (4,113,591 | )    |   | 780,885    |  
|                                                                                                 |  |               |            |      |   |            |  
|NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                                      |  |               | 1,733,281  |      |   | (365,094   | )
|Cash and cash equivalents at beginning of
 year                                                  |  |               | 326,194    |      |   | 691,288    |  
|                                                                                                 |  |               |            |      |   |            |  
|Cash and cash equivalents at end of year                                                         |  | $             | 2,059,475  |      | $ | 326,194    |  
|                                                                                                 |  |               |            |      |   |            |  
|                                                                                                 |  |               |            |      |   |            |  
|SUPPLEMENTAL DISCLOSURES                                                                         |  |               |            |      |   |            |  
|Income taxes paid                                                                                |  | $             | 871,052    |      | $ | 1,387,650  |  
|                                                                                                 |  |               |            |      |   |            |  
|Interest paid                                                                                    |  | $             | 972,784    |      | $ | 1,003,195  |  
|                                                                                                 |  |               |            |      |   |            |  
|                                                                                                 |  |               |            |      |   |            |  
|NONCASH FINANCING AND INVESTING ACTIVITIES:                                                      |  |               |            |      |   |            |  
|Property and equipment acquired through
 capital leases or notes payable                         |  | $             | 86,066     |      | $ |           |  
|                                                                                                 |  |               |            |      |   |            |  
|Cumulative tax effect of Unicap adjustment
 treated as a capital contribution from Zunicom, Inc. |  | $             | 185,791    |      | $ |           |  
|                                                                                                 |  |               |            |      |   |            |  
|Gain on settlement with Zunicom, Inc.                                                            |  | $             | 301,641    |      | $ |           |  
|                                                                                                 |  |               |            |      |   |            |  

The accompanying notes are an integral part
of these financial statements.

F-9

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE A. ORGANIZATION AND BASIS OF
PRESENTATION

Organization

Universal
Power Group, Inc. (UPG or the Company), a Texas corporation, is a
distributor and supplier of batteries and related power accessories to a
diverse range of industries, and a provider of third-party fulfillment and
logistics services and value-added solutions. The Companys primary logistics
center is located in Carrollton, Texas and regional logistic centers are located
in Oklahoma City, Oklahoma, Las Vegas, Nevada and Columbus, Georgia. The
Companys customers are primarily located in the United States. A small portion
of the Companys sales is to customers located in the United Kingdom,
Australia, Ireland, China and Canada.

Until
December 20, 2006, the Company was a wholly owned consolidated subsidiary of
Zunicom, Inc. (Zunicom), a Texas corporation, whose stock is traded on the
OTC Bulletin Board under the symbol ZNCM.OB. On December 20, 2006, the U.S.
Securities and Exchange Commission declared effective a registration statement
filed by the Company registering the sale of 2,000,000 shares of its common
stock by the Company and 1,000,000 of the Companys common stock owned by
Zunicom (the IPO). As a result of the IPO, Zunicoms interest in the Company
was reduced to 40%. Zunicom no longer owns a controlling interest in UPG;
however, as the largest shareholder, Zunicom does have significant influence
over UPG.

On
January 8, 2009, the Company formed a limited liability company under the name
Monarch Outdoor Adventures LLC d/b/a Monarch Hunting (Monarch), through which
it acquired all of the tangible and intangible assets of a business for
approximately $892,000. Monarch is a manufacturer and retailer of high-quality
hunting products including battery and solar powered deer feeders, hunting
blinds, stands and accessories. Monarch is located in Arlington, Texas and has
customers throughout the United States.

Consolidation

The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Cash and Cash Equivalents

The
Company considers all unrestricted highly liquid investments with original
maturities of three months or less to be cash and cash equivalents.

Restricted Cash

The
Company placed $900,000 cash in an escrow account, which it reported as
restricted cash on its balance sheet at December 31, 2008, pursuant to the
terms of an asset purchase and related escrow agreement. The escrowed funds
were used to purchase all of the tangible and intangible assets of Monarch.

Accounts Receivable

Trade
accounts receivable are stated at the amount the Company expects to collect.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments.
Management considers the following factors when determining the collectability
of specific customer accounts: customer credit-worthiness, past transaction
history with the customer, current economic industry trends, and changes in
customer payment terms. If the financial condition of the Companys customers
were to deteriorate, adversely affecting their ability to make payments,
additional allowances would be required. Based on managements assessment, the
Company provides for estimated uncollectible amounts through a charge to
earnings and a credit to a valuation allowance. Balances that remain
outstanding after the Company has used reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to
accounts receivable.

Inventories

Inventories
consist of finished goods, primarily of batteries and security products related
to the Companys third party fulfillment services and materials used in the
assembly of batteries into packs. All items are stated at the lower of cost,
determined using the average cost method by specific item, or market. The
Company performs periodic evaluations, based upon business trends, to
specifically identify obsolete, slow moving and non-salable inventory.

The Company
is a significant supplier for Broadview Security, Inc. (Broadview Security),
formerly Brinks Home Security, Inc. In order to meet its obligations to
Broadview Security, the Company maintains certain required inventory levels at
all times. Inventory held related to the Companys relationship with Broadview
Security, primarily security products, totaled approximately $13.2 million at
both December 31, 2009 and 2008. Upon expiration of the third-party logistics
agreement with Broadview Security or a termination of the agreement by
Broadview Security, Broadview Security is obligated to purchase from the
Company any and all remaining inventory held by the Company or in transit from
suppliers purchased by the Company to fulfill its obligations to Broadview.

Property and Equipment

Property
and equipment are carried at cost less applicable depreciation and
amortization. Depreciation and amortization of property and equipment is
provided for using the straight-line method over the estimated useful lives of

F-10

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

the assets
ranging from three to ten years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the related asset. Equipment leased under capital leases is amortized
over the service life of the related asset or the term of the lease, whichever
is shorter.

Income Taxes

The
Company utilizes the asset and liability approach to accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense or benefit is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets and liabilities.

Long-Lived Assets

Long-lived
assets are reviewed when events or changes in circumstances indicate that their
carrying value may not be recoverable. If an impairment indicator exists, the
Company compares the future undiscounted cash flows of such assets to their
carrying value. If the carrying value exceeds the future undiscounted cash
flows, the assets are written down to their fair value using discounted cash
flows. There were no indicators of impairment during the years ended December
31, 2009 and 2008.

Deferred Rent

The
Companys operating lease for its primary office and warehouse space contains a
free rent period and contains predetermined fixed increases of the minimum
rental rate during the initial lease term. For this lease, the Company
recognizes rental expense on a straight-line basis over the minimum lease term
and records the difference between the amounts charged to expense and the rent
paid as deferred rent. In addition, the landlord provided certain allowances
for leasehold improvements on this office and warehouse space which have been
recorded as deferred rent and leasehold improvements. The deferred rent will be
amortized as an offset to rent expense over the remaining term of the related
lease.

Revenue Recognition

The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed and determinable and collectability
is reasonably assured.

The
Company is a distributor who purchases both finished goods and components from
domestic and international suppliers. The Company adds value to products and
components by packaging them in customer specified kits or tailor made units
that are convenient for the customer to order and ship. Additionally, the
Company has several customers that require specific battery pack assemblies.
The Company obtains batteries and components and reconfigures finished goods
based upon customer specifications. The Company refers to this process as
battery pack assemblies. The Company recognizes sales of finished goods at the
time the customer takes title to the product.

The
Company sells products to several customers in bulk quantities. The Company
obtains the order from the customer and arranges for the delivery of the
product directly from our vendor to the customer to reduce freight costs and wear
and tear on the product from excessive handling. The Company refers to these
transactions as drop shipments because the product is shipped directly from
its vendor to its customer. The Company also has an inventory fulfillment
agreement with Broadview Security. The Company purchases, handles, assembles
and delivers security and installation components to Broadview Security and to
its authorized dealers. Revenues from drop shipment transactions and pursuant
to the Broadview Security agreement, are recognized on a gross basis at the
time the customer takes title to the product, based on an analysis of the
criteria defined for gross revenue reporting. Specifically, (i) the Company is
the primary obligor; (ii) the Company has general and physical loss inventory
risk; (iii) the Company has credit risk; (iv) in most cases, the Company has
discretion in supplier selection and product specifications; and (v) the
Company has reasonable latitude within economic constraints to negotiate prices
and terms with its customers.

Post Shipment Obligations

The
Company offers its customers a limited warranty for replacement of finished
goods that do not function properly. Generally, the limited warranty period is
for one year. The most common types of warranty claims are batteries that leak
or batteries that do not provide the voltage they are intended to supply. The
Companys written warranty is limited to the replacement of the product
purchased and does not cover the product the battery is intended to power. The
Companys replacement rate is insignificant, and is therefore recorded when the
warranty expense is incurred. If the Company determines that a shipment of
product had a manufacturing defect, the Company has recourse with the
manufacturer to recover the replacement costs incurred. The costs of isolated
or individual instances of defects are borne by the Company. At December 31,
2009 and 2008, the Company has a warranty reserve of approximately $10,000.

Advertising costs

Advertising
costs are charged to operations when incurred. Advertising expense totaled
approximately $376,000 and $281,000 for the years ended December 31, 2009 and
2008, respectively.

F-11

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL
STATEMENTS

NOTE B. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Shipping and Handling Costs

Shipping
and handling costs incurred for the receipt of inventory are charged to cost of
sales in the accompanying statements of operations.

Earnings (loss) Per Share

Basic
earnings (loss) per common share is computed by dividing net income (loss)
applicable to common shareholders by the weighted average number of common
shares outstanding during each year.

Diluted
earnings per common share is computed by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding for
the year. The Companys common stock equivalents include all dilutive common
stock issuable upon exercise of outstanding stock options and warrants.

For
the year ended December 31, 2009 the dilutive effects of 1,391,842 stock
options and 300,000 warrants are excluded from the calculation of diluted net
loss per share as they are antidilutive. For the year ended December 31, 2008
the dilutive effects of 1,336,114 stock options 300,000 warrants are excluded
from the calculation of diluted net income per share as they are antidilutive.

Fair Value of Financial Instruments

The
Company estimates the fair value of its assets and liabilities, which qualify
as financial instruments, and includes this additional information in the notes
to the financial statements when the fair value is different from carrying
value of these financial instruments. The estimated fair value of cash
equivalents, accounts receivable, prepaid expenses, other current assets, the
line-of-credit, accounts payable, and accrued liabilities approximate their
carrying amounts due to the relatively short maturity of these instruments. The
estimated fair value of capital lease and note obligations approximates the
carrying amounts since they bear market rates of interest. None of these
instruments are held for trading purposes. Additionally, the Company had a cash
flow hedge related to the line of credit as of December 31, 2008 which was
terminated during 2009. See disclosures regarding the fair value of the cash
flow hedge in Note I. Fair Value Measurements.

Stock-Based Compensation and Restricted Stock

Stock-based
compensation expense recognized in the statements of operations during the
years ended December 31, 2009 and 2008 includes compensation expense for fully
vested stock options and the amortization of partially vested stock-based
payment awards. Forfeitures are estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.

Accounting for Non-Employee Stock Options and
Warrants

Options
and warrants issued to non-employees are measured at fair value at the
measurement date and recorded to expense over the period earned.

Accounting for Derivative Activities

During
2008, the Company designated an interest rate swap as a cash flow hedge.
Accordingly the swap is recorded at fair value on the Companys balance sheet
as assets and liabilities with any changes in fair value recorded in
accumulated other comprehensive income (loss), net of income tax effects.
During the fourth quarter of 2009, the Company refinanced the Compass Bank
credit facility (as discussed in Note D) and in conjunction with this
refinancing also terminated the interest rate swap on December 16, 2009.

Taxes Collected from Customers and Remitted
to Governmental Authorities

Taxes
collected from customers and remitted to governmental authorities are presented
in the accompanying consolidated financial statements of operations on a net
basis.

Use of Estimates and Assumptions

The
Company uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.

Segment and Geographic Information

The
accounting standard for segment reporting requires enterprises to report
financial information and descriptive information about reportable operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company evaluated the
accounting standard for segment reporting and determined that the Company
operates in only one segment.

F-12

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

Effective
January 1, 2009, the Company adopted a newly issued standard of accounting for
business combinations. This standard establishes requirements for an acquirer
to record the assets acquired, liabilities assumed, and any related
non-controlling interests related to the acquisition of a controlled
subsidiary, measured at fair value, as of the acquisition date. The adoption of
this standard has not had a material impact on the Companys financial
statements, but may have a material impact on the Companys financial position,
operations and cash flows if the Company completes significant acquisitions in
the future.

Reclassifications

Certain
2008 amounts have been reclassified to conform to 2009 presentation.

NOTE C. INVENTORIES

Inventories
at December 31, 2009 and 2008 consist of the following:

|                                 |  |              |            |      |   |            |  
|-------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                 |  | December 31, |           
|                                 |  |              |           
|                                 |  | 2009         |            | 2008 |  
|                                 |  |              |            |      |  
|Battery and
 related inventory   |  | $            | 14,684,429 |      | $ | 21,256,255 |  
|Security
 related inventory      |  |              | 14,279,758 |      |   | 13,178,947 |  
|Electronic
 components inventory |  |              | 2,435,877  |      |   | 3,227,648  |  
|Hunting
 related inventory       |  |              | 333,820    |      |   |           |  
|Inventory
 obsolescence reserve  |  |              | (756,671   | )    |   | (358,350   | )
|                                 |  |              |            |      |   |            |  
|                                 |  | $            | 30,977,213 |      | $ | 37,304,500 |  
|                                 |  |              |            |      |   |            |  

NOTE D. LINE OF CREDIT

On
December 16, 2009, the Company entered into a Credit Agreement with Wells Fargo
for a $30 million revolving credit facility. Maximum borrowing under the
facility may be increased to $40 million if the Company satisfies certain
pre-defined conditions. Borrowings under the facility are secured by a first
priority lien on all of the Companys assets. Borrowing availability under the
facility depends on the level of the Companys accounts receivable and
inventory. For each borrowing, the Company has the option to choose a Base
Rate or Eurodollar loan. Interest on Base Rate loans is payable quarterly
and interest on Eurodollar loans is generally payable monthly or quarterly as
selected by the Company. The annual rate of interest payable on Base Rate and
Eurodollar loans fluctuate depending upon a number of factors. At December 31,
2009, the interest rate was 2.75%. The Agreement terminates on July 30, 2013.

The
credit agreement contains customary negative covenants restricting the
Companys ability to take certain actions without Wells Fargos consent,
including incurring additional indebtedness, transferring or encumbering
assets, paying dividends or making certain other payments, and acquiring other
businesses. If there is an event of default, including failure to pay,
bankruptcy, breach of covenants and breach of representations and warranties,
all amounts outstanding under the credit facility will become immediately due
and payable. The lines availability is based on a borrowing formula, which
allows for borrowings equal to 80% of the Companys eligible accounts
receivable and a percentage of eligible inventory. In addition, the Company
must maintain certain financial covenants on a quarterly basis (1) leverage
ratio (a) 2.5 to 1.0 as of any date determination on or before December 31,
2010 and (b) 2.0 as of any date of determination after January 1, 2011; (2)
fixed charge coverage ratio (a) 1.5 to 1.0 minimum fixed charges from December
16, 2009 through December 31, 2011 and (b) 1.75 to 1.0 January 1, 2012 through
revolving termination date; (3) Consolidated Net Income for each fiscal quarter
ended can not be less than zero ($0.00) for any two (2) consecutive fiscal
quarters beginning January 1, 2010; (4) Capital Expenditures can not exceed
$750,000 during any fiscal year commencing on January 1, 2010.

Upon
closing of the Wells Fargo facility, the Company immediately borrowed $14.3
million; of which $10.4 million was used to repay the amounts due to Compass
Bank under the Companys previous credit facility, approximately $3.8 million
was used to settle the liability evidenced by the notes held by Zunicom (see
Note E). At the settlement date, those notes had an aggregate outstanding
principal amount of $4.0 million plus accrued and unpaid interest of $50,000.
As Zunicom is a related party, the discount on the settlement of those notes
resulted in the gain being recorded as additional paid-in capital.

At
December 31, 2009, approximately $15.2 million was outstanding under the line
of credit and approximately $5.7 million remained available for borrowings
under the line of credit based on the borrowing formula.

The
Company had a $30 million line of credit with Compass Bank that was paid in
full on December 16, 2009. The facility bore interest at the LIBOR Index Rate
plus a sliding range from 1.25% to 2.50% based on quarterly covenant
performance. The lines availability was based on a borrowing formula, which
allowed for borrowings equal to 85% of the Companys eligible accounts
receivable and a percentage of eligible inventory.

Interest Rate Swap

As
a result of the refinancing of the line of credit, the interest swap agreement
entered into with Compass Bank in June, 2008 was terminated. The swap agreement
had a fixed rate of 5.85% on a notional amount of $6.0 million through its
maturity date of July 5, 2012. The interest rate swap was accounted for as an
effective cash flow hedge and the unrealized gains or losses related to the
change in fair value were recorded in accumulated other comprehensive income
(loss). As a result of the termination of the interest swap agreement, the
Companys discontinued hedge accounting on December 16, 2009. The
de-designation of cash flow hedges requires that the net derivative gain or
loss related to the

F-13

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL STATEMENTS

NOTE D. LINE OF CREDIT (CONTINUED)

discontinued cash flow hedge
should continue to be reported in accumulated other comprehensive income
(loss), unless it is probable that the forecasted transaction will not occur by
the end of the originally specified time period or within an additional
two-month period of time thereafter. The Company continues to incur interest
expense commensurate with its original, hedged risk, and there is currently no
indication that interest payments on the hedged transaction would not continue.
Therefore, the realized losses related to this derivative will not be
recognized immediately and will remain in accumulated other comprehensive
income (loss). These losses are reclassified into earnings over the contractual
terms of the original swap agreement starting as of December 16, 2009.

NOTE E. NOTES PAYABLE TO ZUNICOM, INC.

The
Company had two notes payable, with an aggregate original principal amount of
$5.85 million, issued to its former parent, Zunicom. The notes were issued in
December 2006 immediately before the IPO. One note, in the original principal
amount of $3 million, evidenced a final dividend declared by the Company. The
second note, in the original principal amount of $2.85 million, represented the
value of Zunicoms net operating losses that the Company used to offset its
taxable income in the years prior to the IPO. The notes were unsecured
obligations, maturing June 20, 2012. Interest on the principal amount of the
notes accrued at the rate of 6% per annum, payable quarterly, in arrears. The
principal amount of the notes was to be repaid in 16 equal quarterly
installments of $365,625 beginning in September 2008. The Company paid $3.72
million to pay off the $4.022 million note balances on December 16, 2009 with
proceeds from the Wells Fargo credit facility. The gain on extinguishment of
debt (net of income taxes of $102,558) totaling $199,083 was recorded as a
capital contribution.

During
the years ended December 31, 2009 and 2008 the Company paid interest totaling
$310,000 and $346,000, respectively, to Zunicom with respect to these notes.

NOTE F  LONG TERM
DEBT

Long-term debt
at December 31, 2009 and 2008 consists of the following:

|                                                                                                                                                                                                                                        |  |              |         |      |   |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | - | 
|                                                                                                                                                                                                                                        |  | December 31, |        
|                                                                                                                                                                                                                                        |  |              |        
|                                                                                                                                                                                                                                        |  | 2009         |         | 2008 |  
|                                                                                                                                                                                                                                        |  |              |         |      |  
|Various capital lease and note obligations
 payable in monthly installments through April 2013. The monthly payments,
 including interest, range from $160 to $634. These obligations are secured by
 the related underlying equipment. |  | $            | 76,141  |      | $ |  | 
|Less current portion                                                                                                                                                                                                                    |  |              | (25,535 | )    |   |  | 
|                                                                                                                                                                                                                                        |  |              |         |      |   |   | 
|Long-term portion of capital lease and note
 obligations                                                                                                                                                                                |  | $            | 50,606  |      | $ |  | 
|                                                                                                                                                                                                                                        |  |              |         |      |   |   | 

NOTE G. INCOME TAXES

The
Company files income tax returns in the U.S. federal jurisdiction and various
states. With a few exceptions, the Company is no longer subject to U.S. state
and local income tax examinations by tax authorities for years before 2006. The
Internal Revenue Service (IRS) commenced an examination of the Companys U.S.
income tax returns for 2007 and 2008 during 2009 that is anticipated to be
completed by the end of 2010. As of December 31, 2009, the IRS has proposed
certain significant adjustments to the Companys inventory capitalization, bad
debts and depreciation positions. Management is currently evaluating those
proposed adjustments to determine if it agrees. Management believes that appropriate
provisions for all outstanding issues have been recorded for all open years.

Included
in the tax balances at December 31, 2009, are approximately $565,000 of tax
positions for which the ultimate deductibility is highly certain but for which
there is uncertainty about the timing of such deductibility. Because of the
impact of deferred income tax accounting, other than interest and penalties,
the disallowance of the shorter deductibility period would not affect the
annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period.

The
Company has recorded a deferred tax asset in the amount of $185,791 related to
the tax effect of a cumulative inventory capitalization adjustment. This adjustment
was recorded as a capital contribution from Zunicom, Inc. as the resulting
deferred tax asset recorded for the this estimated adjustment relates to tax
years in which the Company filed a consolidated tax return with its former
parent.

During
the years ended December 31, 2009, the Company recognized approximately
$130,000 in interest and penalties which was recorded into operating expenses.
This amount is accrued as a currently liability in the accompanying balance
sheet as of December 31, 2009.

F-14

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE G. INCOME TAXES
(CONTINUED)

Deferred
tax assets and liabilities at December 31, 2009 and 2008 consist of the
following:

|                                   |  |              |           |      |   |           |  
|---------------------------------- |  | ------------ | --------- | ---- | - | --------- | -
|                                   |  | December 31, |          
|                                   |  |              |          
|                                   |  | 2009         |           | 2008 |  
|                                   |  |              |           |      |  
|Deferred tax
 assets:              |  |              |           |      |   |           |  
|Inventory obsolescence             |  | $            | 257,268   |      | $ | 121,839   |  
|UNICAP                             |  |              | 641,907   |      |   |          |  
|Amortization of intangibles        |  |              | 38,751    |      |   |          |  
|Allowance for doubtful accounts    |  |              | 45,595    |      |   | 388,692   |  
|Accrued liabilities                |  |              | 59,999    |      |   |          |  
|Interest rate swap                 |  |              | 146,866   |      |   | 164,605   |  
|Settlement compensation            |  |              | 658,431   |      |   | 49,975    |  
|Stock-based compensation           |  |              | 842,632   |      |   | 830,062   |  
|                                   |  |              |           |      |   |           |  
|Total deferred tax assets          |  |              | 2,691,449 |      |   | 1,555,173 |  
|Valuation allowance                |  |              | (768,324  | )    |   |          |  
|                                   |  |              |           |      |   |           |  
|Net deferred tax assets            |  | $            | 1,923,125 |      | $ | 1,555,173 |  
|                                   |  |              |           |      |   |           |  
|Non-current deferred tax liability |  | $            | (233,654  | )    | $ | (230,611  | )
|                                   |  |              |           |      |   |           |  

Net
deferred tax assets recorded in the consolidated balance sheets at December 31,
2009 and 2008:

|                         |  |      |           |      |   |           | 
|------------------------ |  | ---- | --------- | ---- | - | --------- | 
|                         |  | 2009 |           | 2008 |  
|                         |  |      |           |      |  
|Current                  |  | $    | 1,151,635 |      | $ | 1,555,173 | 
|Non-current              |  |      | 771,490   |      |   |          | 
|                         |  |      |           |      |   |           | 
|Net deferred
 tax assets |  | $    | 1,923,125 |      | $ | 1,555,173 | 
|                         |  |      |           |      |   |           | 

The
non-current deferred tax liability arises from the different useful lives and
depreciation methods for depreciating assets for income tax purposes and
financial reporting purposes.

The
Companys provision for income taxes for the years ended December 31, 2009 and
2008 is comprised as follows:

|                                       |  |      |           |      |   |           |  
|-------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                       |  | 2009 |           | 2008 |  
|                                       |  |      |           |      |  
|Current
 federal income tax expense    |  | $    | 1,442,621 |      | $ | 1,051,619 |  
|Current
 state income tax expense      |  |      | 62,429    |      |   | 201,669   |  
|Deferred
 income tax expense (benefit) |  |      | (196,857  | )    |   | (202,298  | )
|                                       |  |      |           |      |   |           |  
|Provision
 for income taxes            |  | $    | 1,308,193 |      | $ | 1,050,990 |  
|                                       |  |      |           |      |   |           |  

The
Companys income tax expense for the years ended December 31, 2009 and 2008
differed from the statutory federal rate of 34 percent as follows:

|                                                      |  |      |           |      |   |           | 
|----------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                                      |  | 2009 |           | 2008 |  
|                                                      |  |      |           |      |  
|Statutory
 rate applied to income before income taxes |  | $    | 398,821   |      | $ | 774,221   | 
|Amounts not
 deductible for income tax purposes       |  |      | 96,923    |      |   | 91,690    | 
|State income
 taxes, net of federal income tax effect |  |      | 62,429    |      |   | 53,316    | 
|Change in
 valuation allowance                        |  |      | 768,324   |      |   |          | 
|Change in
 prior year state income tax estimate       |  |      |          |      |   | 120,887   | 
|Other                                                 |  |      | (18,304   | )    |   | 10,876    | 
|                                                      |  |      |           |      |   |           | 
|Income tax
 expense                                   |  | $    | 1,308,193 |      | $ | 1,050,990 | 
|                                                      |  |      |           |      |   |           | 

In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the deferred tax asset
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.

At
December 31, 2009, management could not determine based on a weighing of
objective evidence that it is more likely than not that all of the recorded
deferred tax assets will be realized. As a result, as of December 31, 2009, a
valuation allowance totaling $768,324 for a portion of the recorded deferred tax
assets has been established. This valuation allowance is related to the
deferred tax asset for stock-based compensation.

NOTE H. STOCK-BASED COMPENSATION

Stock
options

2006
Equity Incentive Compensation Plan

In
December, 2006, the Company adopted, and its shareholders approved and
ratified, the 2006 Stock Option Plan (the Plan), the purpose of which is to
attract and retain the personnel necessary for the Companys success. The Plan
gives the board of directors (the Board) the ability to provide incentives
through grants of stock options, restricted stock awards and other types of
equity-based incentive compensation awards to the Companys key employees,
consultants and directors (other than directors that are not compensated for their
time by the Company or receive only a directors fee). The Compensation
Committee administers the Plan. Except as may otherwise be provided in the
Plan, the Compensation Committee has complete authority and discretion to
determine the terms of awards.

F-15

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL STATEMENTS

NOTE H. STOCK-BASED
COMPENSATION (CONTINUED)

The
Plan authorizes the granting of options, including options that satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended.
The Compensation Committee will determine the period of time during which a
stock option may be exercised, as well as any vesting schedule, except that no
stock option may be exercised more than 10 years after its date of grant. The exercise
price for shares of the Companys common stock covered by an incentive stock
option cannot be less than the fair market value of the Companys common stock
on the date of grant; provided that that exercise of an incentive stock option
granted to an eligible employee that owns more than 10% of the voting power of
all classes of the Companys capital stock must be at least 110% of the fair
market value of the Companys common stock on the date of grant.

The
Plan also authorizes the grant of restricted stock awards on terms and
conditions established by the Compensation Committee. The terms and conditions
will include the designation of a restriction period during which the shares
are not transferable and are subject to forfeiture.

The
Board may terminate the Plan without shareholder approval or ratification at
any time. Unless sooner terminated, the Plan will terminate in December 2016.
The Board may also amend the Plan, provided that no amendment will be effective
without approval of the Companys shareholders if shareholder approval is
required to satisfy any applicable statutory or regulatory requirements.

In June,
2007 the Companys shareholders approved an additional 250,000 common shares
issuable under the Plan. In August, 2008 the Companys shareholders approved an
additional 500,000 common shares issuable under the Plan. A total of 2,000,000
shares of the Companys common stock, representing 40% of the total number of
shares issued and outstanding at December 31, 2009, are reserved for issuance
under the Plan. If an award expires or terminates unexercised or is forfeited
to the Company, or shares covered by an award are used to fully or partially
pay the exercise price of an option granted under the Plan or shares are retained
by the Company to satisfy tax withholding obligations in connection with an
option exercise or the vesting of another award, those shares will become
available for further awards under the Plan.

At
December 31, 2009, common shares reserved for future issuance include 2,000,000
shares issuable under the Plan, as well as 20,000 shares issuable outside the
Plan and 300,000 shares issuable upon exercise of outstanding warrants
described below. At December 31, 2009 there are 1,371,842 options outstanding
under the Plan and 628,158 options are available for future grants.

Valuation
Assumptions

The
fair values of option awards granted under the Plan were estimated at the grant
date using a Black-Scholes option pricing model with the following assumptions
for the fiscal years ended December 31, 2009 and 2008:

|                                        |  |      |       |      |   |       |  
|--------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                        |  | 2009 |       | 2008 |  
|                                        |  |      |       |      |  
|Weighted
 average assumptions used:     |  |      |       |      |   |       |  
|Expected dividend yield                 |  |      | 0.00  | %    |   | 0.00  | %
|Risk-free interest rate                 |  |      | 3.87  | %    |   | 3.87  | %
|Expected volatility                     |  |      | 25.00 | %    |   | 17.00 | %
|Expected life (in years)                |  |      | 5     |      |   | 5     |  
|Weighted
 average grant date fair value |  | $    | 0.59  |      | $ | 0.92  |  

The
Company has elected to use the calculated value method to estimate expected
volatility in 2009 and 2008. As the stock of the Company became publicly traded
in December, 2006 and has traded for a relatively short period time, it is not
practicable for management to estimate the expected volatility of share price,
or a peer company price because there is not sufficient historical information
about volatility. The Company used historical volatility of the Dow Jones Small
Cap Non-Durable Household Companies, which is representative of the Companys
size and industry. The Company has used the historical closing values of that index
to estimate volatility which was calculated at 25% and 17% for 2009 and 2008,
respectively. The expected term considers the contractual term of the option as
well as expectations for exercise and forfeiture behavior. The risk-free
interest rate is based on the rates in effect on the grant date for U.S.
Treasury instruments with maturities matching the relevant expected term of the
award.

Stock
Incentive Plan Summary

Stock
option activity under the Plan for the years ended December 31, 2009 and 2008
was as follows:

|                                          |  |                   |           |                                   |   |      | 
|----------------------------------------- |  | ----------------- | --------- | --------------------------------- | - | ---- | 
|                                          |  | Number of
 Shares |           | Weighted
 Average
 Exercise Price |  
|                                          |  |                   |           |                                   |  
|Options
 outstanding at January 1, 2008   |  |                   | 1,289,364 |                                   | $ | 6.92 | 
|Granted                                   |  |                   | 56,886    |                                   | $ | 3.85 | 
|Exercised                                 |  |                   |          |                                   | $ |     | 
|Canceled, forfeited or expired            |  |                   | (10,136   | )                                 | $ | 7.00 | 
|                                          |  |                   |           |                                   |   |      | 
|Options
 outstanding at December 31, 2008 |  |                   | 1,336,114 |                                   | $ | 6.79 | 
|Granted                                   |  |                   | 40,000    |                                   | $ | 1.97 | 
|Exercised                                 |  |                   |          |                                   | $ |     | 
|Canceled, forfeited or expired            |  |                   | (4,272    | )                                 | $ | 7.00 | 
|                                          |  |                   |           |                                   |   |      | 
|Options
 outstanding at December 31, 2009 |  |                   | 1,371,842 |                                   | $ | 6.65 | 
|                                          |  |                   |           |                                   |   |      | 

F-16

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL STATEMENTS

NOTE H. STOCK-BASED
COMPENSATION (CONTINUED)

Stock
Options Outstanding and Exercisable

The
following summarizes stock options outstanding under our 2006 Stock Option Plan
at December 31, 2009:

|                                     |              |                                 |  |                                                           |  |  |      | 
|------------------------------------ | ------------ | ------------------------------- |  | --------------------------------------------------------- |  |  | ---- | 
|Options
 Outstanding and Exercisable |             
|                                     |             
|Exercise Prices                      |              | Number of
 Options
 Outstanding |  | Weighted Average
 Remaining
 Contractual Life
 (in years) | 
|                                     |              |                                 |  |                                                           | 
|$                                    | 1.97         |                                 |  | 40,000                                                    |  |  | 9.55 | 
|$                                    | 3.81         |                                 |  | 56,250                                                    |  |  | 8.62 | 
|$                                    | 4.48         |                                 |  | 40,000                                                    |  |  | 6.97 | 
|$                                    | 7.00         |                                 |  | 1,235,592                                                 |  |  | 6.97 | 
|                                     |              |                                 |  |                                                           |  |  |      | 
|$                                    | 1.97 - $7.00 |                                 |  | 1,371,842                                                 |  |  | 7.12 | 
|                                     |              |                                 |  |                                                           |  |  |      | 

At
December 31, 2009, the aggregate intrinsic value of options outstanding and
exercisable was $45,200.

At
December 31, 2009, all outstanding options under the Plan were fully vested
with no remaining unrecognized compensation expense.

Non-Employee
Stock Options

On March
21, 2007, the Company issued stock options to non-employees to purchase 20,000
shares of the Companys common stock at an exercise price of $7.00 per share
vesting over the next three years and expiring December 19, 2016. These stock
options remain outstanding as of December 31, 2009.

Warrants

In
connection with the IPO, the Company issued warrants to the underwriters to
purchase 300,000 shares of the Companys common stock at an exercise price of $
8.40 per share. These warrants are exercisable at any time on or after December
20, 2008 and on or before December 19, 2011. All warrants remain outstanding as
of December 31, 2009.

Restricted Stock

On June 25,
2007, Zunicom issued 645,133 shares of restricted stock to certain employees of
UPG for past and future services. The Company is amortizing the fair value of
these shares as compensation expense over the 48 month vesting period. During
2009, 227,229 of these shares were forfeited when the Chief Executive Officer
terminated employment. 417,904 shares remain outstanding at December 31, 2009.
Approximately $61,000 and $94,000 of compensation expense related to these
shares was recorded during 2009 and 2008, respectively. There is approximately
$97,000 of unvested expense remaining as of December 31, 2009 which will be
recognized as compensation expense through July 2011.

NOTE I. FAIR VALUE
MEASUREMENTS

As
discussed in Note D, the Company discontinued hedge accounting as of December
16, 2009. Assets and liabilities measured at fair value primarily relate to the
Companys derivative contract, which was terminated December 16, 2009.

A
fair value hierarchy is intended to increase consistency and comparability in
fair value measurements and related disclosures. The fair value hierarchy is
based on inputs to valuation techniques that are used to measure fair value
that are either observable or unobservable. Observable inputs reflect
assumptions market participants would use in pricing an asset or liability
based on market data obtained from independent sources while unobservable inputs
reflect a reporting entitys pricing based upon their own market assumptions.

The
fair value hierarchy consists of the following three levels:

| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level
 1  Inputs are quoted prices in active markets for identical assets or
 liabilities.                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | Level
 2  Inputs are quoted prices for similar assets or liabilities in an active
 market, quoted prices for identical or similar assets or liabilities in
 markets that are not active, inputs other than quoted prices that are observable
 and market-corroborated inputs which are derived principally from or
 corroborated by observable market data.
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | Level
 3  Inputs are derived from valuation techniques in which one or more
 significant inputs or value drivers are unobservable.                                                                                                                                                                                                                         

The
following table represents liabilities the Company has measured at fair value
as of December 31, 2008 and the basis for that measurement:

|                        |  |                                      |         |                                                                        |   |                                                       |  |                                                    |         |  |   |   | 
|----------------------- |  | ------------------------------------ | ------- | ---------------------------------------------------------------------- | - | ----------------------------------------------------- |  | -------------------------------------------------- | ------- |  | - | - | 
|                        |  | Total
 Fair Value
 Measurement
 2008 |         | Quoted Prices in
 Active Markets
 for Identical Asset
 (Level 1)
 2008 |   | Significant Other
 Observable Inputs
 (Level 2)
 2008 |  | Significant
 Unobservable
 Inputs
 (Level 3)
 2008 |        
|                        |  |                                      |         |                                                                        |   |                                                       |  |                                                    |        
|Derivative
 Liabilities |  | $                                    | 484,131 |                                                                        | $ |                                                      |  | $                                                  | 484,131 |  | $ |  | 

F-17

---



UNIVERSAL POWER GROUP, INC. 
NOTES TO FINANCIAL STATEMENTS

NOTE I. FAIR VALUE MEASUREMENTS (CONTINUED)

The fair
market value of the interest rate swap is measured using the discounted present
value of the forecasted one month LIBOR, an observable input.

NOTE J. CREDIT CONCENTRATIONS AND SIGNIFICANT
CUSTOMERS

Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable.

Cash,
cash equivalents and restricted cash are at risk to the extent that they exceed
Federal Deposit Insurance Corporation insured amounts of $250,000 per
institution. At December 31, 2009 and 2008, the Company had cash and restricted
cash accounts in excess of these limits.

In
the normal course of business, the Company extends unsecured credit to
virtually all of its customers. Because of the credit risk involved, management
has provided an allowance for doubtful accounts which reflects its estimate of
amounts which may become uncollectible. In the event of complete
non-performance by the Companys customers, the maximum exposure to the Company
is the outstanding accounts receivable balance at the date of non-performance.

At
December 31, 2009 and 2008, the Company had receivables due from Broadview
Security which comprised approximately 32% and 28%, respectively, of total
trade receivables. During the years ended December 31, 2009 and 2008, Broadview
Security accounted for 36% and 35%, respectively, of net sales. The loss of
Broadview Security would materially decrease the Companys net sales.

A
significant portion of the Companys inventory purchases are from two
suppliers, representing 33% and 40% for the year ended December 31, 2009, 38%
and 36% for the year ended December 31, 2008. The Company purchased
approximately 54% and 51%, respectively, of its product through domestic
sources with the remainder purchased from international sources, predominately
China, for the years ended December 31, 2009 and 2008.

NOTE K. SETTLEMENT AGREEMENT

In
March 2009, in an effort to improve efficiencies within its sourcing channels,
the Company entered into an agreement with its primary independent sourcing
agent canceling its relationship with that agent. Under the agreement, the
Company agreed to pay its former sourcing agent a total of $2.565 million,
including amounts owed with respect to purchases prior to the cancellation of
the relationship, over a three-year period. The sourcing agent assigned to the
Company all of his North American distribution rights on products manufactured
by certain factories, including the Companys primary battery supplier, and
agreed to a three-year non-compete covenant. The Company does not believe that
the cancellation of this relationship will impact its ability to source goods
from its suppliers. The majority of the Companys international purchases were
coordinated through an independent sourcing agent in 2008. At December 31,
2009, there is approximately $1,648,000 recorded as settlement expenses in the
accompanying balance sheet that are due and payable to the agent pursuant to
this agreement. The Company recorded the entire settlement amount as settlement
expense during 2009 and an aggregate of $89,000 will be expensed as interest
over the term of the agreement.

NOTE L. COMMITMENTS AND CONTINGENCIES

Licensing

During
2009 the Company entered into a licensing agreement for the development and
sale of automotive battery chargers and maintainers, automotive jump-starters
and power inverters. During the term of the agreement, the Company will pay a
royalty of a defined percentage on net sales of licensed products as defined in
the agreement. The Company is subject to an annual minimum royalty guarantee
(the Royalty Guarantee) for the last two twelve-month periods of the Initial
Term (January 1, 2011 thru December 31, 2012) of $250,000 for each year and for
an automatic renewal period of two years after the expiration of the initial
term. The Royalty Guarantee shall be paid in equal parts, quarterly in the same
manner as royalties due under the agreement. If the actual royalty for any
calendar quarter is less than the Royalty Guarantee due for that quarter, the
Company will make up the shortfall. For the year ended December 31, 2009, there
were no royalties incurred or payable pursuant to this agreement.

Litigation

The
Company is subject to legal proceedings and claims that arise in the ordinary
course of business. Management does not believe that the outcome of these
matters will have a material adverse effect on the Companys financial
position, operating results, or cash flows. However, there can be no assurance
that such legal proceedings will not have a material impact.

F-18

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UNIVERSAL POWER GROUP, INC. 
NOTES TO FINANCIAL STATEMENTS

NOTE L. COMMITMENTS AND CONTINGENCIES
(CONTINUED)

Operating Leases

The
Company leases certain office and warehouse facilities and various vehicles and
equipment under non-cancelable operating leases, some with escalating payment
and free rent clauses with various maturity dates through 2018. Minimum future
payments on all leases for real and personal property as of December 31, 2009
are as follows:

|                           |  |   |           | 
|-------------------------- |  | - | --------- | 
|Years Ending
 December 31, |  |   |           | 
|                           |  |   |           | 
|2010                       |  |   | 1,051,120 | 
|2011                       |  |   | 917,128   | 
|2012                       |  |   | 778,604   | 
|2013                       |  |   | 150,777   | 
|Thereafter                 |  |   | 469,083   | 
|                           |  |   |           | 
|                           |  | $ | 3,366,712 | 
|                           |  |   |           | 

Rent
expense for the years ended December 31, 2009 and 2008 totaled approximately
$1,025,000 and $943,000, respectively.

Employment
Agreements and Arrangements

On
August 12, 2009, we entered into an employment agreement (the Agreement),
effective as of June 1, 2009 (the Effective Date), with Ian Edmonds, our
President and Chief Executive Officer for his continued employment with us in
such positions for a term beginning on the Effective Date and ending on May 31,
2014; provided, however, beginning on June 1, 2010 and on each anniversary of
such date thereafter, the term will automatically be extended by an additional
year unless either party provides at least 180 days prior written notice to the
other of its election not to extend the term by another year. Under the
Agreement, he will continue to earn a base salary of $250,000 per annum plus an
annual cash bonus equal in amount to seven and one-half percent (7 1/2%) of our
net income before provision for income taxes, as adjusted, provided we meet or
exceed the annual targeted performance levels established by our Compensation
Committee each year. Mr. Edmonds is entitled to participate on the same basis
as other senior executives in any of our benefit plans or programs available to
them. In addition, the Agreement also provides, generally, that during the
employment term and for the two-year period immediately following the end of
such term, Mr. Edmonds shall not compete with us, solicit any of our employees
for hire by an unaffiliated entity or knowingly release any of our confidential
information, without the prior approval of our Board.

On
January 21, 2009, the Company entered into a Separation Agreement with Randy
Hardin, former chief executive officer, terminating his employment agreement.
Under the Separation Agreement, the Company agreed to continue to pay Hardin
his annual base salary and to reimburse him for the costs of his healthcare
insurance coverage through January 21, 2011 (the Restricted Period) to the
same extent it paid for such insurance immediately prior to the termination of
his employment agreement. In consideration therefore, Hardin agreed that he
would not during the Restricted Period (i) compete with the Company in any of
its lines of business including the battery and related power accessory supply
and distribution business and its third party logistics services business; (ii)
solicit or hire any of its employees; or (iii) encourage any person or entity
that has an existing business relationship with the Company to curtail or
cancel its relationship with the Company. In addition, Hardin agreed not to
disclose any of its confidential or proprietary information. The total cost
under the Separation Agreement to the Company, approximately $513,000, was
recorded as an expense in the first quarter of 2009. At December 31, 2009,
there is approximately $293,000 recorded as settlement expenses in the
accompanying balance sheet that are due and payable pursuant to the Separation
Agreement

On
December 12, 2008, the Company entered into a separation agreement with the
former chief financial officer under which we agreed to pay him severance of
approximately $147,000 and to provide him with health insurance coverage for as
long as he is eligible to participate in our health insurance plan under COBRA.
For the year ended December 31, 2009, the Company paid a total of $142,287 in
cash to its former CFO under this agreement and also paid approximately $11,609
in health insurance premiums on his behalf. The Company has no further
obligations to him for cash payments as of December 31, 2009 although it
continues to pay health insurance costs on his behalf.

NOTE M. BUSINESS COMBINATION

On
January 8, 2009, the Company completed the acquisition of a line of outdoor
hunting and recreational products, including all tangible and intangible assets
relating thereto, marketed under the brand name Monarch, for a total net
purchase price of $892,000. Approximate fair values of assets acquired are as
follows: receivables and inventory of $0.3 million, property and equipment of
$0.4 million, and intangible assets of $0.3 million.

NOTE N. EMPLOYEE BENEFIT PLAN

The
Company established and continues to maintain a 401(k) Plan intended to qualify
under sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended. All employees who are at least 18 years of age are eligible to
participate in the plan. There is no minimum service requirement to participate
in the plan. Under the plan, an eligible employee can elect to defer from 1% to
85% of his salary. The Company may, at its sole discretion, contribute and
allocate to plan participants account a percentage of the plan participants
contribution. There were no Company contributions for the years ended December
31, 2009 and 2008.

F-19

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