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|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|WASHINGTON,
 D.C. 20549           
|                                  
|FORM 10-K                         

|                                   |   |                                                                                          
|---------------------------------- | - | -----------------------------------------------------------------------------------------
|                                   | x | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                   |   | For the
 fiscal year ended December 31, 2007                                             
|                                   |   |                                                                                          
|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 Road, 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                                                      |  | American
 Stock Exchange                   
|                                                                                    |  |                                            
|(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. x

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
x

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

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 x

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
o     No x


As
of June 30, 2007, the aggregate market value of the registrants common stock
held by non-affiliates of the registrant was $13,800,000 (based on the closing
sales price of the registrants common stock on that date).

As
of March 20, 2008, 5,000,000 shares of the registrants common stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None

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TABLE OF CONTENTS

|           |             |                                                                                                      |     
|---------- | ----------- | ---------------------------------------------------------------------------------------------------- | ----
|           |             |                                                                                                      | Page
|           |             |                                                                                                      |     
|           |             |                                                                                                      |     
|PART I     |            
|           | Item 1.     | Business                                                                                             | 3   
|           | Item 1A.    | Risk Factors                                                                                         | 10  
|           | Item 2.     | Description of Properties                                                                            | 16  
|           | Item 3.     | Legal Proceedings                                                                                    | 17  
|           | Item 4.     | Submission of Matters to a Vote of Security Holders                                                  | 17  
|           |             |                                                                                                      |     
|PART II    |            
|           | Item 5.     | Market for our Common Equity, Related Stockholder Matters and Issuer
 Purchases of Equity Securities | 17  
|           | Item 6.     | Selected Financial Data                                                                              | 17  
|           | Item 7.     | Managements Discussion and Analysis of Financial Condition and
 Results of Operations               | 18  
|           | Item 7A.    | Quantitative and Qualitative Disclosures about Market Risk                                           | 22  
|           | Item 8.     | Financial Statements and Supplementary Data                                                          | 22  
|           | Item 9.     | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosures               | 22  
|           | Item 9A.(T) | Controls and Procedures                                                                              | 23  
|           | Item 9B.    | Other Information                                                                                    | 23  
|           |             |                                                                                                      |     
|PART III   |            
|           | Item 10.    | Directors, Executive Officers and Corporate Governance                                               | 23  
|           | Item 11.    | Executive Compensation                                                                               | 23  
|           | Item 12.    | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters      | 23  
|           | Item 13.    | Certain Relationship and Related Transactions, and Director
 Independence                            | 23  
|           | Item 14.    | Principal Accounting Fees and Services                                                               | 24  
|           |             |                                                                                                      |     
|PART IV    |            
|           | Item 15.    | Exhibits and Financial Statement Schedules                                                           | 24  
|           |            
|Signatures | 25         

2

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FORWARD-LOOKING STATEMENTS

This
report includes forward-looking statements as the term is defined in the
Private Securities Litigation Reform Act of 1995 or by the Securities and
Exchange Commission in its rules, regulations and releases, regarding, among
other things, all statements other than statements of historical facts
contained in this report, including statements regarding our future financial
position, business strategy and plans and objectives of management for future
operations. The words believe, may, estimate, continue, anticipate,
intend, should, plan, could, target, potential, is
likely,
will, expect and similar expressions, as they relate to us, are intended to
identify forward-looking statements. We have based these forward-looking
statements largely on our current expectations and projections about future
events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions
described in Risk Factors and elsewhere in this report. In addition, our past
results of operations do not necessarily indicate our future results.

Other
sections of this report may include additional factors which could adversely
affect our business and financial performance. Moreover, the logistics services
business and the electronic supply and distribution business is very
competitive and rapidly changing. New risk factors emerge from time to time and
it is not possible for us to predict all such risk factors, and we cannot
assess the impact of all such risk factors on our business or the extent to
which any risk factor, or combination of risk factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Those factors include, among others, those matters disclosed as Risk Factors in
Item 1A contained in this Annual Report on Form 10-K.

Except
as otherwise required by applicable laws, we undertake no obligation to
publicly update or revise any forward-looking statements or the risk factors
described in this report, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this
report. Neither the Private Securities Litigation Reform Act of 1995 nor
Section 27A of the Securities Act of 1933 provides any protection to us for
statements made in this report. You should not rely upon forward-looking
statements as predictions of future events or performance. We cannot assure you
that the events and circumstances reflected in the forward-looking statements
will be achieved or occur. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.

PART I

|        |         
|------- | --------
|ITEM 1. | BUSINESS

Corporate History and Information

We
were organized in July 1968 under the laws of Texas. Our principal executive
office is located at 1720 Hayden Road, Carrollton, Texas 75006, and our
telephone number is (469) 892-1122. Our web address is www.upgi.com. We also have three inactive
wholly-owned subsidiaries, two of which are incorporated in Texas and one of
which is incorporated in Nevada. Until December 20, 2006, we operated as 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 21, 2006 we sold 2,000,000 shares of our common stock in
an underwritten initial public offering (IPO). In addition, in the offering
Zunicom sold 1,000,000 shares of our common stock that it owned. As a result,
Zunicoms ownership interest in us was reduced to 40%. Notwithstanding the fact
that Zunicom no longer owns a controlling interest in us, it still has
significant influence.

Available Information

Our
website address is www.upgi.com.
We are not including the information contained on our website as part of, or
incorporating it by reference into, this annual report on Form 10-K. We make
available free of charge through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC.

You
may read and copy any materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers such as us
that file electronically with the SEC. The website address is www.sec.gov.

BUSINESS

General

We
are (i) a third-party logistics company specializing in supply chain management
and value-added services and (ii) a leading supplier and distributor of
portable power supply products, such as batteries, security system components
and related products and accessories. Our principal product lines include:

| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | batteries of a wide
 variety of chemistries, battery chargers and related accessories;                                                                 
| |   |                                                                                                                                                        
| |  | portable battery-powered
 products, such as jump starters and 12-volt power accessories;                                                               
| |   |                                                                                                                                                        
| |  | security system
 components, such as alarm panels, perimeter access controls, horns, sirens,
 speakers, transformers, cabling and other components; and
| |   |                                                                                                                                                        
| |  | electro-magnetic
 devices, capacitors, relays and passive electronic components.                                                                       

Our
third-party logistics services, principally supply chain management solutions
and other value-added services, are designed to help customers optimize
performance by allowing them to outsource supply chain management functions.
Our supply chain management services include inventory sourcing and
procurement, warehousing and fulfillment. Our value-added services include custom
battery pack assembly, custom kitting and packing, private labeling, component
design and engineering, graphic design, and sales and marketing. We also
distribute batteries and portable power products under various manufacturers
and private labels, as well as under our own proprietary brands. We are one of
the leading domestic distributors of sealed, or maintenance-free, lead acid
batteries. Our customers include

3

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original equipment
manufacturers (OEMs), distributors and both online and traditional retailers.
The products we source, manage and distribute are used in a diverse and growing
range of industries, including automotive, consumer goods, electronics and
appliances, marine and medical instrumentation, computer and computer-related
products, office and home office equipment, security and surveillance
equipment, and telecommunications equipment and other portable communication
devices.

We
believe that the demand for third-party logistics services in general, and
supply chain management solutions and value-added services in particular, is
growing, particularly in the electronics industry. In general, businesses are
increasingly focused on identifying ways to more efficiently manage their
supply chain, an operational necessity as products are sourced and distributed
globally and a financial requirement as organizations have discovered the
fiscal benefits of streamlining their logistics processes, providing an
increased demand and opportunity for organizations providing logistics services
in general and supply chain management services in particular. Businesses
increasingly strive to minimize inventory levels, reduce order and cash-to-cash
cycle lengths, perform manufacturing and assembly operations in low-cost
locations and distribute their products globally. Furthermore, businesses
increasingly cite an efficient supply chain as a critical element to improve
financial performance. To remain competitive, successful businesses need to not
only achieve success in the core competencies, they must also execute quickly
and accurately.

To
accomplish these goals, businesses are increasingly turning to organizations
that provide a broad array of logistics services, including supply chain
management solutions. The demand for these solutions has grown as businesses
continue to outsource non-core competencies, globally source goods and
materials, and focus on managing the overall cost of their supply chain. These
trends have been further facilitated by the rapid growth of technology,
including the growth of the Internet and the World Wide Web as an information
tool and electronic interfaces between systems of service providers and their
customers.

The
demand for electronic equipment and components is impacted by general economic
conditions, technological developments, changes in consumer demand and
preferences, the cost of lead and copper, the two principal raw materials used
to manufacture electronic components and fuel costs, which impacts both
manufacturing and shipping. We believe that technological change within the
electronics industry drives growth as new product introductions accelerate
sales and provide us with new opportunities. However, we further believe that
our products are not affected by rapidly changing technology since they
represent basic elements and portable power supplies common to a wide variety
of existing electronic circuit designs. At the same time, we cannot assure you
that advances and changes in technology, manufacturing processes, and other
factors will not affect the market for our products. We do however continue to
stay abreast of technological advances and changes in the electronics and
portable power supply market.

Industry Background

The
electronics industry covers an array of products and components, which includes
semiconductors and passive/electromechanical products and systems, computer
components, portable power supplies such as batteries and related products. The
electronics industry is one of the largest industries in the United States and
is growing. We believe that the growth of the electronics industry has been
driven in part by increased demand for new products incorporating sophisticated
electronic components, such as cellular phones, laptop computers, handheld and
PDA devices, security and surveillance equipment, a variety of consumer
products and appliances and many other wireless products as well as increased
utilization of electronic components in a wide range of industrial, automotive
and military products. These products all require portable battery power to
function in todays market where consumers demand productivity, portability and
mobility.

Supply
chain managers have become an integral part of the electronics industry. OEMs
and many small contract electronic manufacturers that use electronic components
choose to outsource their procurement, inventory and materials management
processes to third parties in order to concentrate their resources, including
management, personnel costs and capital investment, on their core competencies,
which include product development and sales and marketing. Many large
distribution companies not only fill these procurement and materials management
roles but further serve as a single supply source for OEMs and contract
electronic manufacturers and retailers, offering a much broader line of
products, rapid or scheduled deliveries, incremental quality control measures
and more support and supply chain management services than individual
electronic component manufacturers. We believe that OEMs and many smaller
contract electronic manufacturers and retailers will increase their dependence
on distributors for these types of logistics and supply chain management
services and will continue to demand greater service and to increase quality requirements.

We
believe that the third-party logistics industry in general will continue to
grow because of the following factors:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Outsourcing non-core activities. Businesses are increasingly relying on
 third-party logistics providers for non-core activities, such as sourcing
 and procurement, warehousing, assembling, kitting, shipping and
 distribution, so as to focus on their core competencies. We take over the
 tedious tasks of sourcing and storing inventory, taking and filling orders and
 shipping and delivering to the end customer.                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Globalization of trade. As barriers to international trade are
 reduced or eliminated, businesses are increasingly sourcing their parts,
 supplies and raw materials from the most competitive suppliers throughout the
 world. Businesses often find themselves getting involved in logistical
 matters which they are unfamiliar with and often are faced with unforeseen
 added overheads and other logistic costs, which take away from their
 competitive edge and bottom-line income. We believe with continued
 globalization businesses will increasingly turn to and rely on third-party
 logistics providers for all their sourcing, warehousing, inventory
 management, and distribution needs. We are able to offer our services at
 competitive rates due to our industry expertise and ability to consolidate
 products cost-effectively for our customers.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Increased competition. Increasing competition means businesses
 have to operate more efficiently. Third party logistics providers allow
 businesses to reduce their costs by transferring overhead. In addition,
 because they buy in greater quantities, third party logistics providers can
 usually get better pricing from suppliers, which they can then pass along to
 their customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Increased reliance on technology. Advances in technology are placing a
 premium on decreased transaction time and increased business-to-business
 activity. Businesses recognize the benefits of being able to transact
 commerce electronically.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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Our Products and Services

While
we are both a logistics services provider and a distributor, the products we
handle in both cases are principally the following:

| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                      | Batteries, battery chargers and related accessories. We are one of the leading domestic
 distributors of sealed, or maintenance-free, lead acid (SLA), absorbent
 glass mat and gel batteries, all of which have been designated as
 non-hazardous by the U.S. Department of Transportation. We maintain a broad
 inventory of various sizes of branded and private-label SLA batteries in our
 brands and private labeled to sell to retailers and distributors for consumer
 and industrial applications, and to OEMs for use in the manufacture and sale
 of technology products, such as wheelchairs, uninterruptible power supply
 (UPS) systems and security equipment. We also stock and distribute a broad
 range branded and private-label of batteries including nickel-cadmium,
 lithium, nickel metal hydride, alkaline and carbon-zinc batteries, which are
 used primarily in consumer electronic products. Our brands include the names
 Universal Battery, Universal, Adventure Power®, Starter-Up, UB Scootin®,
 Charge N Start and UNILOK. We currently private label our products for
 many large customers such as Home Depot Supply, RadioShack, Bass Pro,
 Cabelas and others. We also stock components used in custom battery pack
 assembly. Finally, we are also an authorized Panasonic modification center
 that builds custom-designed battery packs comprised of Panasonic batteries
 for customers. We continue to develop new battery sizes for varying
 applications depending on customer and market needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                       | We have an expanding line
 of power supply inverters, battery chargers and maintainers for various
 applications such as automotive, marine, hunting, motorcycle and medical
 scooters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                      | Portable power products, such as jump-starters, 12-volt
 power accessories and other battery-powered tools and accessories. Our line of jump-starters, called
 Starter-Up and Starter-Up Marine, are portable sources of 12-volt DC power
 used primarily as emergency starting power sources on failed automobile and
 marine batteries. These jump-starters may be used to power many accessories
 including cellular phones, laptops and radios. Our jump-starters are sold to
 retailers such as RadioShack, Bass Pro Shop and Cabelas. We have also added
 our own expanding 12-volt DC accessory line which includes electric auto
 jacks, impact wrenches, handheld vacuums, cordless air compressors,
 warmers/coolers, spotlights, electric mugs and others that plug into
 cigarette lighter sockets or any 12-volt DC power source.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                      | Security products, such as perimeter access controls,
 horns, sirens, speakers, transformers and related installation components. As a result of our relationship with Brinks
 Home Security (Brinks), we carry a broad line of residential and commercial
 security products including alarm panels, perimeter access controls,
 transformers, sirens, horns, cabling and other related products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                      | Electro-magnetic devices, capacitors, relays and passive
 electronic components. We
 stock and distribute electronic components, such as resistors carbon or metal
 film, capacitors of varying types and relays for use in the manufacture,
 repair, and modification of electronic equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | We continue to actively
 review sources for new and innovative products to add to our spectrum of
 product offerings.
| |                                                                                                                      
| | Our logistics services
 include the following:                                                                       
| |                                                                                                                      
| |                                                                                                                      | Inventory sourcing and procurement. As a result of our relationship with
 manufacturers in the Pacific Rim, we believe we can effectively source
 products for our customers and at the same time help lower their costs. We
 see this as a competitive advantage that will help us secure long-term
 customer relationships. In order to accommodate the needs of our customers,
 we can have the manufacturer ship directly to them. Alternatively, we can
 purchase and stock inventory for a customer in our warehouse according to
 their inventory needs and deliver to its customers as required. In this
 situation, we own the inventory unlike a traditional logistics and
 fulfillment provider that merely warehouses and distributes the products
 while leaving the ownership of the inventory to the customer. We believe that
 our ability to purchase and stock products for our customers is a competitive
 advantage that helps our customers manage their cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                      | Warehousing and distribution. We can take delivery of inventory items
 either for our own account or for the account of a customer, and ship out of
 one of our distribution centers. Our primary distribution center is located
 in Carrollton, Texas, a suburb of Dallas, which is a designated Foreign Trade
 Zone. This prime location allows easy access to national and international
 markets, and enables us to facilitate efficient, quick delivery and
 fulfillment of products nationwide. We also have regional logistics centers
 in Oklahoma City, Oklahoma, Columbus, Georgia and Las Vegas, Nevada, which
 provide additional distribution points to support additional and varying
 customer needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                      | Engineering design assistance, custom assembly and
 kitting. We
 offer engineering design assistance services for product lines, such as
 battery assembly systems, security and battery powered products as well as
 custom battery pack assembly and kitting. As an example, we have the ability
 to design and assemble custom battery packs consisting of assembled groups of
 batteries combined electrically into a single unit. These battery packs are
 typically used for cell phones, cordless phones, door lock and flashlight
 stick applications. For customers that require specific battery solutions for
 inclusion in their own products, we obtain the battery and necessary
 components and configure a new finished good unit based upon the customers
 specifications. We have specialized equipment such as electric welders, sonic
 welders, computer-aided design programs, computer-driven battery analyzers,
 battery chargers, heat-shrink ovens and strip-chart recorders to support
 custom assembly, design and engineering needs. In addition to providing the
 services necessary to produce battery packs, we provide materials such as
 wiring, connectors, and casings. Completed battery packs are assembled to
 order in nearly all instances. We add value to products and components by
 packaging them in customer specified kits or tailor-made units that are
 convenient for the customer to order. We may purchase, in bulk quantities,
 batteries, wiring harnesses, control panels and similar items necessary to
 install a residential security system. Each security system installation may
 require only one or two of the items purchased in bulk by us. As a value
 added service we will pick the small quantities of components from the bulk
 supply and repackage them into a single shippable unit for the convenience of
 our customer. We then market and sell the single shippable unit as a complete
 product to its customer. We provide this service to a number of our customers
 including Brinks.

5

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| |   |                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Graphic design and marketing. We offer branding, packaging design and
 marketing services to assist customers in bringing their product from development
 to finished product. In some instances, we will help promote and sell the
 finished product through our sales and marketing department.          
| |   |                                                                                                                                                                                                                                                                                                            
| |  | Disposal. As an additional value-added service to our customers, and in
 ensuring that we contribute to environmental conservation, we help coordinate
 pick up of all their used or spent sealed lead acid batteries with EPA
 authorized haulers who will then deliver them to EPA authorized smelters.

Growth Strategy

Our
objective is to become a leading provider of third-party logistics services,
particularly supply chain management solutions, and the leading supplier and
distributor of portable power supply products, security system components and
other products. Our long-term growth strategy includes the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand our logistics and value-added services offerings. As part of our overall growth strategy, we
 are seeking to replicate our model and have begun marketing our logistics and
 supply chain management capabilities. We believe that one of the most efficient
 ways to attract new customers and expand relationships with existing
 customers is to expand our logistics service. To date, our focus has been on
 developing supply chain management services. With our logistics and supply
 chain expertise, which includes sourcing, warehousing, shipping, kitting and
 distribution, and our array of value-added services, we are identifying and
 aggressively pursuing new markets and new customers who are not necessarily
 within the scope of portable power, security and electronic related products.
 We are marketing our third party logistics and supply chain solutions to
 other markets, whether it be warehousing, inventory management and
 distribution of housewares, office supplies or toys. Similarly, through our
 sealed lead-acid battery distribution, we have expanded to serve medical
 scooter, jet-ski, motorcycle, hunting, and marine markets. In the future, we
 may also seek to develop other logistics such as freight forwarding and
 shipping, customs and brokerage, real-time inventory pricing information,
 electronic order entry and rapid order processing.        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Enhance information technology capabilities. We provide a customized web portal
 interface for Brinks that allows it to easily place orders online with access
 to and management of its fulfillment needs. We plan to develop similar
 systems for our other customers based on their particular needs. We believe
 that in the coming years an increasing number of transactions in this
 industry will be processed online. As a result, we plan to further expand the
 functionality and utilization of our website in such a way that it will
 become more accessible and user-friendly. In addition, we have begun to
 review warehouse management systems and related hardware, such as material
 handling equipment and carousels, that will enable us to improve overall
 supply chain workflow and efficiencies, increase fulfillment capacity,
 provide greater visibility throughout the supply chain processes and provide
 real-time data and effective decision-making.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Increase our product offerings. Another effective means of attracting new
 customers and expanding relationships with existing customers is to increase
 the number and breadth of our product offerings. Our intention is to carry
 new products that complement those already within our portfolio as well as
 other electronic products such as semiconductors and computer equipment. In
 addition, we may also establish a base of operations in Asia so we can
 further develop relationships with low-cost manufacturers throughout the
 region. We intend to expand our product lines to include a more comprehensive
 offering of (i) consumer batteries and chargers for applications such as cell
 phones, laptops, camcorders, digital cameras and toys, (ii) sealed lead-acid
 batteries for consumer, industrial and customized applications, (iii)
 battery-powered and related consumer goods, such as battery chargers and
 maintainers, jumpstarters, portable power tools and accessories, (iv)
 security-related access-control products, and (v) other new products. In
 order achieve this goal, we will seek to expand our relationship with
 existing suppliers and consultants, and/or forge relationships with new
 suppliers using our contacts throughout the Pacific Rim.                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Identify new customers and new markets. We intend to pursue new customers and new
 markets through traditional sales and marketing activities. We believe that
 the trend of consolidation in the electronics industry will continue and
 that, as a result, new customers and new markets will become available to us.
 New markets include domestic as well as international. We currently serve
 customers in Canada, England, Ireland and Australia. Part of our growth
 strategy is to further develop new accounts in Europe and Latin America and to
 establish distribution centers in strategic global locations to service these
 accounts. We are also planning to tap into the retail market by developing a
 new website for consumers and have reserved the domain names
 www.batteriesbeyond.com, www.batteriesandbeyond.com and
 www.batteriesnbeyond.com for this purpose.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Develop proprietary products. We intend to develop other proprietary
 products synergistic to our business to build added value and offerings to
 our customers. For example, we are developing a battery data base cross
 referencing system that will have a database of all batteries, their
 applications, the products in which they can be used and their attributes.
 The different attributes of a battery include chemistry, category, brand, brand
 model, manufacturer and battery model. The system will allow consumers,
 regardless of their level of battery knowledge, to search for a battery based
 on application, the product they are using or the battery attributes. The
 initial phase, which will include managing the related database for retail
 customer e-commerce sites and providing back-end fulfillment directly to the
 consumer is scheduled to be in test markets for selected customers during the
 first quarter of 2008 and expected to be fully operational by the fourth
 quarter of 2008.                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Vertical integration. We believe that our future success will
 depend, in part, on our ability to continue to develop reliable sources for
 our products. To that end, we are contemplating either building or purchasing
 a factory that manufactures batteries and that also has injection molding
 capabilities. While either option presents its own challenges and its own set
 of risks, we believe that having manufacturing capability has a number of
 benefits that override these risks. These benefits would include (i) reducing
 or, in some cases, even eliminating the risk of depending on an unrelated
 third party as the single source for our most important line of products,
 (ii) reducing our costs and improving our margins, and (iii) enabling us to
 expand our business by supplying other distributors. At the present time, we
 are not a party to any agreement involving building or purchasing a factory
 and we cannot say that it is likely that we will buy all or a portion of any
 factory. We continually assess the different options that may be available to
 us, including building our own factory or purchasing an existing factory in
 China, Mexico or anywhere else. We cannot assure you that we will ever build
 or buy a factory. Any decision to build or buy a factory, whether in China or
 elsewhere, will be made by our board of directors, a majority of whom are

6

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| |  |                                                                                                                                                                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | independent. Similarly,
 as discussed above, we are expanding into the retail market and we also plan
 to develop an online retail presence and enhance our e-commerce capabilities.

Quality Controls and ISO Certification

We
adhere to a quality management system that ensures that our operations are
performed within the confines of increasing strictness in quality control
programs and traceability procedures. As a result, our distribution facility
has successfully completed procedure and quality audits and earned a
certification under the international quality standard of ISO 9001:2000. This
quality standard was established by the International Standards Organization
(ISO), created by the European Economic Community (EEC). The ISO created
uniform standards of measuring a companys processes, traceability, procedures
and quality control in order to assist and facilitate business within the EEC.
This voluntary certification is a testimony of our commitment to demonstrate
our ability to consistently provide products that meet customer and applicable
regulatory requirements and enhance customer satisfaction through the effective
application of the system, including processes for continual improvement of the
system and the assurance of conformity to customer and applicable regulatory
requirements.

Product
safety is a top priority for us and all of our products that have electrical or
mechanical concerns are safety tested and approval listed by UL, CUL, CSA, CE,
TUV, or other standards agencies as required by and relevant to the customers
business location. These agency listings ensure that our products adhere to specific
quality and consistency standards.

Customers

Our
customers include OEMs, contract electronic manufacturers, distributors,
retailers and electronics manufacturing service providers that serve a broad
range of industries including: automotive; industrial; marine; medical mobility
and other medical equipment; security and surveillance; consumer goods,
electronics, appliances and other products; computers and related equipment and
accessories; telecommunications; and distributors of portable power supply
units, principally batteries, that are used in a broad range of commercial and
consumer products. In total, our customer list included over 3,000 accounts in
2007, approximately two-thirds of which may be active. We define an active
account as anyone who has purchased goods from us within the last two years.
Our largest customer is Brinks for whom we function as a supply chain manager
throughout the United States and Canada. Under our agreement with Brinks, we
purchase various components for Brinks security systems, some of which we
purchase from Brinks designated suppliers. Some of the components we assemble
and pack into kits. We sell and ship these components and the kits to Brinks
and to independent Brinks authorized dealers. Brinks is our only customer that
accounts for more than 10% of our net sales. In 2007 Brinks accounted for
approximately 41% of our net sales. Because of this concentration, adverse
conditions affecting this customer could have an adverse impact on our
business. We expect that demand for our services and, consequently, our results
of operations will continue to be sensitive to domestic and global economic
conditions and other factors we cannot directly control. As such, our focus
will remain on diversification of our product lines and service offerings and
overall expansion of business with current customers and adding new accounts
through our field and global sales and marketing teams.

Sources and Availability of Products

We
purchase products from both domestic and foreign component manufacturers. In
2007, we purchased products from approximately 225 suppliers. During 2007,
approximately 50% of our purchases were from domestic suppliers and 50% were
from foreign suppliers. Approximately 61% of our 2006 purchases were from
domestic suppliers and 39% were from foreign suppliers. We do not have supply
agreements with any of these sources, although Brinks has a written agreement
with Honeywell Security and Custom Electronics (HS&CE), which accounted
for approximately 34% of our inventory purchases in 2007. In addition, even
though we purchase approximately 90% of our batteries from a single source, we
believe that if that relationship was to terminate we would be able to
re-source those products from other suppliers fairly quickly, although our
costs may be higher. Other than HS&CE and our major battery supplier, we do
not depend on any single source for the products that we stock and sell.

We
have significant long-term relationships with manufacturers located in the
Pacific Rim, principally China. Other suppliers are located in Taiwan, Japan
and Malaysia. These relationships, many exceeding a decade, are managed either
directly by us and or indirectly through a third-party consultant, who has
extensive expertise in importing batteries, portable power accessories, and
related products, particularly from China. Through this relationship, we have
the capability to effectively procure products according to customer needs
including hard-to-find items to obtain lower project and product costs and to
offer a wide and expanding range of synergistic portable power solutions such
as chargers and 12-volt accessories. Under our agreement with this consultant,
we pay a commission if we purchase goods from a factory that it introduces to
us. The commission is based on the total dollar value of the transaction and
ranges from 3% to 6%, depending on the factory. Approximately 49% of our
product purchases are covered by this agreement, including purchases from our
largest overseas supplier which represented approximately 42% of our total
product purchases and 95% of our battery purchases in 2007.

Competition

We
compete with numerous, well-established companies, many, if not most, of which
are larger and have greater capital and management resources and greater name
recognition than we do. Our competitors include international, national,
regional and local companies in a variety of industries.

One
group of actual competitors includes traditional logistics service providers.
The major companies in this industry include C.H. Robinson Worldwide, Inc.,
EGL, Inc., Stonepath Group and UTI Worldwide, Inc. In general, these companies
provide freight transportation services but could also provide supply chain management
solutions. In comparison, we provide limited in house freight transportation
services. This could make us a less attractive alternative to some potential
customers. However, we do engage freight forwarding companies to work with us
on consolidating and securing price competitive freight transportation
services.

Second,
in the logistics business we also compete directly with the large overnight
shipping companies, such as UPS, FedEx and DHL who have begun to market
themselves as supply chain management service providers.

Third,
in the distribution business, we compete with battery and other electronic
component distributors, such as Interstate Batteries, MK Battery, Dantona,
Arrow Electronics, Avnet, WESCO International, Jaco Electronics and All

7

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American Semiconductor.
Companies like Arrow Electronics, Avnet, WESCO, Jaco and All-American also have
multiple product lines and many also provide supply chain management services.
The industry has experienced rapid consolidation driven in part, we believe, by
the advances in online capabilities and the availability of more precise supply
chain software and systems. While we do not believe that we have the capital
resources to necessarily compete directly with these companies, we do believe
that as a smaller company we can be more opportunistic in terms of developing
niche markets and in terms of responding to customer needs, market changes and
other trends.

Finally,
we are increasingly finding that manufacturers, particularly foreign
manufacturers, are competing against us, marketing and selling their products
directly to original equipment manufacturers, distributors and retailers,
importers, brokers and e-commerce companies. Foreign manufacturers,
particularly those located in low-cost jurisdictions such as Latin America and
Asia, generally have a price advantage but are less knowledgeable about the
domestic market and lack the infrastructure to properly serve the market.

We
compete primarily on the basis of price, inventory availability, flexibility,
scope of services, quality of products and services, delivery time and customer
relationships. As such, our ability to remain competitive will largely depend
on our ability to (i) continue to source products cheaply and efficiently, (ii)
develop new and alternative sources that are comparable in terms of price and
quality, and (iii) anticipate and respond to customer demands and preferences
and trends affecting the industry, such as new product introductions and pricing
strategies, consumer and demographic trends, international, national, regional
and local economic conditions including those affecting prices of raw materials
and shipping.

We
believe we can differentiate ourselves from other logistics companies in our
overall knowledge, experience and understanding of the electronics industry and
the market for portable power and related products and in our existing
supply-side relationships, which include direct relationships with factories
and relationships with factory representatives. We further believe that our
most important competitive advantages include the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Well-established sourcing contacts. We have long-standing relationships with
 manufacturers in the Pacific Rim, principally China. Also, we were one of the
 first authorized distributors of Panasonic batteries in the United States. We
 also have long-standing relationships with independent third-parties who have
 extensive contact with manufacturers throughout Asia. We believe that we can
 bring additional value to our customers by locating alternate suppliers of
 the same product of comparable quality at significantly lower prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Key customer relationships. Over the last two years we have had
 approximately 2,000 active customers, from sole proprietors and small
 businesses to many large, well-known national, regional and local
 distributors and retailers. Our customers include well known names such as
 Brinks, RadioShack, Bass Pro Shops, Cabelas, Pride Mobility, The Scooter
 Store, Protection One, Monotronics, Home Depot Supply, and GE Security, as
 well as the U.S. military.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Extensive inventory permits prompt response to customer
 needs. We stock
 a broad range of products according to customer and seasonal needs. With
 extensive inventory on hand at any given time, covering 75 classes of
 products and more than 2,200 SKUs, we can satisfy most customer demands
 immediately. Approximately one-third of our inventory at any particular time
 may consist of products that we stock in order to make timely deliveries to
 Brinks under our agreement with Brinks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | National distribution. Our primary logistics center and warehouse
 facility is located in Carrollton, Texas, part of the Dallas metroplex area.
 We also have regional logistics centers in Oklahoma City, Oklahoma, Columbus,
 Georgia and Las Vegas, Nevada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Value-added services. We offer value-added services not commonly
 provided by other third-party logistics or supply chain service providers,
 such as sourcing, custom kitting, battery pack assembly, product development,
 private labeling, and coordinating customers with licensed, EPA approved
 handlers for their battery recycling needs. Also, we were one of the first
 authorized Panasonic modification centers in the United States. Unlike
 traditional third party logistics providers that usually only take possession
 of a customers inventory, we sometimes contract to purchase and stock
 selected inventory for our clients. In a conventional service relationship,
 the customer purchases the goods from the supplier and directs the supplier
 to deliver the goods to the logistics company, which then packs and ships the
 goods to the end-user. We would similarly look to reduce our exposure with
 new logistics customers through guaranteed buy-backs, letters of credit or
 other techniques, although we cannot assure you that any potential customers
 would be amenable to such an arrangement.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Broad industry experience; experienced management and
 support professionals. We have been in business for almost 40 years and have extensive
 knowledge of our markets and products. Our chief executive officer, Randy Hardin,
 has been in the battery distribution business for over 20 years. We also have
 a dedicated and experienced management team coupled with an excellent support
 staff.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Reputation for quality. Since our inception, we have built a
 reputation based on the quality of our products, the timeliness of our
 deliveries and our responsiveness to customer demands. We believe that our
 commitment to customer satisfaction and our sourcing expertise have helped us
 in the industry as a premier supplier of batteries and other portable power
 products and related accessories. We have had ISO 9001:2000 certification
 since October 2003. In addition, we ensure that we obtain safety approvals on
 our products where required by one or more of the following agencies: UL, CUL,
 CSA, CE and TUV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Marketing and Sales

We
employ marketing, sales and sales support to actively pursue new business
opportunities and retain and grow existing accounts. We also engage outside
sales representatives. We use a variety of techniques to market our products
including: (i) direct marketing through personal visits to customers by
management, field sales people and sales representatives supported by a staff
of inside sales personnel who handle quoting, accepting, processing and administration
of sales orders; (ii) general advertising, sales referrals and marketing
support from component manufacturers; (iii) telemarketing; (iv) active
participation in industry tradeshows throughout the year; and (v) our website.
We have undertaken minimal advertising in trade publications, though we foresee pursuing more advertising avenues including direct mail,
additional trade and magazine publications and online advertising as our product offerings and customer base dictates.

8

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Customer
retention and strengthening current relationships to participate in new
business opportunities is important to us, and we emphasize this throughout our
entire organization as well as our sales and customer service teams. Our
logistics revenues continue to be a critical part of our revenue base and we
will continue to market, design and execute supply chain management solutions
aimed at reducing our customers delivery costs and strengthening our customer
alliances. For instance, we have a dedicated customer service team to handle
Brinks daily service matters, to ensure focused support and continued customer
satisfaction. We continue to emphasize the development of national and global
accounts while aggressively targeting local accounts where we can leverage our
array of services. The larger, more complex accounts typically have many
requirements ranging from very detailed standard operating and product approval
procedures to customized information technology integration requirements. We believe
our consistent growth, cost optimization and adaptability to customer needs has
enabled us to more effectively compete for and obtain many new accounts.

Intellectual Property

We
own a number of trademarks, trade names, service marks and service names that
we use, some of which are registered. These marks and names include the
following: Starter-Up, UB Scootin®, Adventure Power®, Batteries & Beyond,
Charge N Start, UNILOK, Let Us Power You and UPG. We believe that these
marks are important and have helped us develop a brand identity in certain
markets and in connection with certain products. In addition, we also rely on
trade secrets and other proprietary information regarding customers and
suppliers, which we try to protect through the use of confidentiality and
non-competition agreements.

We
have a patent-pending on a battery cross-reference system and method that
enables users of all levels of knowledge to search for a battery, based on
different attributes of a battery. The different attributes of a battery
include its chemistry, category, brand of category, brand model, manufacturer
and battery model. As mentioned above, the system will enable consumers,
regardless of their level of battery knowledge, to search for a battery based
on application, the product they are using or the battery attributes. We
believe that this technology will help us gain new business at retailers and at
the same time, offer retailers a competitive advantage and a value-added
service.

Our
information technology infrastructure is designed to facilitate a distributed
operations business model with back-end servers for a more centralized and
efficient management environment. This infrastructure hosts a true 32-bit
client/server Enterprise Resource Planning (ERP) software application (SYSPRO)
on Microsoft® Windows platform, where most of the daily business
activities/transactions are processed. SYSPRO is a fully integrated solution
that gives us complete control over the planning and management of all facets
of our operations, including assembly, distribution and accounting. Each
function is then broken into several modules but all within the same ERP
system. Assembly is supported by these modules: (i) bill of material and (ii)
work in progress. Distribution is supported by the following modules: (i)
inventory control, (ii) purchasing, (iii) sales, (iv) returns and (v) point of
sales. Accounting is supported by the following modules: (i) accounts
receivable, (ii) accounts payable, (iii) general ledger, (iv) cash book and (v)
fixed assets. Additionally, the recent deployment of SYSPRO Customer Relations
Management software (CRM) has allowed us to better track and manage all
customer and supplier touch points. SYSPRO CRM enables sales, marketing, engineering
and customer support operations to work collaboratively while providing a
complete and transparent view of all records and correspondences.

With
access to easy-to-view real-time information, SYSPRO gives us the ability to
respond rapidly to changing circumstances, react quickly to customer demands,
and reduce operating costs through streamlined processes. Additionally,
SYSPROs ability to integrate with other best-of-breed solutions, such as
warehouse management systems, transportation management systems and electronic
data interface systems, easily extends control to our entire supply chain. The
modular nature of SYSPRO allows us to select those functions needed to
increase operational control and effectiveness while avoiding unnecessary
expense.

As
a result of increasing advances in technology, we recognize that our computer
and communication systems need to be continuously upgraded and enhanced if we
are to remain competitive. In an effort to anticipate and meet the increasing
demands of customers and suppliers and to maintain state-of-the-art
capabilities we selected and implemented during late 2007, as part of our IPO
funded initiatives, RedPrairie as our Warehouse Management System software
provider. By implementing this WMS system, we aim to improve on the following
areas of our operations:

| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | intelligent work direction (radio frequency (RF) directed
 processes);                                                                                                                                                     
| |   |                                                                                                                                                                                                                            
| |  | improve pick
 efficiency;                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                            
| |  | avoid costly mistakes;                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                            
| |  | improve overall workflow;                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                            
| |  | accurate real-time inventory to facilitate
 better decision-making;                                                                                                                                                        
| |   |                                                                                                                                                                                                                            
| |  | detailed audit trail;                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                            
| |  | better visibility throughout our supply chain processes;                                                                                                                                                                   
| |   |                                                                                                                                                                                                                            
| |  | automatic monitoring and reporting of quality measures;                                                                                                                                                                    
| |   |                                                                                                                                                                                                                            
| |  | ability to effectively and efficiently perform third-party
 logistics functions such as activity based billing by customer, automatic
 order inputs, custom pick tickets, packing slips and shipping labels per
 owner; and
| |   |                                                                                                                                                                                                                            
| |  | increase overall facility throughput.                                                                                                                                                                                      

We
cannot assure you, however, that any upgrades that have been made or that will
be made in the future will result in increased sales or reduced operating costs
or increased customer satisfaction.

We
own the majority of the equipment used in our design and assembly operations.
We own the computer hardware and the office furniture and equipment as
necessary to operate our business. This equipment consists of readily available
items and can be replaced without significant cost or disruption to business
activities.

9

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Warranties

We
offer warranties of various lengths on most of our products. These warranties
range from as little as 90 days to as long as three years. In addition, we pass
along the manufacturers warranty, if any. In most cases, there is no
manufacturers warranty. The most notable exception is products purchased for
Brinks, some of which have a manufacturers warranty that extends for up to
five years. Our warranty is only for defects in the product. In the event a
product is defective, our only recourse is to return it to the manufacturer and
demand a credit against future purchases. To date, we have only had minimal
warranty claims asserted against us.

Government Regulation and Environmental
Matters

Except
for usual and customary business licenses, permits and regulations, our
business is not subject to governmental regulations or approvals. We believe
that we comply with all relevant federal, state and local environmental regulations
and do not expect to incur any significant costs to maintain compliance with
such regulations in the foreseeable future. Failure to comply with the
applicable regulations or to maintain required permits or licenses could result
in substantial fines or revocation of our permits or authorities. We cannot
give assurance as to the degree or cost of future regulations on our business.

All
of our sealed lead-acid batteries are non-hazardous Class 60 batteries, and
therefore are not subject to laws, rules and regulations that deal with the
handling of hazardous materials. However, we do offer to our customers as a
value-added service, coordination of used sealed lead-acid battery pick up by
EPA authorized haulers to dispose of the used batteries at EPA authorized
smelters. Our lithium batteries are designated as Class 9 or hazardous. We
ensure that we work with manufacturers certified in handling and packaging
these batteries in compliance with laws, rules or regulations that deal with
handling of hazardous materials that relate to Class 9. When the lithium
batteries arrive at our facility, they are warehoused in a separate area, and
shipped out to customers as needed. We do not make any modifications to lithium
batteries or their packaging.

Employees

As
of December 31, 2007, we had a total of 76 employees, of which 64 people were
based in our Texas facility, 4 were based in each of our regional logistics
centers in Oklahoma City, Oklahoma, Columbus, Georgia and Las Vegas, Nevada. We
have 5 senior executives, 29 marketing, sales and sales support personnel
(including the employees in our regional logistics centers), 12 information
technology, accounting, administrative and purchasing personnel, 7 engineering
and packing personnel and 23 people in our warehouses and shipping. All of our
employees are full-time. We do not have collective bargaining agreements with
respect to any of our employees. We have not experienced any work stoppages and
consider our relations with employees to be good.

|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

In
addition to other information in this Form 10-K, the following risk factors
should be carefully considered in evaluating us and our business, including our
financial statements and the notes to those statements. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us, or that we currently deem
immaterial, could negatively impact our business, results of operations or
financial condition in the future. If any of the following risks and
uncertainties develops into actual events, our business, results of operations
or financial condition could be adversely affected. Actual results could differ
materially from those projected in the forward- looking statements contained in
this Form 10-K as a result of the risk factors discussed below and elsewhere.

Risks Relating to Our Business

A
significant portion of our annual revenue is derived from a single customer. If
this customer were to terminate its relationship with us or even reduce its
level of business with us our operating results would suffer.

For
the years ended December 31, 2007, 2006 and 2005, one customer, Brinks,
accounted for 41%, 48% and 56% of our net sales, respectively. At December 31,
2007 our Brinks receivable was $3.8 million, representing approximately 30% of
our total accounts receivable as of that date, none of which was outside our
terms with the customer (generally 30 days). At any one time, we have carried
as much as $10.0 million of inventory to fulfill our obligations to Brinks. If
Brinks were to fail to purchase these items from us, we may not be able to find
other buyers for these products. Our agreement with Brinks expires in November
2008 but Brinks has the right to terminate our agreement at any time by giving
us 120 days prior written notice. If Brinks were to exercise this right or
significantly reduce the level of business it does with us, our revenues and
profitability would be adversely impacted. We cannot assure you that we will be
able to extend our agreement with Brinks or, if we can, what the terms of that
agreement will be. In addition, any adverse developments in Brinks business
could have an adverse impact on our financial condition. The market price of
our stock may be adversely affected because of this customer concentration.

Our
revolving credit agreement with Compass Bank contains restrictive covenants
that could impede our growth and our ability to compete.

Our
working capital requirements are significant. To fund our operations we rely on
cash flow from operations and a $30.0 million working capital revolving credit
facility. At December 31, 2007, the outstanding balance on our credit line was
$12.8 million and at December 31, 2006, it was $14.6 million. In addition, at
those dates our total liabilities, including accounts payable, were $32.0
million and $33.0 million, respectively. The credit facility restricts us in
many ways and these restrictions as well as the amount of the debt we carry at
any one time may have an adverse impact on the price of our stock.

First,
the indebtedness under the credit facility is secured by all of our assets,
including inventory and receivables. If we were to breach any of the terms of
our agreement with the bank and the bank were to exercise its right to declare
a default and a court of competent jurisdiction were to determine that we are
in default, the bank could foreclose on its security interests. Any foreclosure
action could cause us to seek protection under the federal bankruptcy code
which, in turn, would have a material adverse effect on our ability to operate
at a level required to maintain or achieve profitability, which, in turn, could
adversely impact the price of our stock and your investment.

Second,
the credit agreement contains numerous negative covenants, such as restricting
our ability to undertake any other financing transaction without the banks
consent or prohibiting us from buying another business or assets having a

10

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purchase price
in excess of $7.5 million without the banks consent. The consequences of these
covenants may include one or more of the following:

| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increasing
 our vulnerability to general adverse economic and industry conditions;                                                                                                                                                   
| |   |                                                                                                                                                                                                                                      
| |  | limiting our
 ability to obtain additional financing;                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                      
| |  | requiring that a substantial portion of our cash flows from
 operations be applied to pay principal and interest on our indebtedness and
 lease payments under our leases, thereby reducing cash flows available for
 other purposes;
| |   |                                                                                                                                                                                                                                      
| |  | limiting our flexibility in planning for or reacting to changes
 in our business and the industry in which we compete; and                                                                                                           
| |   |                                                                                                                                                                                                                                      
| |  | placing us
 at a possible competitive disadvantage compared to competitors with less
 leverage or better access to capital resources.                                                                                                

Third,
the agreement requires us to maintain various financial ratios and satisfy
various other financial and operating requirements and conditions, including a borrowing
base computation. These ratios and the borrowing base computation limit our
ability to draw on the facility. Also, failure to satisfy these ratios,
requirements and conditions could result in a breach of the loan covenants,
giving the bank the right to declare a default and commence proceedings to
collect the debt. Our ability to satisfy these ratios, requirements and
conditions may be affected by events that are beyond our control. These ratios,
requirements and conditions together with the negative covenants may restrict
or limit our operating flexibility, limit our flexibility in planning for and
reacting to changes in our business and make us more vulnerable to economic
downturns and competitive pressures.

Fourth,
our ratio of total liabilities to total market capitalization may exceed that
of other companies in our industry. As a result, an investment in us could be
perceived by the market as more risky than an investment in our competitors,
which may have an adverse impact on the price of our stock. In addition, the
total amount of our debt makes us particularly susceptible to changes in
general economic conditions or even adverse changes in the financial condition
in one or more of our significant customers. To meet our operating and debt
service requirements, which are significant, we must take steps to assure that
our existing customer base is comprised of businesses having financial
resources sufficient to assure timely payment for our product shipments and
that we identify creditworthy potential customers.

Finally,
a portion of the borrowings under our credit facility are and will continue to
be at a variable rate based upon prevailing interest rates, which exposes us to
risk of increased interest rates.

We
depend on a limited number of suppliers and do not have written agreements with
any of them. Any disruption in our ability to purchase products from them or
any drastic changes in the prices we pay for our products could adversely
affect our gross margins and profitability, which could have an adverse impact
on our operating results.

All
of our products are manufactured and assembled by third-party manufacturers,
many of which are located in the Pacific Rim region, principally China. We
depend on these third-party manufacturers to supply us with quality products in
a timely and efficient manner. If they fail to do so, we may have to find other
sources to meet our inventory needs. This could result in increased costs which
we may not be able to pass on to our customers, lost sales opportunities,
and/or a decrease in customer satisfaction, which could damage our reputation.

Our
largest domestic supplier is Honeywell Security and Custom Electronics
(HS&CE), formerly known as Ademco, a division of Honeywell International,
Inc., and the source of much of our Brinks inventory. We purchased 34%, 42% and
44% in the years 2007, 2006 and 2005, respectively from HS&CE. We do not
have a written agreement with HS&CE, although Brinks does. Our second largest
supplier, which is based in the Peoples Republic of China, accounted for 42%,
28% and 22% of our inventory purchases in 2007, 2006 and 2005, respectively,
which includes most of our battery purchases. We continue to rely on that
supplier as our principal source for batteries because of price, the quality of
its products, its ability to satisfy our need for a broad range of battery
chemistries and its timely deliveries. We believe that we get competitive
pricing from them because of the volume of our purchases. If our relationship
with that supplier was to terminate for any reason, or the factory could no
longer provide us with favorable pricing, we could lose a significant
competitive advantage, we may have to source our purchases from multiple factories.
This could have an adverse impact on the price we pay for batteries and other
products that we carry and may also adversely impact other factors such as the
quality of our products and the timeliness of our shipments. This could then
adversely impact our ability to meet customer expectations and damage our
reputation.

Any
disruption in our ability to move our goods from the manufacturers to our
logistics centers or from our logistics centers to our customers could result
in lost business.

Other
than some of the items we purchase to fulfill our obligations to Brinks,
substantially all of our products are manufactured outside the United States,
and most of our products are then shipped from one of our logistics centers to
our customers. As a result, we depend on third parties, principally shippers
and shipping brokers, freight forwarders, and customs brokers, to facilitate
our transportation needs. Transportation delays or interruptions, such as those
caused by labor strikes, natural disasters, terrorism, inspection delays,
import restrictions, bad weather, or acts of war, could impede our ability to
timely deliver our products to our customers. These delays could damage our
reputation and materially and adversely affect our operations and financial
condition. Also, these interruptions could increase our costs, if, for example,
we were forced to ship our products via air rather than ocean freight or if
insurance costs were to increase significantly as a result of terrorism or acts
of war.

We
depend on foreign manufacturers, which exposes us to various financial,
political and economic risks.

For the years ended December 31, 2007, 2006 and 2006, we purchased
approximately 50%, 39% and 30%, respectively, of our products through foreign
sources, predominantly in China and other Pacific Rim countries. In some
instances, particularly when we are dealing with a new supplier, we are
required to finance a portion of the tooling cost and raw material purchases
that the factory will incur to meet our requirements. Sometimes our customer
will offset our exposure by paying us an upfront fee. However, this is not
always the case and we are often at risk if the factory cannot deliver the
goods to us. As a result, our ability to sell certain products at competitive
prices could be adversely affected by any of the following:

| |   |                                
| | - | -------------------------------
| |  | increases in tariffs or duties;

11

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| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | changes in trade treaties;                                                                                                 
| |   |                                                                                                                            
| |  | strikes or delays in air or sea transportation;                                                                            
| |   |                                                                                                                            
| |  | future United States legislation with respect to pricing and/or
 import quotas on products imported from foreign countries;
| |   |                                                                                                                            
| |  | changes in local laws and regulations;                                                                                     
| |   |                                                                                                                            
| |  | wars, hostilities or other military activity;                                                                              
| |   |                                                                                                                            
| |  | expropriation of private enterprises;                                                                                      
| |   |                                                                                                                            
| |  | currency
 limitations including restrictions on repatriation or transfer of funds; and                                     
| |   |                                                                                                                            
| |  | turbulence
 in offshore economies or financial markets.                                                                    

Our
ability to be competitive with respect to sales of imported components could
also be affected by other governmental actions and policy changes, including
anti-dumping and international antitrust legislation.

Currency
fluctuations could have a negative impact on financial performance, which may
result in the loss of all or a portion of your investment in us.

Although
all of our transactions are recorded in U.S. dollars, adverse currency
fluctuations could make components manufactured abroad more expensive, cause
shortages due to unfavorable export conditions or cause our foreign suppliers
to limit exports to the United States. Significant changes in the value of the
Chinese renminbi in relation to the U.S. dollar began occurring during 2007 and
if changes continue unfavorably, it could increase the cost of goods and raw
materials for Chinese manufacturers, which they would then look to incorporate into
the price of goods that we purchase from them. As a result, we cannot assure
you that currency fluctuations will not have a material adverse effect on our
operating results in the future.

Our
industry is cyclical, which causes our operating results to fluctuate
significantly.

Many
of the products that rely on portable power supply units and related products
and accessories that we sell constitute discretionary purchases. Consumer
spending is unpredictable and is affected by many factors, including interest
rates, consumer confidence levels, tax rates, employment levels and prospects,
and general economic conditions. As a result, a recession in the general
economy or other conditions affecting disposable consumer income and retail sales
would likely reduce our sales.

We
cannot predict the timing or the severity of the cycles within our industry. In
particular, it is difficult to predict how long and to what levels any industry
upturn or downturn and/or general economic weakness will last or will be
exacerbated by terrorism or war or other factors on our industry. The
electronic components distribution industry has historically been affected by
general economic downturns. These economic downturns have often had an adverse
economic effect upon manufacturers, end-users of electronic components and
electronic components distributors. Our industry also directly depends on the
continued growth of the electronic components industry and indirectly on
end-user demand for our customers products. The timing of new product
developments, the life-cycle of existing electronic products, and the level of
acceptance and growth of new products can also affect demand for electronic
components. Due to changing conditions, our customers have experienced, and may
in the future experience, periods of inventory corrections which could have a
significant negative impact on our results. We have supported in the past and
expect in the future to support new technologies and emerging markets. If these
new technologies and emerging markets fail to be accepted or grow, our
operating results could suffer significantly. Our operating results have
significantly fluctuated in the past, and will likely fluctuate in the future,
because of these market changes and factors.

Our
industry is susceptible to supply shortages and price volatility. Any delay or
inability to obtain components or a significant increase in the price of
components may have an adverse effect on our operating results.

The
electronics industry, in general, has been susceptible to supply shortages and
price volatility. In part, these conditions are attributable to the price of
lead and copper, the two principal raw materials used to manufacture electronic
components, and the price of oil, which impacts both manufacturing costs and
shipping costs. Over the past few years, prices for lead and copper have
increased significantly. In the last 10 years, the price of oil has increased
over 500%, from approximately $20 per barrel to over $100 per barrel. These
price increases could lead to supply shortages as manufacturers hold up or
delay production in the hope that prices will come down or because they do not
have the capital to continue purchasing raw materials at the same level. These
shortages could adversely impact our ability to satisfy customer demands,
impairing not only our financial performance but jeopardizing our ongoing
relationships with our customers. In addition, it is not always possible to
pass along these price increases to our customers, which would have an
unfavorable impact on our gross margins and overall profitability. On the other
hand, as a result of price decreases, which are also possible when dealing with
commodity-based products, we may experience periods when our investment in
inventory exceeds the market price of such products. This could have a negative
impact on our sales and gross profit.

Our
business model assumes that distributors will continue to play a significant
role in the electronics industry, as a traditional distributor, as a logistics
provider or as both. A reversal of the trend for distributors to play an
increasing role in the electronic components industry could adversely affect
our business.

Traditionally,
distributors have played an important role in the electronics industry serving
as the bridge between the component manufacturers and OEMs, wholesalers and
retailers. In recent years, there has been a growing trend for OEMs and
contract electronics manufacturers to outsource their procurement, inventory
and materials management processes to third parties, particularly electronic
component distributors. We believe this trend has contributed and will continue
to contribute to our growth. However, as a result of the Internet and other
recent developments contributing to the global economy, OEMs and retailers
have the opportunity to contract directly with the component manufacturers,
bypassing the distributors. If that direct contact becomes a trend, our sales
would be materially adversely affected.

Competition
        in our industry is intense, which creates significant pricing pressures
        on our products and services. If we cannot compete effectively, our gross
        margins and profitability would be adversely impacted, which could have
an adverse impact on the market price of our stock.

12

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We
compete with numerous, well-established companies, many, if not most of which
are larger and have greater capital and management resources than we do. Our
principal competitors include other logistics companies, shippers, such as UPS
Supply Chain, FedEx and DHL who also provide supply chain management services,
and battery distributors, such as Interstate Batteries, MK Battery and Dantona,
as well as companies like us that are both logistics providers and
distributors. In addition, we are increasingly finding that manufacturers,
particularly foreign manufacturers, are competing against us. We compete
primarily on the basis of price, inventory availability, scope of services, quality
of products and services, delivery time and customer relationships. We expect
competition to intensify in the future. To the extent our competitors have
superior financial resources, they may be better able to withstand price
competition and can even implement extensive promotional programs. They may
also be able to offer a broader range of services.

Our
ability to remain competitive will largely depend on our ability to continue to
source the products we sell at competitive prices, control costs and anticipate
and respond to various trends affecting the industry. These factors include new
product introductions and pricing strategies, changes in customer preferences
and requirements, consumer trends, demographic trends and international, national,
regional and local economic conditions. New competitors or competitors price
reductions or increased spending on marketing and product development, as well
as any increases in the price of raw materials that our suppliers pass on would
have a negative impact on our financial condition and our competitive position,
as larger competitors will be in a better position to bear these costs and
price increases. We cannot assure you that we will be able to compete
successfully against existing companies or ones that will enter our market in
the future.

Disruption
in our logistics centers may prevent us from meeting customer demand and our
sales and profitability may suffer as a result.

We
manage our product distribution in the continental United States through our
operations in Carrollton, Texas, and three regional logistics centers located
in Oklahoma City, Columbus, Georgia and Las Vegas, Nevada. A serious
disruption, such as earthquakes, tornados, floods, or fires, at any of our logistics
centers could damage our inventory and could materially impair our ability to
distribute our products to customers in a timely manner or at a reasonable
cost. We could incur significantly higher costs and experience longer lead
times associated with distributing our products to our customers during the
time that it takes for us to reopen or replace a distribution center. As a
result, any such disruption could have a material adverse effect on our
business.

As
part of our long-term growth strategy, we may undertake strategic acquisitions.
If we are unable to address the risks associated with these acquisitions our
business operations may be disrupted and our financial performance may be
impaired.

Our
long-term growth strategy includes building or acquiring a manufacturing
facility. We also will consider acquiring other logistics companies or
distributors if we believe such an acquisition would expand or complement our
existing business. In pursuing acquisition opportunities, we may compete with
other companies having similar growth and investment strategies. Competition
for these acquisition targets could also result in increased acquisition costs
and a diminished pool of businesses, technologies, services or products
available for acquisition. Our long-term growth strategy could be impeded if we
fail to identify and acquire promising candidates on terms acceptable to us.
Assimilating acquired businesses involves a number of other risks, including,
but not limited to:

| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | disrupting
 our business;                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                           
| |  | incurring additional expense associated with a write-off of all
 or a portion of the related goodwill and other intangible assets due to
 changes in market conditions or the economy in the markets in which we
 compete or because acquisitions are not providing the expected benefits;
| |   |                                                                                                                                                                                                                                                                                           
| |  | incurring
 unanticipated costs or unknown liabilities;                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                           
| |  | managing more geographically-dispersed operations;                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                           
| |  | diverting managements resources from other business concerns;                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                           
| |  | retaining the employees of the acquired businesses;                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                           
| |  | maintaining existing customer relationships of acquired
 companies;                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                           
| |  | assimilating the operations and personnel of the acquired
 businesses; and                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                           
| |  | maintaining uniform standards, controls, procedures and
 policies.                                                                                                                                                                                                                        

For
all these reasons, our pursuit of an overall acquisition or any individual
acquisition could have a material adverse effect on our business, financial
condition and results of operations. If we are unable to successfully address
any of these risks, our business could be harmed.

Rapid
growth in our business could strain our managerial, operational, financial,
accounting and information systems, customer service staff and office resources.
If we fail to manage our growth effectively, our business may be negatively
impacted.

In
order to achieve our growth strategy, we will need to expand all aspects of our
business, including our computer systems and related infrastructure, customer
service capabilities and sales and marketing efforts. We cannot assure you that
our infrastructure, technical staff and technical resources will adequately
accommodate or facilitate our expanded operations. To be successful, we will
need to continually improve our financial and managerial controls, billing
systems, reporting systems and procedures, and we will also need to continue to
expand, train and manage our workforce. In addition, as we offer new products
and services, we will need to increase the size and expand the training of our
customer service staff to ensure that they can adequately respond to customer
inquiries. If we fail to adequately train our customer service staff and
provide staffing sufficient to support our new products and services, we may
lose customers.

13

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Our
success to date and our future success depend on our senior executives and
other key personnel. If we lose the services of any of these individuals, our
business will suffer.

We
depend substantially on the efforts and abilities of our senior executives. The
loss or interruption of the full-time service of one or more of these
executives could materially and adversely affect our business and operations.
Even though we have employment agreements with these executives we cannot
assure you that they will continue to work for us. If we were to lose the
services of any of our senior executives and we were not able to replace them
quickly and with people of comparable skills, our operations would be adversely
impacted.

If
we become subject to product returns or product liability claims resulting from
defects in our products, we may face an increase in our costs, a loss of
customers, damage to our reputation, or a delay in the market acceptance of our
products.

The
products that we sell are complex and may contain undetected defects or
experience unforeseen failures. We cannot assure you that the products we sell,
despite any safety certification they may carry, are free of all defects. Even
though we are not a manufacturer, as part of the supply chain we may be named
as a defendant in a lawsuit for property damage or personal injury resulting
from defects in the goods we handle. If that happens, we may be forced to
undertake a product recall program, which could cause us to incur significant
expenses and could harm our reputation and that of our products. In addition, a
product liability claim brought against us, even if unsuccessful, would likely
be time-consuming, diverting managements attention from sales and product
development efforts, and costly to defend. If successful, such claims could
require us to make significant damage payments in excess of our insurance
limits.

If
we are unable to protect our intellectual property, our ability to compete
effectively in our markets could be harmed.

We
regard our trademarks, trade names, service marks, service names, trade secrets
and other intellectual property rights important to our success. Unauthorized
use of our intellectual property by third parties may adversely affect our
business and reputation. We rely on trademark law, statutory and common law,
trade secret protection and confidentiality agreements with our employees, and
with our customers and vendors whenever possible, in order to protect our
intellectual property rights. Not all of our customers and vendors agree to
these provisions, and the scope and enforceability of these provisions is
uncertain. In addition, even if our intellectual property rights are enforceable
in the United States, they may not be enforceable in other countries where we
do business. As a result, despite these precautions, it may be possible for
third parties to obtain and use our intellectual property without
authorization. Moreover, we may have to resort to litigation, which is
expensive and time-consuming and will divert managements attention from our
core business.

We
may be required to incur substantial expenses and divert management attention
and resources in defending intellectual property litigation against us or
prosecuting others for their unauthorized use of our intellectual property.

We
cannot be certain that the products we purchase from our suppliers do not and
will not infringe on issued patents or other proprietary rights of others. In
fact, we are a named defendant in an action brought by Energizer Holdings, Inc.
and Eveready Battery Company, Inc. against us and over 20 other respondents
relating to the manufacture, importation and sale of certain alkaline batteries
alleged to infringe one of their patents. Any claim, with or without merit,
could result in significant litigation costs and diversion of resources,
including the attention of management, and could require us to enter into
royalty and licensing agreements, all of which could have a material adverse
effect on our business. We may be unable to obtain such licenses on
commercially reasonable terms, or at all, and the terms of any offered licenses
may not be acceptable to us. If forced to cease using such intellectual
property, we may not be able to develop or obtain alternative technologies. An
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent us from manufacturing, using, or selling
certain of our products, which could have a material adverse effect on our
business.

Furthermore,
parties making such claims could secure a judgment awarding substantial damages
as well as injunctive or other equitable relief that could effectively block
our ability to make, use, or sell our products in the United States or abroad.
A judgment like that could have a material adverse effect on our business. In
addition, we are obligated under certain agreements to indemnify our customers
or other parties if we infringe the proprietary rights of third parties. Any
required indemnity payments under these agreements could have a material
adverse effect on our business.

We
owe a significant amount of money to Zunicom, our former corporate parent and
largest shareholder. Our obligation to repay indebtedness could strain our
financial resources.

As
of December 31, 2007 we owed two notes to Zunicom, our former corporate parent
and largest shareholder. One note has an original principal amount of $3
million. The other note has an original principal amount of $2.85 million. Both
notes have a maturity date of June 20, 2012. The notes bear interest at 6% with
interest only payable during the first 18 months of the term. Thereafter, interest
and principal will be payable in 16 equal quarterly installments beginning
September 20, 2008. The combined payments under both notes may adversely impact
our working capital position.

We
will incur increased costs as a result of being a public company, which may
divert management attention from our business and impair our financial results.

As
a public company, we incur significant legal, accounting and other expenses
that we did not incur as a wholly-owned subsidiary of Zunicom. In addition, the
Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by
the Securities and Exchange Commission and the American Stock Exchange, has
required changes in corporate governance practices of public companies. We
expect these new rules and regulations to continue to increase our legal and
financial compliance costs and to make some activities more time-consuming and
costly. In addition, we will incur additional costs associated with our public
company reporting requirements. These new rules and regulations have also
increased the cost of directors and officers liability insurance. We
continually evaluate and monitor developments with respect to these rules, and
we cannot predict or estimate the amount of additional costs we may incur or
the timing of such costs.

Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
ability to produce accurate financial statements and on our stock price.

Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (S-Ox 404), we are required to
furnish a report on our internal controls over financial reporting. The
internal control report must contain (a) a statement of managements responsibility for establishing and
maintaining adequate internal control over financial reporting, (b) a statement
identifying

14

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the framework
used by management to conduct the required evaluation of the effectiveness of
our internal control over financial reporting, (c) managements assessment of
the effectiveness of our internal control over financial reporting as of the
end of our most recent fiscal year, including a statement as to whether or not
internal control over financial reporting is effective and (d) a statement that
our independent registered public accounting firm has issued an attestation
report on managements assessment of internal control over financial reporting.
Managements assessment report was completed for the period covered by this
report and current rules require the independent registered public accounting
firms attestation report must be completed before we file our annual report
for the year ending December 31, 2009.

To
comply with S-Ox 404 within the prescribed period, we are engaged in a process
to document and evaluate our internal control over financial reporting, which
is both costly and challenging. In this regard, we continue to dedicate
internal resources, engage outside consultants and implement a detailed work
plan to (a) assess and document the adequacy of internal control over financial
reporting, (b) take steps to improve control processes where appropriate, (c)
validate through testing that controls are functioning as documented and (d)
implement a continuous reporting and improvement process for internal control
over financial reporting. Despite our efforts, we can provide no assurance as
to our, or our independent registered public accounting firms, conclusions
with respect to the effectiveness of our internal control over financial
reporting under S-Ox 404. There is a risk that neither we nor our independent
registered public accounting firm will be able to conclude within the
prescribed timeframe that our internal controls over financial reporting are
effective as required by S-Ox 404. This could result in an adverse reaction in
the financial markets due to a loss of confidence in the reliability of our
financial statements.

We
are subject to various governmental regulations that could adversely affect our
business.

Like
many businesses, our operations are subject to certain federal, state, and
local regulatory requirements relating to environmental, product disposal, and
health and safety matters. We could become subject to liabilities as a result
of a failure to comply with applicable laws and incur substantial costs to
comply with existing, new, modified, or more stringent requirements. The use of
our products is also governed by a variety of state and local ordinances that
could affect the demand for our products.

Risks Related to Our Stock

Currently
our common stock is  thinly traded. If an active market does not develop for
our securities, you may not be able to sell our common stock when you want.

Since
our stock began trading on the American Stock Exchange, daily trading volume
has been erratic. An active trading market in our common stock may never
develop. An illiquid market makes it more difficult for you to sell our stock
should you desire or need to do so. Even more, the market price of our
securities may be volatile, fluctuating significantly in response to a number
of factors, some of which are beyond our control. These factors include:

| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly and seasonal variations in operating results;                                                                                         
| |   |                                                                                                                                                 
| |  | changes in financial estimates and ratings by securities
  analysts;                                                                            
| |   |                                                                                                                                                 
| |  | announcements by us or our competitors of new product and
  service offerings, significant contracts, acquisitions or strategic
  relationships;
| |   |                                                                                                                                                 
| |  | publicity about our company, our services, our competitors or
  business in general;                                                            
| |   |                                                                                                                                                 
| |  | additions or departures of key personnel;                                                                                                       
| |   |                                                                                                                                                 
| |  | fluctuations in the costs of materials and supplies;                                                                                            
| |   |                                                                                                                                                 
| |  | any
  future sales of our common stock or other securities; and                                                                                 
| |   |                                                                                                                                                 
| |  | stock market price and volume fluctuations of publicly-traded
  companies in general and in the electronic industry in particular.              

We
may not be able to maintain our listing on the American Stock Exchange, which
may adversely affect the ability of purchasers to resell their common stock in
the secondary market.

Although
our common stock is listed on the American Stock Exchange, we cannot assure you
that we will continue to meet the criteria for continued listing on the
American Stock Exchange in the future. If we are unable to meet the continued
listing criteria of the American Stock Exchange and became delisted, trading of
our common stock could be conducted in the Over-the-Counter Bulletin Board. In
such case, an investor would likely find it more difficult to dispose of our
common stock or to obtain accurate market quotations. If our common stock is
delisted from the American Stock Exchange, it will become subject to the SECs
penny stock rules, which imposes sales practice requirements on
broker-dealers that sell such common stock to persons other than established
customers and accredited investors. Application of this rule could adversely
affect the ability or willingness of broker-dealers to sell our common stock
and may adversely affect the ability of purchasers to resell their common stock
in the secondary market.

Zunicom
is our largest shareholder and has significant influence over us, which may result
in conflicts of interest, or the appearance of such conflicts, and may
adversely impact our value and the liquidity of our stock.

Zunicom
directly owns 40.0% of our outstanding common. William Tan, our chairman, is
also the chairman of Zunicom and Ian Edmonds, our chief operating officer and a
member of our board of directors (the Board) and the son-in-law of Mr. Tan,
is also a member of the board of directors of Zunicom. As a result, Zunicom has
significant influence over all matters requiring approval by our stockholders,
including the election and removal of directors, any proposed merger,
consolidation or sale of all or substantially all of our assets and other
corporate transactions. This concentration of influence could be disadvantageous
to other stockholders with different interests, which could result in reducing
our profitability. In addition, this concentration of share ownership, and the
appearance of conflicts, even if such conflicts do not materialize, may
adversely affect the trading price for our common stock, because investors
often perceive disadvantages in owning stock in companies with a significant
concentration of ownership among a limited number of shareholders. We do not
have a formal procedure for resolving any conflicts of interest.

15

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Future
sales or the potential for sale of a substantial number of shares of our common
stock could cause the trading price of our common stock to decline and could
impair our ability to raise capital through subsequent equity offerings.

Sales
of a substantial number of shares of our common stock in the public markets, or
the perception that these sales may occur, could cause the market price of our
stock to decline and could materially impair our ability to raise capital
through the sale of additional equity securities. We have 5,000,000 shares of
common stock issued and outstanding and an additional 1,800,000 shares of
common stock reserved for future issuance as follows:

| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | 1,500,000
  shares reserved for issuance under our 2006 Stock Option Plan; and
| |   |                                                                               
| |  | 300,000
  shares underlying warrants sold during our IPO.                     

All
our outstanding common shares may be freely traded. However, since our IPO, the
shares have been thinly traded in the public market. Future sales, or even
the possibility of future sales, may depress our common stock price.

Management
has broad discretion over the use of proceeds from our IPO and may not apply
them effectively or in the manner currently contemplated.

We
have broad discretion in determining the specific uses of the proceeds from our
IPO. And when those proceeds will be used. The timing and use of our IPO
proceeds will depend on a number of factors including differences between our
expected and actual revenues from operations or availability of commercial
financing opportunities, unexpected expenses or expense overruns or
unanticipated opportunities requiring cash expenditures. As a result,
shareholders will not have the opportunity to evaluate the economic, financial
or other information on which we base our decisions on how to use the proceeds.
Shareholders will rely on the judgment of our management with only limited
information about their specific intentions regarding the use of proceeds. We may
spend most of the proceeds of our IPO in ways with which shareholders may not
agree. If we fail to apply these funds effectively, our business, results of
operations and financial condition may be materially and adversely affected.

We
may issue shares of preferred stock in the future, which could depress the
price of our stock.

Our
corporate charter authorizes us to issue shares of blank check preferred
stock. The Board has the authority to fix and determine the relative rights and
preferences of preferred shares, as well as the authority to issue such shares,
without further shareholder approval. As a result, the Board could authorize
the issuance of a series of preferred stock that would grant to holders
preferred rights to our assets upon liquidation, the right to receive dividends
before dividends are declared to holders of our common stock, and the right to
the redemption of such preferred shares, together with a premium, prior to the
redemption of the common stock. To the extent that we do issue such additional
shares of preferred stock, the rights of the holders of our common stock could
be impaired thereby, including, without limitation, with respect to
liquidation.

Texas
law and provisions of our amended and restated articles of incorporation and
bylaws could deter or prevent takeover attempts by a potential purchaser of our
common stock that would be willing to pay you a premium for your shares of our
common stock.

Our
amended and restated articles of incorporation and bylaws and the corporate
laws of the State of Texas include provisions designed to provide the Board
with time to consider whether a hostile takeover offer is in our and
shareholders best interests, but could be utilized by the Board to deter a
transaction that would provide shareholders with a premium over the market
price of our shares. These provisions include the availability of authorized
but unissued shares of common stock for issuance from time to time at the
discretion of the Board; the availability of authorized shares of preferred
stock, the number of which to be issued from time to time and their terms and
conditions being solely in the discretion of the Board; bylaws provisions
enabling the Board to increase the size of the board and to fill the vacancies
created by the increase; and bylaw provisions establishing advance notice
procedures with regard to business to be presented at shareholder meetings or
to director nominations (other than those by or at the direction of the Board).
The Texas Business Corporation Act also contains provisions intended to protect
shareholders and prohibit or discourage various types of hostile takeover
activities. These provisions may discourage potential acquisition proposals and
could delay or prevent a change in control, including under circumstances where
our shareholders might otherwise receive a premium over the market price of our
shares. These provisions may also have the effect of making it more difficult
for third parties to cause the replacement of our current management and may
limit the ability of our shareholders to approve transactions that they may
deem to be in their best interests.

We
do not anticipate paying dividends in the foreseeable future. This could make
our stock less attractive to potential investors.

We
anticipate that we will retain all future earnings and other cash resources for
the future operation and development of our business, and we do not intend to
declare or pay any cash dividends in the foreseeable future. Future payment of
cash dividends will be at the discretion of our board of directors after taking
into account many factors, including our operating results, financial condition
and capital requirements.

|        |                          
|------- | -------------------------
|ITEM 2. | DESCRIPTION OF PROPERTIES

Our
executive offices are located in Carrollton, Texas.

On
February 1, 2002, we entered into a lease for a logistical center in
Carrollton, Texas which was amended in March 2003 and November 2006. As
amended, the lease covers a total of approximately 216,000 square feet and
expires March 31, 2013. Monthly payments for 2007 are approximately $38,800,
$41,900 for 2008 and 2009, $46,400 for 2010 through 2012, and $0 for the final
three months, January 1, 2013 through March 31, 2013.

On
April 30, 2003, we entered into a lease agreement for approximately five years
with approximately 5,000 square feet of retail and warehouse space in Oklahoma
City, Oklahoma. We are leasing this space for approximately $1,600 per month
beginning August 1, 2003 through July 31, 2008. We are currently negotiating
for a lease renewal or replacement of our existing space.

We
entered into a lease agreement for approximately 9,550 square feet of retail
and warehouse space in Las Vegas, Nevada. As of January 1, 2006 we are leasing
this space for approximately $10,530 per month. The lease was effective as of
January 1, 2006 and expires December 31, 2008. We are currently negotiating for
a lease renewal or replacement of our existing space.

16

---



We
entered into a lease agreement during 2007 for approximately 18,000 square feet
of retail and warehouse space in Columbus, Georgia. We are leasing this space
for approximately $6,000 per month. The lease was effective as of August 1,
2007 and expires July 31, 2010.

|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

Energizer
Holdings, Inc. and Eveready Battery Company, Inc. (collectively Eveready)
have initiated legal proceedings against us and over 20 other respondents
relating to the manufacture, importation and sale of certain alkaline batteries
alleged to infringe U.S. Patent No. 5,464,709. Eveready is seeking a general
exclusion order with respect to future importation of these batteries. We have
denied infringement and have been vigorously defending this action. The
International Trade Commission ruled against Eveready and Eveready then
appealed to the United States Court of Appeals for the Federal Circuit. On
January 25, 2006, in the Federal Circuit reversed the Commissions holding of
invalidity and remanded for further proceedings based on its construction of
Evereadys patent. On February 23, 2007, the International Trade Commission
again ruled that Everyreadys patent was invalid and terminated the
investigation. Eveready appealed that decision to the Federal Circuit where
oral arguments were heard on November 5, 2007. As of the date of this report no
decision has been reached. For more information, see In re Certain
Zero-Mercury-Added Alkaline Batteries, Parts Thereof and Products Containing Same,
Investigation No. 337-TA-493, in the United States International Trade
Commission.

InA.J.
Gilson v. Universal Power Group, Inc.,
Cause No. 05-09448-H, in the 160th Judicial Court of Dallas County, Texas
plaintiff, a former independent sales representative for Universal Power Group,
brought an action asserting claims for breach of contract, promissory estoppel
and quantum meruit, alleging that Universal failed to pay him commissions owed
in the amount of $430,722. We denied plaintiffs allegations. Trial was
conducted in this case on July 30-August 1, 2007, and a final judgement was
entered on October 12, 2007 dismissing the plaintiffs claims with prejudice.
As of the date of this report no appeal has been filed.

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

None.

PART II

|        |                                                                                                               
|------- | --------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
  AND ISSUER PURCHASES OF EQUITY SECURITIES

Our
common stock is listed on the American Stock Exchange (AMEX) under the symbol
UPG. The following table sets forth for the periods indicated the high and
low sale prices per share for our common stock, as reported on AMEX. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not represent actual transactions.

|                   |  |  |  |  |               |      |     |   |      | 
|------------------ |  |  |  |  | ------------- | ---- | --- | - | ---- | 
|                   |  |  |  |  | Sale
  Prices |     
|                   |  |  |  |  | High          |      | Low |  
|Fiscal year 2007   |  |  |  |  |               |      |     |   |      | 
|First
  Quarter(1) |  |  |  |  | $             | 7.10 |     | $ | 3.96 | 
|Second
  Quarter   |  |  |  |  |               | 5.40 |     |   | 4.05 | 
|Third
  Quarter    |  |  |  |  |               | 5.00 |     |   | 3.99 | 
|Fourth
  Quarter   |  |  |  |  |               | 5.05 |     |   | 3.77 | 
|                   |  |  |  |  |               |      |     |   |      | 




| |     |                                                                                                                                                                                                                        | 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (1) | December 21, 2006, was the
  first day our common stock began trading on the AMEX after the consummation
  of our IPO (described below) on December 20, 2006. The Initial public
  offering price per share was $7.00.

On March
20, 2008, the closing price of our common stock was $2.91.

No
dividends have been declared or paid on our common stock since our IPO and none
are anticipated at this time. We have no shares of preferred stock outstanding.

As of March
20, 2008, the Company had 5,000,000 shares of common stock issued and
outstanding held by approximately 629 shareholders of record.

Use of Proceeds from Registered Securities
and Other Information

Our
initial public offering (IPO) was declared effective on December 20, 2006. In
the offering, we received net proceeds of approximately $11.8 million. We have
used proceeds totaling approximately $1.1 million implementing our new
warehouse management system, $0.3 million in start up of our Columbus, Georgia
distribution center and $0.1 million for new product development. As of
December 31, 2007 the remaining approximately $10.3 million in net proceeds
have been applied to temporarily reduce our outstanding line of credit. We have
made no direct or indirect payments to any directors or officers from the
proceeds.

In
connection with the initial public offering, we sold to the underwriters an
aggregate of 300,000 warrants, each warrant entitling the holder thereof to
purchase one share of our common stock for $8.40 at any time on or after
December 20, 2008 and on or before December 19, 2011.

We
have reserved 1,500,000 shares of our common stock to be issued under our 2006
Stock Option Plan and granted options to certain officers and directors
representing 1,289,364 shares with an exercise prices ranging from $4.48 to
$7.00 per share. The options expire December 19, 2016.

|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

The
selected historical financial data presented below is derived from our audited
financial statements of the Company.

17

---



The selected financial data
should be read in conjunction with Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations, and with our
audited financial statements and related notes included elsewhere in this Form
10-K. Statement of Operations Data:

|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------ | ------- | ---- | - | ------ | - | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|                                                                       |  | Years
  ended December 31, (in thousands except per share amounts) |        
|                                                                       |  |                                                                    |        
|                                                                       |  | 2007                                                               |         | 2006 |   | 2005   |   | 2004 |        | 2003 |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |  
|Net revenues                                                           |  | $                                                                  | 108,517 |      | $ | 92,583 |   | $    | 81,275 |      | $ | 67,160 |   | $ | 58,670 |  
|Cost of revenues                                                       |  |                                                                    | 92,542  |      |   | 79,426 |   |      | 70,960 |      |   | 58,356 |   |   | 49,565 |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Gross profit                                                           |  |                                                                    | 15,975  |      |   | 13,157 |   |      | 10,315 |      |   | 8,804  |   |   | 9,105  |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Operating expenses                                                     |  |                                                                    | 11,761  |      |   | 11,803 |   |      | 7,888  |      |   | 7,568  |   |   | 7,191  |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Income from operations                                                 |  |                                                                    | 4,214   |      |   | 1,354  |   |      | 2,427  |      |   | 1,236  |   |   | 1,914  |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Interest expense                                                       |  |                                                                    | (1,195  | )    |   | (834   | ) |      | (490   | )    |   | (446   | ) |   | (310   | )
|Other income (expense)                                                 |  |                                                                    | 396     |      |   | 40     |   |      | 12     |      |   | (45    | ) |   |       |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Income from operations before income tax
  provision                   |  |                                                                    | 3,415   |      |   | 560    |   |      | 1,948  |      |   | 745    |   |   | 1,603  |  
|Income tax provision                                                   |  |                                                                    | (1,191  | )    |   | (272   | ) |      | (814   | )    |   | (347   | ) |   | (685   | )
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Net income                                                             |  | $                                                                  | 2,224   |      | $ | 288    |   | $    | 1,134  |      | $ | 398    |   | $ | 919    |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Net income per share                                                   |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Basic                                                                  |  | $                                                                  | 0.44    |      | $ | 0.10   |   | $    | 0.38   |      | $ | 0.13   |   | $ | 0.31   |  
|Diluted                                                                |  | $                                                                  | 0.44    |      | $ | 0.07   |   | $    | 0.38   |      | $ | 0.13   |   | $ | 0.31   |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Weighted average common and common
  equivalent shares outstanding (a) |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Basic                                                                  |  |                                                                    | 5,000   |      |   | 3,022  |   |      | 3,000  |      |   | 3,000  |   |   | 3,000  |  
|Diluted                                                                |  |                                                                    | 5,001   |      |   | 4,175  |   |      | 3,000  |      |   | 3,000  |   |   | 3,000  |  
|                                                                       |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Balance Sheet Data:                                                    |  |                                                                    |         |      |   |        |   |      |        |      |   |        |   |   |        |  
|Working capital                                                        |  | $                                                                  | 21,213  |      | $ | 20,972 |   | $    | 4,013  |      | $ | 3,905  |   | $ | 3,600  |  
|Total assets                                                           |  | $                                                                  | 49,411  |      | $ | 48,119 |   | $    | 29,252 |      | $ | 22,103 |   | $ | 18,705 |  
|Total liabilities                                                      |  | $                                                                  | 31,755  |      | $ | 32,806 |   | $    | 24,996 |      | $ | 18,015 |   | $ | 14,830 |  
|Stockholders equity                                                   |  | $                                                                  | 17,656  |      | $ | 15,313 |   | $    | 4,255  |      | $ | 4,088  |   | $ | 3,875  |  



---

|    |                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | On October
  25, 2006 the Companys Board of Directors authorized a forward stock split of
  6.07404258 shares for each share of common stock outstanding on such date. As
  a result, the number of shares of common stock issued and outstanding
  increased from 493,905 to 3,000,000. All information in these statements
  gives retroactive effect to the stock split.

|        |                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONSEXECUTIVE SUMMARY

The
year 2007 marked our first full year as a publicly traded company and produced
our best ever operating results. Consistent with our 11 year operating history,
we continued to grow our business in the rapidly expanding battery and supply
chain management industries. Our overall 17.2% revenue growth over 2006 was, as
it historically has been, totally organic in nature and was accomplished by
executing on key growth stratgies such as increasing our penetration of new and
existing customer accounts, diversifying our product mix and expanding our
geographic reach.

We
believe the 38.8% revenue growth in 2007 over 2006 in our non-Brinks battery
and battery-related business reflects more focused marketing efforts and
increased customer penetration. We also expanded our battery, charger and
portable power product lines to better meet the evolving needs of our customers
and, ultimately, the end-consumer. On the other hand, going forward, we will
continue to capitalize on favorable industry trends, such as the growing demand
for productivity and portability in the consumer electronics industry as well
as third-party logistics opportunities.

Our
geographic reach was expanded with the launch of our fourth logistics center,
located in Columbus, Georgia. The new logistics center not only improves
transit times and service opportunities in the south-eastern markets, but
provides new revenue opportunities through targeted regional sales efforts. We
intend to launch additional logistics centers in the near future.

While
2007s financial results were comparatively strong, the year was not without
its challenges. Throughout the full year, we faced higher raw material costs as
prices of lead, copper and zinc reached new levels. Even though we were able to
pass through most of the raw material price increases, our margins were
impacted. Our Brinks Home Security business grew at a slower than historical
pace, with sales to Brinks and their dealers up 1.8% in 2007, which was offset
by the significant growth and strength of our other battery and related
business. We also absorbed substantial additional costs that come with being a
public company. Despite these challenges, we were able to deliver strong
financial results to our shareholders.

In
addition to targeted organic growth, acquisitions remain a significant
component of our expansion initiatives and growth plans. We continue to
diligently evaluate markets and suitable acquisition candidates that will
facilitate reaching our strategic objectives.

18

---



During
2007 we initiated our Sarbanes-Oxley 404 compliance plan and incurred
approximately $266,000 in related costs, primarily during the fourth quarter.
As of December 31, 2007 we had incurred approximately 90% of anticipated
implementation costs and had substantially completed implementation of our
compliance plan.

As
we enter into 2008, we remain optimistic, opportunistic and very positive about
our future. We have made and will continue to make the necessary investments in
our infrastructure, namely, our distribution facilities, our warehouse
management system and our people, to support and facilitate our immediate and
long-term growth objectives.

For
the full-year 2007, our revenues increased to $109 million, up $16 million, or
17.2%, from $93 million for 2006. Our operating income rose to $4.2 million in
2007, up $2.8 million from $1.4 million in 2006. Our net income rose to $2.2
million in 2007, up $1.9 million from $0.3 million in 2006. Our 2006 results
included a $2.2 million non-cash charge against operating income for
stock-based compensation compared to $0.1 million in 2007.

Our
2007 revenues from sources other than Brinks and their dealers rose 38.8% to
$53.6 million from $38.6 million for 2006, reflecting growth of new and
existing customer accounts as well as price increases implemented by us to
offset higher costs of goods sold. Growth in our higher margin business for
2007 was driven approximately 41% by volume and 59% by price increases.
Revenues from Brinks and their dealers increased to $55.0 million, up 1.8%
compared to $54.0 million for 2006. We believe this modest increase partially
reflects slower growth in the residential housing market.

Gross
margin improved as a percentage of revenues for the year ended December 31,
2007 to 14.7% compared to 14.2% for the comparable period in 2006. This
increase in gross margin generally reflects product mix improvement as well as
price increases to offset higher raw material costs. We continue to focus on
and develop higher margin products and markets. As mentioned above, the
industry continues to experience significant volatility in certain raw
materials. As raw material prices are expected to remain volatile during 2008,
we will continue recovering these increases from our customers wherever possible.
Currently, there is no indication that we will not be able to obtain supplies
of all the materials that we require. Maintaining and growing our gross margins
will continue to be more challenging while prices for raw materials are
volatile.

A
more detailed analysis of our results of operations and financial condition
follows:

Results of Operations Year Ended December 31,
2007 Compared to December 31, 2006

Revenues

Net revenues for the year ended December 31,
2007 were $108.5 million compared to net revenues of $92.6 million for the
similar period in 2006, an increase of $15.9 million, or 17.2%. In the 2007
period, our non-Brinks sales of batteries, battery-related and battery-powered
products increased by $15.0 million, or 38.8% from 2006. Sales to Brinks,
including their dealers, was $55.0 million compared to $54.0 million in the
2006 period, an increase of $1.0 million, or 1.8%. We believe this modest
increase partially reflects slower growth in the residential housing market.
However, we anticipate continued overall growth in net sales of batteries and
battery powered product lines and new products.

Cost
of sales

Cost
of sales is comprised of the base product cost, freight, duty and servicing
fees where applicable. Cost of sales totaled $92.5 million for the year ended
December 31, 2007, compared to $79.4 million in the comparable 2006 period, an
increase of $13.1 million, or 16.5%. Cost of sales as a percentage of sales
decreased to 85.3% in the 2007 period from 85.8% for the comparable 2006
period. This cost decrease was attributable to higher margins on power products
and batteries but offset by the lower margins earned on sales to Brinks. Our
overall gross margins for the year ended December 31, 2007, was approximately
14.7% compared to gross margins of 14.2% for the comparable period in 2006. We
will continue to monitor customer and vendor pricing due to raw material and
shipping cost increases, which are expected to continue in the near future.

Operating
expenses

Selling,
general and administrative expenses were flat at $11.8 million for the years
ended December 31, 2007 and, 2006, which period included a stock-based
compensation charge of $2.2 million compared to $0.1 million in 2007. The
changes in selling, general and administrative expenses were primarily
attributable to decreases in non-cash stock-based compensation charges of $2.1
million and $0.5 million in management fees, offset by increases primarily
attributable to salaries, employee bonuses, and payroll taxes totaling $0.6
million, sales and marketing activities of $0.2 million, rent and facilities
related costs of $0.4 million, credit card and bank fees of $0.1 million, as
well as costs associated with being a new public company totaling approximately
$1.1 million, which included $0.5 million in consulting fees and $0.6 million
in general corporate expenses such as legal, insurance, travel and supplies.
Additional expenses incurred in connection with opening a new regional
logistics center in Columbus, Georgia during the fourth quarter of 2007
contibuted to the increases.

Interest
expense

Our
interest expense totaled $1.2 million for the year ended December 31, 2007
compared to $0.8 million for the year ended December 31, 2006, an increase of
$0.4 million, or 43.3%. The increase is due primarily to interest totaling $0.4
million paid on the notes payable to Zunicom. For the year ended December 31,
2007 the average outstanding loan balance on our line of credit was $10.0
million, compared to $10.6 million for the year ended December 31, 2006. We
expect interest expense to continue to increase as a result of the potential
for a higher level of debt on our working capital line to finance growth and/or
acquisitions and to make payments on the notes payable to Zunicom totaling
$12.8 million and $5.9 million, respectively, as of December 31, 2007.

Comparison
of years ended December 31, 2006 and 2005

Revenues

Net revenues for the year ended December 31,
2006 were $92.6 million compared to net revenues of $81.3 million for the
similar period in 2005, an increase of $11.3 million, or 13.9%. In the 2006
period net sales to Brinks was $44.7 million compared to $45.4 million in the
2005 period, a decrease of $0.7 million. We attribute the overall decrease in
our sales to Brinks primarily to a slowing of the housing market during 2006,
while purchases of batteries and battery-related and battery-powered products
increased by $8.0 million from 2005.

19

---



Cost
of sales

Cost
of sales is comprised of the base product cost, freight, duty and servicing
fees where applicable. Cost of sales totaled $79.4 million for the year ended
December 31, 2006, compared to $71.0 million in the comparable 2005 period, an
increase of $8.4 million, or 11.8%. Cost of sales as a percentage of sales
decreased to 85.8% in the 2006 period from 87.3% for the comparable 2005
period. This decrease was attributable to higher margins on power products and
batteries but offset by the lower margins earned on sales to Brinks. Our
overall gross margins for the year ended December 31, 2006, was approximately
14.2% compared to gross margins of 12.7% for the comparable period in 2005.

Operating
expenses

Selling,
general and administrative expenses were $11.8 million for the year ended
December 31, 2006, including a non-cash stock-based compensation charge of $2.2
million, compared to $7.9 million for the year ended December 31, 2005 period,
an increase of $3.9 million, or 49.6%. The increase in selling, general and
administrative expenses was primarily attributable to the non-cash stock-based
compensation charge of $2.2 million. An additional increase totaling $1.7
million was attributable primarily to increases in salaries, employee bonuses,
and payroll taxes totaling $0.7 million, sales and marketing activities,
commissions and fees of $0.2 million, rent and facilities related costs of $0.3
million and general corporate expenses of $0.6 million including legal,
insurance, computer services, state taxes, travel and supplies. These increases
were offset primarily by a reduction in consulting fees of $0.1 million. We
also incurred additional expenses in connection with closing our Kansas branch
office in April 2006 and opening a new regional logistics center in Las Vegas,
Nevada, in June 2006.

Interest
expense

Our
interest expense totaled $.8 million for the year ended December 31, 2006
compared to $0.5 million for the year ended December 31, 2005, an increase of
$0.3 million, or 70.1%. The increase was due to increased borrowings at a
higher interest rate than the comparable prior year period. For the year ended
December 31, 2006 the average outstanding loan balance on our line of credit
was $10.6 million, compared to $7.8 million for the year ended December 31,
2005.

Liquidity
 Year Ended December 31, 2007

We
had cash and cash equivalents of $.7 million and $13.0 million at December 31,
2007 and 2006, respectively.

Net
cash used in operating activities was $9.1 million through December 2007
compared to cash used in operations of $3.3 million for the similar period in
2006. The cash used in operating activities in 2007 is primarily related to net
income of $2.2 million, non-cash stock option compensation totaling $0.1
million, provision for bad debts and obsolete inventory totaling $0.1 million,
depreciation of property and equipment of $0.2 million, a change in deferred
taxes totaling $0.1 million, a decrease in due from Zunicom, Inc. of $0.2
million, increases in accounts payable, accrued liabilities and deferred rent
totaling $0.8 million, offset by increases in accounts receivable-trade of $2.5
million, inventories of $9.8 million and prepaid and other current assets of
$0.3 million.

Cash
used in investing activities in 2007 of $1.5 million was used to purchase
property and equipment.

Net
cash provided in financing activities during 2007 primarily consisted of a net
change in our line of credit of $1.7 million, made up of $13.6 million from
advances on the line of credit, offset principally by a payment from our IPO
net proceeds of $11.9 million. We have a $30 million line of credit with
Compass Bank which matures on July 5, 2012. The facility bears interest at
LIBOR Index Rate plus a sliding range from 1.25% to 2.50% based on quarterly
covenant performance. At December 31, 2007 that rate was 7.0%. The line of
credit is due on demand and is secured by accounts receivable, inventories, and
equipment. The lines availability is based on a borrowing formula, which
allows for borrowings equal to 85% of UPGs eligible accounts receivable and a
percentage of eligible inventory. In addition, UPG must maintain certain financial
covenants including ratios on funded debt to EBITDA, as well as a fixed charge
ratio. The advance formula referenced in the Amended and Restated Revolving
Credit and Security Agreement (Credit Agreement) as the Borrowing Base is
eighty-five percent (85.0%) of the outstanding value of Borrowers Eligible
Accounts Receivable plus fifty percent (50.0%) of the value of Borrowers
Eligible Inventory (as defined in the Credit Agreement). Advances against
Borrowers Eligible Inventory shall not exceed the lesser of (a) $30,000,000 or
(b) an amount equal to the product of (i) one and one-half (1.5), multiplied by
(ii) eighty-five percent (85%) of the outstanding value of Borrowers Eligible
Accounts Receivable at any one time outstanding. At December 31, 2007,
approximately $12.8 million was outstanding under the line of credit and
approximately $7.0 million remained available for borrowings under the line of
credit based on the borrowing formula.

Capital Resources

At
December 31, 2007 we did not have any material commitments for capital
expenditures. We may enter into various commitments during 2008 if expansion
opportunities develop. Material items will be disclosed in press releases and
other appropriate filings as they develop. We have no off balance sheet
financing arrangements.

Contractual Obligations

The
following table summarizes the amounts of payments due under specified
contractual obligations at December 31, 2007.

|                        |  |                          |           |                 |   |           |  |           |           |                  |   |           |  |   |        | 
|----------------------- |  | ------------------------ | --------- | --------------- | - | --------- |  | --------- | --------- | ---------------- | - | --------- |  | - | ------ | 
|                        |  | Payments
  Due By Period |          
|                        |  |                          |          
|Contractual Obligations |  | Total                    |           | Less Than1 Year |   | 1-3 Years |  | 3-5 Years |           | More Than5 Years |  
|                        |  |                          |           |                 |   |           |  |           |           |                  |  
|Long-Term
  Debt        |  | $                        | 5,850,000 |                 | $ | 731,250   |  | $         | 2,925,000 |                  | $ | 2,193,750 |  | $ |       | 
|Capital
  Leases        |  |                          | 6,609     |                 |   | 6,609     |  |           |          |                  |   |          |  |   |       | 
|Operating
  Leases      |  |                          | 3,477,282 |                 |   | 825,037   |  |           | 1,396,494 |                  |   | 1,240,673 |  |   | 15,078 | 
|Total                   |  | $                        | 9,333,891 |                 | $ | 1,562,896 |  | $         | 4,321,494 |                  | $ | 3,434,423 |  | $ | 15,078 | 
|                        |  |                          |           |                 |   |           |  |           |           |                  |   |           |  |   |        | 

In
2006 we declared a $3 million dividend payable to our former parent, Zunicom.
The dividend is evidenced by a note payable, which has a maturity date of June
20, 2012 and which bears interest at the rate of 6% per annum. Interest on the
unpaid principal amount of this note is payable quarterly, in arrears, and the
principal amount will be repaid in 16 equal quarterly

20

---



installments
of $187,500 beginning September 20, 2008. At December 31, 2007 we also owed
Zunicom an additional $2.85 million, reflecting a portion of the tax benefit of
the consolidated losses used to offset our taxable income. The obligation is
evidenced by a note bearing interest at 6% per annum and maturing June 20,
2012. Interest on the unpaid principal amount of this note is payable
quarterly, in arrears, and the principal amount will be repaid in 16 equal
quarterly installments of $178,125 beginning September 20, 2008. These
obligations are reflected in the table above as Long-Term Debt.

Historically,
our operating results have been subject to seasonal trends when measured on a
quarterly basis. Our first and fourth fiscal quarters are traditionally weaker
compared to the second and third fiscal quarters. This trend depends on
numerous factors including the markets in which we operate, holiday seasons,
climate and general economic conditions. Many of the products that we
distribute are tied closely to consumer demands, which may be volatile and
which are always impacted by general economic conditions. Our ability to
predict these trends or estimate their impact on our business is limited. As a
result, we cannot assure that these historical patterns will continue in future
periods.

The
electronic components and the electronics distribution industries have
historically been cyclical in nature with significant volatility within the
cycles. We believe this cyclicality and volatility will continue.

INTERNATIONAL CURRENCY FLUCTUATION

The
goods that we purchase from Asia are subject to international currency
fluctuations. Management does not believe that the fluctuation in currency
presents a serious threat to its operations. See Item 7A for further
discussion.

CRITICAL ACCOUNTING POLICIES

Our
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, which require us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and revenues and expenses
during the periods reported. Actual results could differ from those estimates.
We believe the following are the critical accounting policies which could have
the most significant effect on our reported results and require the most
difficult, subjective or complex judgments by management.

Revenue
Recognition

The
Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB)
No. 104 when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed and determinable and collectibility 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
solutions for inclusion in their own products. The Company will obtain the
battery and necessary components and configure a new finished good unit based
upon customer specifications. The Company refers to this process as a value
added service. 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 the Companys 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 the Companys vendor to
the Companys customer. The Company also has an inventory fulfillment agreement
with Brinks. The Company purchases, handles, assembles and delivers
installation components and tooling to Brinks and to independent Brinks
authorized dealers. Revenues from drop shipment transactions and pursuant to
the agreement with Brinks are recognized on a gross basis at the time the
customer takes title to the product based on the Companys analysis of the criteria
defined in Emerging Issues Task Force (EITF) Issue No. 99-19 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.

Income
Taxes

In
January 2007, the Company adopted the Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109 (FIN 48). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in a
companys financial statements. FIN 48 requires companies to determine whether
it is more likely than not that a tax position will be sustained upon
examination by the appropriate taxing authorities before any part of the benefit
can be recorded in the financial statements. It also provides guidance on the
recognition, measurement and classification of income tax uncertainties, along
with any related interest and penalties. The Company did not recognize any
adjustments to the financial statements as a result of our implementation of
FIN 48.

The
Company utilizes the asset and liability approach to accounting and reporting
for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes, (SFAS 109). 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.

The
Company uses an estimate of its annual income tax rate to recognize a provision
for income taxes in financial statements for interim periods. However, changes
in facts and circumstances could result in adjustments to the Companys
effective tax rate in future quarterly or annual periods.

Stock-Based
Compensation

On
January 1, 2006, we began accounting for stock options under the provisions of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(FAS 123(R)), which requires the recognition of the fair value of stock- based
compensation.  Under the fair value
recognition provisions for FAS 123(R), stock-based compensation cost is
estimated at

21

---



the grant date
based on the fair vlaue of the awards expected to vest and recognized as
expense ratably over the requisite service period of the award.  We have used the Black-Scholes valuation
model to estimate fair value of our stock-based awards wich requires various
judgemental assumptions including estimating stock price volatility, forfeiture
rates and expected life.  Our
computation of expected volatility is based on a combination of historical and
market-based implied volatility.  In
adition, we consider many factors when estimating expected forfeiturs and
expected life, including types of awards, employee class and historical
experience.  If any of the assumptions
used in the Black-Scholes model change significantly, stock-based compensation
expense may differ materially in the future from that recorded in the current
period.

We
adopted FAS 123(R) using the modified prospective method which requires the
application of the accounting standard as of January 1, 2006.  In accordance with the modified prospective
method, the financial statements for prior periods have not been restated to
reflect, and do not include, the impact of FAS 123(R).

Recent Accounting
Pronouncements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information.  SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007.
However, on December 14, 2007, the FASB issued FSP FAS 157-b which would
delay the effective date of SFAS 157 for all nonfinancial assets and
nonfinancial liabilites, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least
annually).  This proposed FSP partially
defers the effective date of Statement 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items
within the scope of this FSP.  Effective
for 2008, we will adopt SFAS 157 except as it applies to those nonfinancial
assets and nonfinancial liabilites as noted in the proposed FSP FAS 157-b.  The partial adoption of SFAS No. 157 will
not have a material impact on our financial position, results of operations or
cash flows.

In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option For Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits
entities to choose to measure certain financial assets and liabilities at fair
value. SFAS 159 is effective for fiscal years beginning after November 15,
2007. Management is currently evaluating the impact, if any, that SFAS 159 will
have on its financial statements.

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(SFAS 141(R)), which replaces SFAS
141. The provisions of SFAS 141(R) are similar to those of SFAS 141; however,
SFAS 141(R) requires companies to record most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in a business combination at
full fair value. SFAS 141(R) also requires companies to record fair value
estimates of contingent consideration and certain other potential liabilities during
the original purchase price allocation and to expense acquisition costs as
incurred. This statement applies to all business combinations, including
combinations by contract alone. Further, under SFAS 141(R), all business
combinations will be accounted for by applying the acquisition method. SFAS
141(R) is effective for fiscal years beginning on or after December 15, 2008.
The provisions of  SFAS 141(R) will
impact the Company if it is a party to a business combination after the
pronouncement is adopted.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements(SFAS 160), which
will require noncontrolling interests (previously referred to as minority
interests) to be treated as a separate component of equity, not as a liability
or other item outside of permanent equity. This Statement applies to the
accounting for noncontrolling interests and transactions with noncontrolling
interest holders in consolidated financial statements.  SFAS 160 is effective for periods beginning
on or after December 15, 2008.  SFAS 160
will be applied prospectively to all noncontrolling interests, including any
that arose before the effective date except that comparative period information
must be recast to classify noncontrolling interests in equity, attribute net
income and other comprehensive income to noncontrolling interests, and provide
other disclosures as required by Statement 160.

|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign
Currency Exchange

Our
customers are primarily located in the United States. On the other hand, many
of our suppliers are located outside the United States and, as a result, our
financial results could be impacted by foreign currency exchange rates and
market conditions abroad. Since a significant portion of our products are
imported from China, we continue to monitor the current weakness of the U. S.
dollar against the strength of the Chinese reminibi. We have not used
derivative instruments to hedge our foreign exchange risks though we may choose
to do so in the future.           Our international business is subject to risks typical
of an international business, including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely affected by changes in these
or other factors. The effect of foreign exchange rate fluctuations on us during
the year ended December 31, 2007 was not material.

Interest
Rates

Our
exposure to market rate risk for changes in interest rates is related primarily
to our line of credit. A portion of the outstanding borrowings on the line of
credit bears an interest rate of LIBOR plus a sliding range up to 2.5%. A
change in the LIBOR rate could have a material effect on interest expense.

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

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

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.

None.

22

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|            |                        
|----------- | -----------------------
|ITEM 9A(T). | CONTROLS AND PROCEDURES

Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as defined in the Securities Exchange Act) Rules 13a-15(e) and
15-d-15(e)) as of the end of the period covered by this Report (the Evaluation
Date). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that as of the Evaluation Date, our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act
(i) is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms and (ii) is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.

Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Universal Power Group, Inc. have been
detected.

Our
management (with the participation of our Chief Executive Officer and Chief
Financial Officer) has undertaken an assessment of the effectiveness of the our
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organization of the Treadway Commission (the COSO
Framework). Managements assessment included an evaluation of the design of our
internal control over financial reporting and testing of the operations
effectiveness of those controls. Based upon on this assessment, management has
concluded that as of December 31, 2007, our internal control over financial
reporting was effective to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statement for external
purposes in accordance with U.S. generally accepted accounting principles.

This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to
provide only managements report in this Annual Report.

Other
than certain improvements primarily related to documentation and segregation of
duties, resulting from implementation of our Sarbanes-Oxley plan, there have
not been any changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None.

PART III

|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The
information required by this item will be included in our Proxy Statement filed
and distributed in connection with our 2008 Annual Meeting of Shareholders,
which information is incorporated by reference.

Code of Ethics

We
have adopted a Code of Ethics that applies to our principal executive officer,
principal financial officer and other persons performing similar functions, as
well as all of our other employees and directors. This Code of Ethics is posted
on our website at www.upgi.com.

Section 16(a) Beneficial Ownership Reporting
Compliance

Based
on a review of the Forms 3, 4 and 5 submitted during and with respect to the
year ended December 31, 2007, there have been no untimely filings of such
required forms, except that (i) a beneficial owner of 10% of our outstanding
common stock did not timely file a Form 3 and a Form 4 filing to report nine
transactions; and (ii) four members of our board of directors did not timely
file a Form 4 filing to report their respective stock option awards. As of the
date of this Annual Report, all the aforementioned reporting persons have made
all the necessary filings.

|         |                         
|-------- | ------------------------
|ITEM 11. | EXECUTIVE
  COMPENSATION

The
information required by this item will be included in our Proxy Statement filed
and distributed in connection with our 2008 Annual Meeting of Shareholders,
which information is incorporated by reference.

|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
  RELATED SHAREHOLDER MATTERS

The
information required by this item will be included in our Proxy Statement filed
and distributed in connection with our 2008 Annual Meeting of Shareholders,
which information is incorporated by reference.

|         |                                                                                  
|-------- | ---------------------------------------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
  INDEPENDENCE

The
information required by this item will be included in our Proxy Statement filed
and distributed in connection with our 2008 Annual Meeting of Shareholders,
which information is incorporated by reference.

23

---



|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
information required by this item will be included in our Proxy Statement filed
and distributed in connection with our 2008 Annual Meeting of Shareholders,
which information is incorporated 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                                             
| |   |                                                                                                       
| |  | Balance
  Sheets as of December 31, 2007 and 2006                                                     
| |   |                                                                                                       
| |  | Statements
  of Income for the years ended December 31, 2007, 2006 and 2005                           
| |   |                                                                                                       
| |  | Statement of
  Changes in Shareholders Equity for the years ended December 31, 2007, 2006,
  and 2005
| |   |                                                                                                       
| |  | Statements
  of Cash Flows for the years ended December 31, 2007, 2006, and 2005                      
| |   |                                                                                                       
| |  | Notes to
  Financial Statements                                                                       

2. Financial Statement
Schedules.

Schedule
II  Valuation and Qualifying Accounts.

All
other schedules are omitted because they are either not required or not
applicable or the required information is shown in the Financial Statements or
Notes thereto.

3. Exhibits.

See
Item 15(b) below.

(b)
 Exhibits

|            |  |                                                                                                                                                        |  |                       
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------
|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)                                                                                                                  
|           
|10.2        |  | Form of Randy Hardin
  Employment Agreement (1)(2)                                                                                                    
|           
|10.3        |  | Form of Ian Edmonds
  Employment Agreement (1)(2)                                                                                                     
|           
|10.4        |  | Form of Mimi Tan
  Employment Agreement (1)(2)                                                                                                        
|           
|10.5        |  | Amended and Restated
  Revolving Credit and Security Agreement with Compass Bank dated June 19, 2007                                                  
|           
|10.6        |  | Purchase Agreement, dated
  June 1, 2004, with Brinks Home Security (1)                                                                               
|           
|10.7        |  | Real Property Lease for
  1720 Hayden Road, 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       |  | Agreement with Import
  Consultants (1)                                                                                                               
|           
|10.11(a)    |  | Form of Promissory Note in
  the amount of $2,850,000 payable to Zunicom (1)                                                                          
|           
|10.11(b)    |  | Form of Promissory Note in
  the amount of $3,000,000 payable to Zunicom (1)                                                                          
|           
|10.12       |  | Director-Nominee Consents                                                                                                                             
|           
|            |  | a)                                                                                                                                                     |  | Leslie Bernhard(1)    
|           
|            |  | b)                                                                                                                                                     |  | Marvin I. Haas(1)     
|           
|            |  | c)                                                                                                                                                     |  | Garland P. Asher(1)   
|           
|            |  | d)                                                                                                                                                     |  | Robert M. Gutkowski(1)
|           
|10.13       |  | Third Party
  Logistics & Purchase Agreement, dated as of November 20, 2006, with
  Brinks Home Security (1)                                          
|           
|21.1        |  | Subsidiaries**                                                                                                                                        
|           
|23.1        |  | Consent of KBA Group LLP *                                                                                                                            
|           
|31.1        |  | Certification of Chief
  Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                 
|           
|31.2        |  | Certification of Chief
  Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                 
|           
|32.1        |  | Certification of Chief
  Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002*
|           
|32.2        |  | Certification of Chief
  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.                                                                                                                                                           
|    |                                                                                                                                                                             
|**  | UPG does not
  have any significant subsidiaries.                                                                                                                           
|    |                                                                                                                                                                             
|(1) | Incorporated
  by reference to the Exhibit with the same number to UPGs Registration
  Statement on Form S-1 (SEC File No. 333-137265) effective as of December 20,
  2006.
|    |                                                                                                                                                                             
|(2) | Management
  contract, compensation plan or arrangement.                                                                                                                    

(c)
Other Financial Statement Schedules.

The
financial statements required by Regulation S-X (17CFR210) are excluded from
the annual report to shareholders by Rule 14a-3(b).

See
response to Item 15(a)2 above.

24

---



Signatures

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

| |                               |                    
| | ----------------------------- | -------------------
| | Date: March
  28, 2008       
| |                              
| | Universal
  Power Group, Inc.
| |                              
| | By: /s/
  Randy Hardin       
| |                               |                    
| |                               | Randy Hardin       
| |                               | President
  and CEO

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

|                               |  |                                        |  |                 
|------------------------------ |  | -------------------------------------- |  | ----------------
|Signature                      |  | Capacity                               |  | Date            
|                               |  |                                        |  |                 
|                               |  |                                        |  |                 
|Principal
  Executive Officer: |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Randy Hardin               |  | Chief
  Executive Officer and Director |  | March 28,
  2008
|                               |  |                                        |  |                 
|Randy Hardin                   |  |                                        |  |                 
|                               |  |                                        |  |                 
|Principal
  Financial Officer: |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Roger Tannery              |  |                                        |  |                 
|                               |  | Chief Financial
  Officer              |  | March 28,
  2008
|Roger Tannery                  |  |                                        |  |                 
|                               |  |                                        |  |                 
|Directors:                     |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ William Tan                |  | Chairman of
  the Board                |  | March 28,
  2008
|                               |  |                                        |  |                 
|William Tan                    |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Ian Edmonds                |  | Director                               |  | March 28,
  2008
|                               |  |                                        |  |                 
|Ian Edmonds                    |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Garland Asher              |  | Director                               |  | March 28,
  2008
|                               |  |                                        |  |                 
|Garland Asher                  |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Marvin Haas                |  | Director                               |  | March 28,
  2008
|                               |  |                                        |  |                 
|Marvin Haas                    |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Robert M. Gutkowski        |  | Director                               |  | March 28,
  2008
|                               |  |                                        |  |                 
|Robert M. Gutkowski            |  |                                        |  |                 
|                               |  |                                        |  |                 
|/s/ Leslie Bernhard            |  | Director                               |  | March 28,
  2008
|                               |  |                                        |  |                 
|Leslie Bernhard                |  |                                        |  |                 

25

---



ITEM 15 (A) (1)

FINANCIAL
STATEMENTS AND

REPORT OF
INDEPENDENT REGISTERED ACCOUNTING FIRM

UNIVERSAL POWER
GROUP, INC.

DECEMBER 31, 2007

---



INDEX TO FINANCIAL STATEMENTS

UNIVERSAL
POWER GROUP, INC.

|                                                                                                   |     
|-------------------------------------------------------------------------------------------------- | ----
|                                                                                                   | Page
|                                                                                                   |     
|                                                                                                   |     
|Report of Independent Registered Public Accounting Firm                                            | F-3 
|Balance Sheets at December 31, 2007 and 2006                                                       | F-4 
|Statements of Income for the years ended December 31, 2007, 2006 and
 2005                         | F-6 
|Statement of Changes in Shareholders Equity for the years ended
 December 31, 2007, 2006 and 2005 | F-7 
|Statements of Cash Flows for the years ended December 31, 2007,
 2006 and 2005                     | F-8 
|Notes to Financial Statements                                                                      | F-10

F-2

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board
of Directors of
Universal Power Group, Inc.

We
have audited the accompanying balance sheets of Universal Power Group, Inc.
(the Company) as of December 31, 2007 and 2006 and the related statements of
income, shareholders equity, and cash flows for each of the years in the
three-year period ended December 31, 2007. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing 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, audits of its internal control
over financial reporting. Our audits 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 audits provide a reasonable
basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Universal Power Group, Inc., as of
December 31, 2007 and 2006, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States
of America.

As
discussed in Note B to the financial statements, effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment.

|                 
|-----------------
|/s/ KBA GROUP LLP
|                 
|Dallas,
 Texas   
|March 28,
 2008  

F-3

---



UNIVERSAL
POWER GROUP, INC.

BALANCE SHEETS

ASSETS

|                                                                                          |  |               |            |      |   |            |  
|----------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---- | - | ---------- | -
|                                                                                          |  | December
 31, |           
|                                                                                          |  |               |           
|                                                                                          |  | 2007          |            | 2006 |  
|                                                                                          |  |               |            |      |  
|                                                                                          |  |               |            |      |  
|CURRENT ASSETS                                                                            |  |               |            |      |   |            |  
|Cash and cash equivalents                                                                 |  | $             | 691,288    |      | $ | 13,036,447 |  
|Accounts receivable:                                                                      |  |               |            |      |   |            |  
|Trade, net of allowance for doubtful
 accounts of $129,371 and $114,257                   |  |               | 12,593,430 |      |   | 10,171,055 |  
|Other (including $0 and $186,617 from
 related parties)                                   |  |               | 149,262    |      |   | 211,854    |  
|Inventories  finished goods, net of
 allowance for obsolescence of $193,780 and $200,715 |  |               | 32,345,377 |      |   | 22,571,534 |  
|Current deferred tax asset                                                                |  |               | 983,114    |      |   | 1,087,163  |  
|Prepaid expenses and other current assets                                                 |  |               | 880,907    |      |   | 571,073    |  
|                                                                                          |  |               |            |      |   |            |  
|                                                                                          |  |               |            |      |   |            |  
|Total current assets                                                                      |  |               | 47,643,378 |      |   | 47,649,126 |  
|                                                                                          |  |               |            |      |   |            |  
|PROPERTY AND EQUIPMENT                                                                    |  |               |            |      |   |            |  
|Logistics and distribution systems                                                        |  |               | 1,417,269  |      |   | 349,388    |  
|Machinery and equipment                                                                   |  |               | 338,220    |      |   | 246,514    |  
|Furniture and fixtures                                                                    |  |               | 492,267    |      |   | 288,457    |  
|Leasehold improvements                                                                    |  |               | 272,096    |      |   | 188,691    |  
|Vehicles                                                                                  |  |               | 151,598    |      |   | 151,598    |  
|                                                                                          |  |               |            |      |   |            |  
|                                                                                          |  |               | 2,671,450  |      |   | 1,224,648  |  
|Less accumulated depreciation and
 amortization                                           |  |               | (985,735   | )    |   | (787,554   | )
|                                                                                          |  |               |            |      |   |            |  
|                                                                                          |  |               |            |      |   |            |  
|Net property and equipment                                                                |  |               | 1,685,715  |      |   | 437,094    |  
|                                                                                          |  |               |            |      |   |            |  
|OTHER ASSETS                                                                              |  |               | 81,459     |      |   | 33,073     |  
|                                                                                          |  |               |            |      |   |            |  
|                                                                                          |  |               |            |      |   |            |  
|TOTAL ASSETS                                                                              |  | $             | 49,410,552 |      | $ | 48,119,293 |  
|                                                                                          |  |               |            |      |   |            |  

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

F-4

---



UNIVERSAL
POWER GROUP, INC.

BALANCE
SHEETS (Continued)

LIABILITIES
AND SHAREHOLDERS EQUITY

|                                                                                                       |  |              |            |      |   |            | 
|------------------------------------------------------------------------------------------------------ |  | ------------ | ---------- | ---- | - | ---------- | 
|                                                                                                       |  | December 31, |           
|                                                                                                       |  |              |           
|                                                                                                       |  | 2007         |            | 2006 |  
|                                                                                                       |  |              |            |      |  
|                                                                                                       |  |              |            |      |  
|CURRENT
 LIABILITIES                                                                                   |  |              |            |      |   |            | 
|Line of credit                                                                                         |  | $            | 12,833,031 |      | $ | 14,573,595 | 
|Accounts payable                                                                                       |  |              | 12,257,350 |      |   | 11,529,002 | 
|Accrued liabilities                                                                                    |  |              | 537,248    |      |   | 540,839    | 
|Current portion of payable to Zunicom, Inc                                                             |  |              | 731,250    |      |   |           | 
|Current portion of capital lease
 obligations                                                          |  |              | 6,609      |      |   | 18,726     | 
|Current portion of deferred rent                                                                       |  |              | 64,446     |      |   | 15,423     | 
|                                                                                                       |  |              |            |      |   |            | 
|                                                                                                       |  |              |            |      |   |            | 
|Total current liabilities                                                                              |  |              | 26,429,934 |      |   | 26,677,585 | 
|                                                                                                       |  |              |            |      |   |            | 
|CAPITAL LEASE OBLIGATIONS, less current portion                                                        |  |              |           |      |   | 6,613      | 
|NOTES
 PAYABLE TO ZUNICOM, INC, less current portion                                                   |  |              | 5,118,750  |      |   | 5,850,000  | 
|NON-CURRENT
 DEFERRED TAX LIABILITY                                                                    |  |              | 25,455     |      |   | 64,663     | 
|DEFERRED
 RENT, less current portion                                                                   |  |              | 180,776    |      |   | 206,975    | 
|                                                                                                       |  |              |            |      |   |            | 
|                                                                                                       |  |              |            |      |   |            | 
|Total liabilities                                                                                      |  |              | 31,754,915 |      |   | 32,805,836 | 
|                                                                                                       |  |              |            |      |   |            | 
|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                                                                             |  |              | 15,381,684 |      |   | 15,263,457 | 
|Retained earnings                                                                                      |  |              | 2,223,953  |      |   |           | 
|                                                                                                       |  |              |            |      |   |            | 
|                                                                                                       |  |              |            |      |   |            | 
|Total shareholders equity                                                                             |  |              | 17,655,637 |      |   | 15,313,457 | 
|                                                                                                       |  |              |            |      |   |            | 
|                                                                                                       |  |              |            |      |   |            | 
|TOTAL
 LIABILITIES AND SHAREHOLDERS EQUITY                                                            |  | $            | 49,410,552 |      | $ | 48,119,293 | 
|                                                                                                       |  |              |            |      |   |            | 

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

F-5

---



UNIVERSAL
POWER GROUP, INC.

STATEMENTS OF INCOME

|                                                                        |  |                          |             |      |   |            |   |   |            |  
|----------------------------------------------------------------------- |  | ------------------------ | ----------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                        |  | Year Ended
 December 31, |            
|                                                                        |  |                          |            
|                                                                        |  | 2007                     |             | 2006 |   | 2005       |  
|                                                                        |  |                          |             |      |   |            |  
|                                                                        |  |                          |             |      |   |            |  
|Net sales                                                               |  | $                        | 108,517,097 |      | $ | 92,583,521 |   | $ | 81,275,175 |  
|Cost of sales                                                           |  |                          | 92,541,735  |      |   | 79,426,270 |   |   | 70,960,235 |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Gross profit                                                            |  |                          | 15,975,362  |      |   | 13,157,251 |   |   | 10,314,940 |  
|Operating expenses (including $0, $480,000,
 $480,000 to Zunicom, Inc.) |  |                          | 11,761,427  |      |   | 11,803,071 |   |   | 7,888,475  |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Operating income                                                        |  |                          | 4,213,935   |      |   | 1,354,180  |   |   | 2,426,465  |  
|Other income (expense)                                                  |  |                          |             |      |   |            |   |   |            |  
|Interest expense
 (including $351,000, $0, $0 to Zunicom, Inc.)         |  |                          | (1,195,079  | )    |   | (833,731   | ) |   | (490,096   | )
|Interest income                                                         |  |                          | 396,083     |      |   | 40,109     |   |   | 1,599      |  
|Other, net                                                              |  |                          |            |      |   |           |   |   | 10,151     |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Total other expense                                                     |  |                          | (798,996    | )    |   | (793,622   | ) |   | (478,346   | )
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Income before provision for income taxes                                |  |                          | 3,414,939   |      |   | 560,558    |   |   | 1,948,119  |  
|Provision for income taxes                                              |  |                          | (1,190,986  | )    |   | (272,645   | ) |   | (813,783   | )
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Net income                                                              |  | $                        | 2,223,953   |      | $ | 287,913    |   | $ | 1,134,336  |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Net income per share                                                    |  |                          |             |      |   |            |   |   |            |  
|Basic                                                                   |  | $                        | 0.44        |      | $ | 0.10       |   | $ | 0.38       |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Diluted                                                                 |  | $                        | 0.44        |      | $ | 0.07       |   | $ | 0.38       |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Weighted average shares outstanding                                     |  |                          |             |      |   |            |   |   |            |  
|Basic                                                                   |  |                          | 5,000,000   |      |   | 3,021,918  |   |   | 3,000,000  |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  
|Diluted                                                                 |  |                          | 5,001,305   |      |   | 4,174,817  |   |   | 3,000,000  |  
|                                                                        |  |                          |             |      |   |            |   |   |            |  

The accompanying notes are integral part of
these financial statements.

F-6

---



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

|                                               |  |                |           |                                |                     |        |  |       |            |   |   |           |   |   |            |  
|---------------------------------------------- |  | -------------- | --------- | ------------------------------ | ------------------- | ------ |  | ----- | ---------- | - | - | --------- | - | - | ---------- | -
|                                               |  | Common
  Stock |           | Additional
  Paid-in
  Capital |                     |        |  |       |            |   |  
|                                               |  |                |           |                                | Retained
  Earnings |        |  |       |           
|                                               |  | Shares         |           | Amount                         |                     |        |  | Total |           
|                                               |  |                |           |                                |                     |        |  |       |            |   |  
|Balances at
  January 1, 2005                  |  |                | 3,000,000 |                                | $                   | 30,000 |  | $     | 3,822,597  |   | $ | 235,411   |   | $ | 4,088,008  |  
|Dividends
  declared                           |  |                |          |                                |                     |       |  |       |           |   |   | (966,671  | ) |   | (966,671   | )
|Net income
  for 2005                          |  |                |          |                                |                     |       |  |       |           |   |   | 1,134,336 |   |   | 1,134,336  |  
|                                               |  |                |           |                                |                     |        |  |       |            |   |   |           |   |   |            |  
|Balances at
  December 31, 2005                |  |                | 3,000,000 |                                |                     | 30,000 |  |       | 3,822,597  |   |   | 403,076   |   |   | 4,255,673  |  
|Sale of
  common stock (net of offering costs) |  |                | 2,000,000 |                                |                     | 20,000 |  |       | 11,935,222 |   |   |          |   |   | 11,955,222 |  
|Stock-based
  compensation expense             |  |                |          |                                |                     |       |  |       | 2,175,035  |   |   |          |   |   | 2,175,035  |  
|Dividends
  declared                           |  |                |          |                                |                     |       |  |       | (3,273,011 | ) |   | (690,989  | ) |   | (3,964,000 | )
|Capital
  contribution from Zunicom, Inc.      |  |                |          |                                |                     |       |  |       | 603,614    |   |   |          |   |   | 603,614    |  
|Net income
  for 2006                          |  |                |          |                                |                     |       |  |       |           |   |   | 287,913   |   |   | 287,913    |  
|                                               |  |                |           |                                |                     |        |  |       |            |   |   |           |   |   |            |  
|Balances at
  December 31, 2006                |  |                | 5,000,000 |                                |                     | 50,000 |  |       | 15,263,457 |   |   |          |   |   | 15,313,457 |  
|Stock-based
  compensation expense             |  |                |          |                                |                     |       |  |       | 118,227    |   |   |          |   |   | 118,227    |  
|Net income
  for 2007                          |  |                |          |                                |                     |       |  |       |           |   |   | 2,223,953 |   |   | 2,223,953  |  
|                                               |  |                |           |                                |                     |        |  |       |            |   |   |           |   |   |            |  
|Balances at
  December 31, 2007                |  |                | 5,000,000 |                                | $                   | 50,000 |  | $     | 15,381,684 |   | $ | 2,223,953 |   | $ | 17,655,637 |  
|                                               |  |                |           |                                |                     |        |  |       |            |   |   |           |   |   |            |  

The accompanying notes are an integral part
of this financial statement.

F-7

---



UNIVERSAL
POWER GROUP, INC.STATEMENTS OF CASH FLOWS

|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|--------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                              |  | Year
  Ended December 31, |           
|                                                                                              |  |                           |           
|                                                                                              |  | 2007                      |            | 2006 |   | 2005       |  
|                                                                                              |  |                           |            |      |   |            |  
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                          |  |                           |            |      |   |            |   |   |            |  
|Net income                                                                                    |  | $                         | 2,223,953  |      | $ | 287,913    |   | $ | 1,134,336  |  
|Adjustments to reconcile net income to net cash provided by (used in)
  operating activities: |  |                           |            |      |   |            |   |   |            |  
|Depreciation and amortization of property and
equipment                                       |  |                           | 235,681    |      |   | 154,197    |   |   | 137,978    |  
|Provision for bad debts                                                                       |  |                           | 93,980     |      |   | 126,127    |   |   | 48,187     |  
|Provision for obsolete inventory                                                              |  |                           | 45,000     |      |   | 50,000     |   |   | 55,962     |  
|Deferred income taxes                                                                         |  |                           | 64,841     |      |   | (888,928   | ) |   | 2,301      |  
|Loss on disposal of property and
equipment                                                    |  |                           |           |      |   |           |   |   | 962        |  
|Stock-based compensation                                                                      |  |                           | 118,227    |      |   | 2,175,035  |   |   |           |  
|Non-cash tax expense                                                                          |  |                           |           |      |   | 952,864    |   |   |           |  
|Changes in operating assets and liabilities:                                                  |  |                           |            |      |   |            |   |   |            |  
|Accounts receivable  trade                                                                   |  |                           | (2,516,355 | )    |   | (1,892,093 | ) |   | (1,104,788 | )
|Accounts receivable  other                                                                   |  |                           | (124,025   | )    |   | 88,982     |   |   | 77,356     |  
|Inventories                                                                                   |  |                           | (9,818,843 | )    |   | (3,511,256 | ) |   | (5,913,069 | )
|Prepaid expenses and other current assets                                                     |  |                           | (309,834   | )    |   | 1,850      |   |   | (214,237   | )
|Other assets                                                                                  |  |                           | (85,886    | )    |   | 35,208     |   |   | 2,724      |  
|Accounts payable                                                                              |  |                           | 728,347    |      |   | (858,885   | ) |   | 5,305,613  |  
|Accrued liabilities                                                                           |  |                           | (3,590     | )    |   | 316,688    |   |   | 58,811     |  
|Due to Zunicom, Inc.                                                                          |  |                           | 186,617    |      |   | (334,711   | ) |   | 811,482    |  
|Deferred rent                                                                                 |  |                           | 22,824     |      |   | (30,749    | ) |   | (8,696     | )
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|Net cash provided by (used in) operating activities                                           |  |                           | (9,139,063 | )    |   | (3,327,758 | ) |   | 394,922    |  
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                          |  |                           |            |      |   |            |   |   |            |  
|Purchase of property and equipment                                                            |  |                           | (1,446,802 | )    |   | (94,496    | ) |   | (185,649   | )
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                          |  |                           |            |      |   |            |   |   |            |  
|Net activity on line of credit                                                                |  |                           | (1,740,564 | )    |   | 5,312,160  |   |   | 734,532    |  
|Net proceeds from IPO                                                                         |  |                           |           |      |   | 11,955,223 |   |   |           |  
|Payments on capital lease obligations                                                         |  |                           | (18,730    | )    |   | (20,977    | ) |   | (20,968    | )
|Payment of dividends to Zunicom, Inc.                                                         |  |                           |           |      |   | (964,000   | ) |   | (882,491   | )
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|                                                                                              |  |                           |            |      |   |            |   |   |            |  
|Net cash provided by (used in) financing activities                                           |  |                           | (1,759,294 | )    |   | 16,282,406 |   |   | (168,927   | )
|                                                                                              |  |                           |            |      |   |            |   |   |            |  

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

F-8

---



UNIVERSAL POWER GROUP, INC.STATEMENTS OF CASH FLOWS (CONTINUED)

|                                                                    |  |                           |             |      |   |            |  |   |         | 
|------------------------------------------------------------------- |  | ------------------------- | ----------- | ---- | - | ---------- |  | - | ------- | 
|                                                                    |  | Year
  Ended December 31, |            
|                                                                    |  |                           |            
|                                                                    |  | 2007                      |             | 2006 |   | 2005       | 
|                                                                    |  |                           |             |      |   |            | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                |  | $                         | (12,345,159 | )    | $ | 12,860,152 |  | $ | 40,346  | 
|Cash and cash equivalents at beginning of year                      |  |                           | 13,036,447  |      |   | 176,295    |  |   | 135,949 | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|Cash and cash equivalents at end of year                            |  | $                         | 691,288     |      | $ | 13,036,447 |  | $ | 176,295 | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|SUPPLEMENTAL DISCLOSURES                                            |  |                           |             |      |   |            |  |   |         | 
|Income taxes paid                                                   |  | $                         | 1,356,108   |      | $ | 72,939     |  | $ | 74,243  | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|Interest paid                                                       |  | $                         | 1,205,657   |      | $ | 833,731    |  | $ | 490,096 | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES |  |                           |             |      |   |            |  |   |         | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|Payable to Zunicom, Inc. converted to note payable                  |  | $                         |            |      | $ | 2,850,000  |  | $ |        | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 
|Dividends due to Zunicom, Inc                                       |  | $                         |            |      | $ | 3,000,000  |  | $ | 269,180 | 
|                                                                    |  |                           |             |      |   |            |  |   |         | 

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 to a diverse and growing range of industries of
portable power and related synergistic products, a provider of third-party
fulfillment and logistics services and a custom battery pack assembler. 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. However, a small portion of the Companys sales are 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. As a result of the offering, 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
October 25, 2006 the Companys Board of Directors authorized a forward stock
split of 6.07404258 shares for each share of common stock outstanding on such
date. As a result, the number of shares of common stock issued and outstanding
increased from 493,905 to 3,000,000. All information in these statements gives
retroactive effect to the stock split for all periods presented.

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.

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 collectibility
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 part, or market. The Company performs
periodic evaluations, based upon business trends, to specifically identify
obsolete, slow moving and non-salable inventory. Inventory allowances are
evaluated periodically to ensure they reflect current business trends.

The
Company is a significant supplier for Brinks Home Security, Inc. (Brinks). In
order to meet its obligations to Brinks, the Company maintains certain
inventory levels at all times. Inventory held related to the Companys
relationship with Brinks, primarily security products, totaled approximately
$10.0 million and $9.4 million, respectively, at December 31, 2007 and 2006.
Brinks is obligated to purchase from the Company any and all remaining
inventory held by the Company pursuant to an agreement with Brinks (including
inventory in transit) and reimburse the Company for any applicable cancellation
fees to the manufacturer upon early termination of the relationship.

Property and Equipment

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

At
December 31, 2007 and 2006, property and equipment includes $50,204 and
$112,085, respectively, of assets which have been financed under capital
leases. The accumulated amortization related to these assets at December 31,
2007 and 2006 totaled $37,271 and $77,362, respectively. Amortization expense
related to these assets during the years ended December 31, 2007, 2006, and
2005 totaled $10,139, $20,656, and $20,715, respectively. Expenditures for
major renewals and betterments that extend the useful lives of property and
equipment are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred.

F-10

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

Income Taxes

Through
December 20, 2006, the Company was included in the consolidated federal income
tax return filed by Zunicom. Subsequent to December 20, 2006, the Company is
required to file its own tax return. Income taxes are calculated as if the
Company filed on a separate return basis. Current income tax receivable/payable
through December 20, 2006, if any, is recorded as a due from/to Zunicom and
deferred tax assets and liabilities are recorded separately.

In
January 2007, the Company adopted the Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109 (FIN 48). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in a
companys financial statements. FIN 48 requires companies to determine whether
it is more likely than not that a tax position will be sustained upon
examination by the appropriate taxing authorities before any part of the
benefit can be recorded in the financial statements. It also provides guidance
on the recognition, measurement and classification of income tax uncertainties,
along with any related interest and penalties. The Company did not recognize any
adjustments to the financial statements as a result of its implementation of
FIN 48.

The
Company utilizes the asset and liability approach to accounting and reporting
for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes,
(SFAS 109). 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.

The
Company uses an estimate of its annual income tax rate to recognize a provision
for income taxes in financial statements for interim periods. However, changes
in facts and circumstances could result in adjustments to the Companys
effective tax rate in future quarterly or annual periods.

Long-Lived Assets

The
Company accounts for the impairment and disposition of long-lived assets in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. In accordance with SFAS No. 144, long-lived assets are
reviewed when events or changes in circumstances indicate that their carrying
value may not be recoverable. These evaluations include comparing 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. The Companys management has
evaluated its long-lived assets and has not identified any impairment as of
December 31, 2007, 2006 and 2005.

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 in accordance with Staff Accounting Bulletin (SAB)
No. 104 when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed and determinable and collectibility 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 solutions for
inclusion in their own products. The Company will obtain the battery and
necessary components and configure a new finished good unit based upon customer
specifications. The Company refers to this process as a value added service.
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 the Companys 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 the Companys vendor to the Companys customer. The Company also
has an inventory fulfillment agreement with Brinks. The Company purchases,
handles, assembles and delivers installation components and tooling to Brinks
and to independent Brinks authorized dealers. Revenues from drop shipment
transactions and pursuant to the agreement with Brinks are recognized on a gross basis at the
time the customer takes title to the product based on the Companys
analysis

F-11

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

of the
criteria defined in Emerging Issues Task Force (EITF) Issue No. 99-19 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, 2007 and 2006,
the Company has a warranty reserve of approximately $10,000.

Advertising costs

Advertising
costs are charged to operations when incurred. Advertising expense was
approximately $209,000, $182,000, and $95,000 for the years ended December 31,
2007, 2006, and 2005, respectively.

Shipping and Handling Costs

Shipping
and handling costs are charged to cost of sales in the accompanying statements
of income.

Earnings Per Share

Basic
earnings per common share is computed by dividing net income 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, 2007 the dilutive effects of 40,000 stock options
are included in the diluted net income per share calculation and 1,269,364
stock options and 300,000 warrants are excluded from the calculation of diluted
net income per share as they are antidilutive. For the year ended December 31,
2006, the dilutive effects of 1,187,500 stock options are included in the
diluted net income per share calculation and 300,000 warrants are exluded from
the calculation as they are antidilutive. For the year ended December 31, 2005
the Company had no common stock equivalents.

Fair Value of Financial Information

In
accordance with the reporting requirements of SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, the Company calculates the fair value of
its assets and liabilities which qualify as financial instruments under this
statement and includes this additional information in the notes to the
financial statements when the fair value is different than carrying value of
these financial instruments. The estimated fair value of cash equivalents,
accounts receivable, prepaid expenses, other current assets, 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 obligations approximates the carrying amounts since they
bear market rates of interest. None of these instruments are held for trading
purposes.

Stock-Based Compensation and Restricted Stock

Prior
to January 1, 2006 the Company was required to account for employee stock-based
compensation using the intrinsic value method supplemented by pro forma
disclosures in accordance with Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and SFAS No. 123
Accounting for Stock-Based Compensation (SFAS 123), as amended by SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure
(SFAS 148). Effective January 1, 2006 the Company adopted SFAS No. 123R,
Share-Based Payment (SFAS No. 123R), using the modified prospective
approach. Accordingly, and since the Company had no stock options or other
stock-based compensation prior to 2006, prior periods have not been restated to
reflect the impact of SFAS 123R.

Stock-based
compensation expense recognized in the statements of income during the years
ended December 31, 2007 and 2006 includes compensation expense for fully vested
stock options and the amortization of partially vested stock-based payment
awards. SFAS No. 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.

The
Company accounts for restricted stock in accordance with EITF Issue No. 00-12
Accounting by an Investor for Stock-Based Compensation Granted to Employees of
an Equity Method Investee and FASB 123(R) Share-Based Payment.

F-12

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

Accounting for Other Stock Options and
Warrants

The
Company applies EITF No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Aquiring, or in Conjunction with Selling,
Goods or Services (EITF 96-18), with respect to options and warrants issued
to non-employees. EITF 96-18 requires the use of option valuation models to
measure the fair value of the options and warrants at the measurement date.

Recent Accounting Pronouncements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007. However,
on December 14, 2007, the FASB issued FSP FAS 157-b which would delay the
effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilites, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). This proposed
FSP partially defers the effective date of Statement 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years for items within the scope of this FSP. Effective for 2008, the Company
will adopt SFAS 157 except as it applies to those nonfinancial assets and
nonfinancial liabilites as noted in the proposed FSP FAS 157-b. The partial
adoption of SFAS No. 157 will not have a material impact on the Companys
financial position, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option For Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115(SFAS 159). SFAS 159 permits
entities to choose to measure certain financial assets and liabilities at fair
value. SFAS 159 is effective for fiscal years beginning after November 15,
2007. Management is currently evaluating the impact, if any, that SFAS 159 will
have on the Companys financial statements.

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(SFAS 141(R)), which replaces SFAS
141. The provisions of SFAS 141(R) are similar to those of SFAS 141; however, SFAS
141(R) requires companies to record most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in a business combination at
full fair value. SFAS 141(R) also requires companies to record fair value
estimates of contingent consideration and certain other potential liabilities
during the original purchase price allocation and to expense acquisition costs
as incurred. This statement applies to all business combinations, including
combinations by contract alone. Further, under SFAS 141(R), all business
combinations will be accounted for by applying the acquisition method. SFAS
141(R) is effective for fiscal years beginning on or after December 15, 2008.
The provisions of SFAS 141(R) will impact the Company if it is a party to a
business combination after the pronouncement is adopted..

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements(SFAS 160), which
will require noncontrolling interests (previously referred to as minority
interests) to be treated as a separate component of equity, not as a liability
or other item outside of permanent equity. This Statement applies to the
accounting for noncontrolling interests and transactions with noncontrolling
interest holders in consolidated financial statements. SFAS 160 is effective
for periods beginning on or after December 15, 2008. SFAS 160 will be applied
prospectively to all noncontrolling interests, including any that arose before
the effective date except that comparative period information must be recast to
classify noncontrolling interests in equity, attribute net income and other
comprehensive income to noncontrolling interests, and provide other disclosures
as required.

Use of Estimates and Assumptions

Management
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.

Reclassifications

Certain
2005 and 2006 amounts have been reclassified to conform to 2007 presentation.

NOTE C. INVENTORIES

Inventories
at December 31, 2007 and 2006 consist of the following:

|                                 |  |               |            |      |   |            |  
|-------------------------------- |  | ------------- | ---------- | ---- | - | ---------- | -
|                                 |  | December
 31, |           
|                                 |  |               |           
|                                 |  | 2007          |            | 2006 |  
|                                 |  |               |            |      |  
|Battery and
 related inventory   |  | $             | 20,330,701 |      | $ | 11,706,688 |  
|Security
 related inventory      |  |               | 10,220,444 |      |   | 10,347,702 |  
|Electronic
 components inventory |  |               | 1,988,012  |      |   | 717,859    |  
|Inventory
 obsolescence reserve  |  |               | (193,780   | )    |   | (200,715   | )
|                                 |  |               |            |      |   |            |  
|                                 |  | $             | 32,345,377 |      | $ | 22,571,534 |  
|                                 |  |               |            |      |   |            |  

F-13

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE D. LINE OF CREDIT

The
Company has a $30 million line of credit with Compass Bank which matures on
July 5, 2012. The facility bears interest at LIBOR Index Rate plus a sliding
range from 1.25% to 2.50% based on quarterly covenant performance. At December
31, 2007 that rate was 7.0%. The line of credit is due on demand and is secured
by accounts receivable, inventories, and equipment. The lines availability is
based on a borrowing formula, which allows for borrowings equal to 85% of UPGs
eligible accounts receivable and a percentage of eligible inventory. In
addition, UPG must maintain certain financial covenants including ratios on
funded debt to EBITDA, as well as a fixed charge ratio. The advance formula
referenced in the Amended and Restated Revolving Credit and Security Agreement
(Credit Agreement) as the Borrowing Base is eighty-five percent (85.0%) of
the outstanding value of Borrowers Eligible Accounts Receivable plus fifty
percent (50.0%) of the value of Borrowers Eligible Inventory (as defined in
the Credit Agreement). Advances against Borrowers Eligible Inventory shall not
exceed the lesser of (a) $30,000,000 or (b) an amount equal to the product of
(i) one and one-half (1.5), multiplied by (ii) eighty-five percent (85%) of the
outstanding value of Borrowers Eligible Accounts Receivable. At December 31,
2007, approximately $12.8 million was outstanding under the line of credit and
approximately $7.0 million remained available for borrowings under the line of
credit based on the borrowing formula.

NOTE E. NOTES PAYABLE TO ZUNICOM, INC.

The
Company declared a $3 million dividend payable to Zunicom in 2006. The dividend
is evidenced by an unsecured note payable, which has a maturity date of June
20, 2012 and which bears interest at the rate of 6% per annum. Interest on the
unpaid principal amount of this note is payable quarterly, in arrears, and the
principal amount will be repaid in 16 equal quarterly installments of $187,500
beginning September 20, 2008.

At
December 31, 2007 the Company also owed Zunicom an additional $2.85 million,
reflecting the tax benefit of the consolidated losses used to offset the
Companys taxable income. The obligation is evidenced by an unsecured note
bearing interest at 6% per annum and maturing June 20, 2012. Interest on the
unpaid principal amount of this note is payable quarterly, in arrears, and the
principal amount will be repaid in 16 equal quarterly installments of $178,125
beginning September 20, 2008.

Payments
due to Zunicom as of December 31, 2007 are as follows:

|                      |  |   |           | 
|--------------------- |  | - | --------- | 
|2008                  |  | $ | 731,250   | 
|2009                  |  |   | 1,462,500 | 
|2010                  |  |   | 1,462,500 | 
|2011                  |  |   | 1,462,500 | 
|2012                  |  |   | 731,250   | 
|                      |  |   |           | 
|Total                 |  |   | 5,850,000 | 
|Less current
 portion |  |   | 731,250   | 
|                      |  |   |           | 
|                      |  | $ | 5,118,750 | 
|                      |  |   |           | 

NOTE F. RELATED PARTY TRANSACTIONS

The
Company declared dividends totaling $3,964,000 to Zunicom during the year ended
December 31, 2006 of which $3,000,000 is recorded as a note payable to Zunicom,
Inc. as of December 31, 2007 and 2006 (See Note E). The Company paid cash
dividends to Zunicom of $964,000 during the year ended December 31, 2006.

The
Company declared $966,671 of dividends payable to Zunicom and paid cash
dividends of $882,491 to Zunicom during the year ended December 31, 2005.

At
December 31, 2006 the Company recorded $2,850,000 as a note payable to Zunicom,
Inc. (See Note E). As of December 31, 2006 the Company recorded $603,614 as a
capital contribution from Zunicom in connection with a portion of the Companys
current allocation of income tax expense which has been forgiven by Zunicom.

The
Company paid interest totaling $351,000 on the above notes payable to Zunicom
during the year ended December 31, 2007.

The
Company paid management fees to Zunicom of $0, $480,000, and $480,000 during
the years ended December 31, 2007, 2006, and 2005, respectively. The management
agreement was terminated at the end of 2006 in conjunction with the IPO.

NOTE G. INCOME TAXES

Deferred
tax assets and liabilities at December 31, 2007 and 2006 consist of the
following:

|                                    |  |               |         |      |   |           |  
|----------------------------------- |  | ------------- | ------- | ---- | - | --------- | -
|                                    |  | December
 31, |        
|                                    |  |               |        
|                                    |  | 2007          |         | 2006 |  
|                                    |  |               |         |      |  
|Deferred tax
 assets:               |  |               |         |      |   |           |  
|Inventory obsolescence              |  | $             | 65,885  |      | $ | 77,275    |  
|Allowance for doubtful accounts     |  |               | 43,986  |      |   | 43,989    |  
|Accrued liabilities                 |  |               | 93,534  |      |   | 128,509   |  
|Stock option compensation           |  |               | 779,709 |      |   | 837,390   |  
|                                    |  |               |         |      |   |           |  
|Current
 deferred tax asset         |  |               | 983,114 |      |   | 1,087,163 |  
|                                    |  |               |         |      |   |           |  
|Non-current
 deferred tax liability |  | $             | (24,455 | )    | $ | (64,663   | )
|                                    |  |               |         |      |   |           |  

F-14

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE G. INCOME TAXES (CONTINUED)

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

The
Companys provision for income taxes for the years ended December 31, 2007,
2006 and 2005 is comprised as follows:

|                                             |  |      |           |      |   |           |   |   |         | 
|-------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | - | ------- | 
|                                             |  | 2007 |           | 2006 |   | 2005      |  
|                                             |  |      |           |      |   |           |  
|Deferred
 income tax expense (benefit)       |  | $    | 64,841    |      | $ | (888,928  | ) | $ | 2,301   | 
|Currrent
 federal income tax expense         |  |      | 1,299,504 |      |   | 1,025,804 |   |   | 716,633 | 
|Currrent
 state income tax expense (benefit) |  |      | (173,359  | )    |   | 135,769   |   |   | 94,849  | 
|                                             |  |      |           |      |   |           |   |   |         | 
|Provision
 for income taxes                  |  | $    | 1,190,986 |      | $ | 272,645   |   | $ | 813,783 | 
|                                             |  |      |           |      |   |           |   |   |         | 

The
Companys income tax expense for the years ended December 31, 2007, 2006, and
2005 differed from the statutory federal rate of 34 percent as follows:

|                                                      |  |      |           |      |   |         |   |   |         | 
|----------------------------------------------------- |  | ---- | --------- | ---- | - | ------- | - | - | ------- | 
|                                                      |  | 2007 |           | 2006 |   | 2005    |  
|                                                      |  |      |           |      |   |         |  
|Statutory
 rate applied to income before income taxes |  | $    | 1,161,080 |      | $ | 196,197 |   | $ | 662,360 | 
|Amounts not
 deductible for income tax purposes       |  |      | 83,752    |      |   | 67,734  |   |   | 56,575  | 
|State income
 taxes, net of federal income tax effect |  |      | (53,846   | )    |   | 33,934  |   |   | 94,848  | 
|Other                                                 |  |      |          |      |   | (25,220 | ) |   |        | 
|                                                      |  |      |           |      |   |         |   |   |         | 
|Income tax
 expense                                   |  | $    | 1,190,986 |      | $ | 272,645 |   | $ | 813,783 | 
|                                                      |  |      |           |      |   |         |   |   |         | 

NOTE H. SALE OF COMMON STOCK

On
December 27, 2006, the Company completed its initial public offering (IPO) at
$7.00 per share for 3,000,000 shares of its common stock. In the initial public
offering, the Company sold 2,000,000 shares of its common stock and Zunicom
sold 1,000,000 shares of the Companys common stock. Included in this IPO were
300,000 warrants to purchase common stock granted to the underwriters at an
exercise price of $8.40 per share. The warrants are exercisable until the fifth
aniversary of that date. These warrants were valued at approximately $127,000
using the Black-Scholes model and have been included in issuance costs in
connection with the IPO. The net proceeds of $11,955,223 include approximately
$1,918,000 in issuance costs.

NOTE I. 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 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 Plan will be administered by the
compensation committee of the board of directors. Except as may otherwise be
provided in the Plan, the compensation committee will have complete authority
and discretion to determine the terms of awards.

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. A total of 1,500,000 shares of the Companys common
stock, representing 30% of the total

F-15

---



UNIVERSAL
POWER GROUP, INC.

NOTES TO
FINANCIAL STATEMENTS (CONTINUED)

NOTE I.
STOCK-BASED COMPENSATION (CONTINUED)

number of shares issued and
outstanding at December 31, 2007, 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, 2007, common shares reserved for future issuance include 1,500,000
shares issuable under the Plan, 20,000 shares issuable outside the Plan and
300,000 shares issuable upon exercise of outstanding warrants. At December 31,
2007 there are 1,289,364 options outstanding under the Plan and 210,636 options
are availavable 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, 2007 and 2006:

|                                       |  |      |                |   |      |   |       |  
|-------------------------------------- |  | ---- | -------------- | - | ---- | - | ----- | -
|                                       |  | 2007 |                |   | 2006 |  
|                                       |  |      |                |   |      |  
|Weighted average assumptions used:     |  |      |                |   |      |   |       |  
|Expected
  dividend yield              |  |      | 0.00           | % |      |   | 0.00  | %
|Risk-free
  interest rate              |  |      | 4.57% - 4.68   | % |      |   | 4.68  | %
|Expected
  volatility                  |  |      | 17.00% - 18.00 | % |      |   | 17.00 | %
|Expected life
  (in years)             |  |      | 5              |   |      |   | 5     |  
|Weighted average grant date fair value |  | $    | .67            |   |      | $ | 1.83  |  

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

The
Company has elected to use the calculated value method to estimate expected
volatility in 2007 and 2006. 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 17% - 18%. 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, 2007 and 2006
was as follows:

|                                         |  |                    |           |                                     |   |      | 
|---------------------------------------- |  | ------------------ | --------- | ----------------------------------- | - | ---- | 
|                                         |  | Number of
  Shares |           | Weighted
  Average
  Exercise Price |  
|                                         |  |                    |           |                                     |  
|Options outstanding at January 1, 2006   |  |                    |          |                                     | $ |     | 
|Granted                                  |  |                    | 1,187,500 |                                     | $ | 7.00 | 
|Exercised                                |  |                    |          |                                     | $ |     | 
|Canceled,
  forfeited or expired         |  |                    |          |                                     | $ |     | 
|                                         |  |                    |           |                                     |   |      | 
|Options outstanding at December 31, 2006 |  |                    | 1,187,500 |                                     | $ | 7.00 | 
|                                         |  |                    |           |                                     |   |      | 
|Granted                                  |  |                    | 102,500   |                                     | $ | 6.02 | 
|Exercised                                |  |                    |          |                                     | $ |     | 
|Canceled,
  forfeited or expired         |  |                    | 636       |                                     | $ | 7.00 | 
|                                         |  |                    |           |                                     |   |      | 
|Options outstanding at December 31, 2007 |  |                    | 1,289,364 |                                     | $ | 6.92 | 
|                                         |  |                    |           |                                     |   |      | 

Stock
Options Outstanding and Exercisable

The
following summarizes stock options outstanding under the Plan at December 31,
2007:

|                         |  |                             |           |                                                           |  |                                    |  |                                |      |                                    |  |           |  |   |      | 
|------------------------ |  | --------------------------- | --------- | --------------------------------------------------------- |  | ---------------------------------- |  | ------------------------------ | ---- | ---------------------------------- |  | --------- |  | - | ---- | 
|                         |  | Options
  Outstanding       |           | Options
  Exercisable                                     | 
|                         |  |                             |           |                                                           | 
|Range of Exercise Prices |  | Number ofOptionsOutstanding |           | Weighted
  AverageRemainingContractual
  Life(in
  years) |  | Weighted
  AverageExercise
  Price |  | Number of
  OptionsExercisable |      | Weighted
  AverageExercise
  Price | 
|                         |  |                             |           |                                                           |  |                                    |  |                                |      |                                    | 
|$ 4.48                   |  |                             | 40,000    |                                                           |  | 9                                  |  | $                              | 4.48 |                                    |  | 40,000    |  | $ | 4.48 | 
|$ 7.00                   |  |                             | 1,249,364 |                                                           |  | 9                                  |  | $                              | 7.00 |                                    |  | 1,249,364 |  | $ | 7.00 | 
|                         |  |                             |           |                                                           |  |                                    |  |                                |      |                                    |  |           |  |   |      | 
|$ 4.48 - $ 7.00          |  |                             | 1,289,364 |                                                           |  | 9                                  |  | $                              | 6.92 |                                    |  | 1,289,364 |  | $ | 6.92 | 
|                         |  |                             |           |                                                           |  |                                    |  |                                |      |                                    |  |           |  |   |      | 

F-16

---



UNIVERSAL
POWER GROUP, INC.

NOTES TO
FINANCIAL STATEMENTS (CONTINUED)

NOTE I.
STOCK-BASED COMPENSATION (CONTINUED)

These
stock options have an intrinsic value of $ 0 (zero) at December 31, 2007. There
is no remaining unrecognized compensation expense at December 31, 2007 related
to stock options granted under the Plan as all such options are fully vested.

Other
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 were valued at approximately $6,300 using the Black-Scholes model and
were unexercised as of December 31, 2007.

Warrants

In
connection with its December, 2006 initial public offering, 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
and were valued at approximately $127,000 using the Black-Scholes model for
valuation. All warrants were unexercised as of December 31, 2007.

Restricted
Stock

On June 25,
2007 the Companys former parent, Zunicom, Inc. (Zunicom), issued 645,133
shares of restricted stock to certain employees of UPG for past and future
services. The fair value of the shares at the issue date was approximately
$377,000. UPG is amortizing the fair value as compensation expense over the 48
month vesting period in accordance with EITF Issue No. 00-12 Accounting by an
Investor for Stock-Based Compensation Granted to Employees of an Equity Method
Investee and FASB 123(R) Share-Based Payment. Approximately $47,000 of
compensation expense was recorded during 2007.

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
and cash equivalents are at risk to the extent that they exceed Federal Deposit
Insurance Corporation insured amounts. To minimize this risk, the Company
places its cash and cash equivalents with high credit quality financial
institutions.

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, 2007 and 2006, the Company had receivables due from a significant
customer who comprised approximately 29% and 37%, respectively, of total trade
receivables. During the years ended December 31, 2007, 2006, and 2005, the
Company had one customer who accounted for 41%, 48%, and 56%, respectively, of
net sales. The loss of this significant customer would materially decrease the
Companys net sales.

A
significant portion of the Companys inventory purchases are from two
suppliers, representing 42% and 34% for the year ended December 31, 2007, 42%
and 28% for the year ended December 31, 2006, and approximately 44% and 22% for
the year ended December 31, 2005. The Company purchased approximately 50%, 61%,
and 70% respectively, of its product through domestic sources with the
remainder purchased from international sources, predominately in the Pacific
Rim and mainland China, for the years ended December 31, 2007, 2006, and 2005.
The majority of the Companys international purchases are coordinated through
an independent consultant. The Company does not anticipate any changes in the
relationships with these suppliers or the independent consultant; however, if
such a change were to occur, the Company believes it has alternative sources
available.

NOTE K.
COMMITMENTS AND CONTINGENCIES

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.

Operating Leases

The Company leases certain office and warehouse
  facilities and various vehicles and equipment under non-cancelable operating
  leases. On February 1, 2002, the Company entered into a lease for a warehouse
  facility. This lease was amended in 2003 and again in November, 2006. The
  amendment expanded the Companys

F-17

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE K. COMMITMENTS AND CONTINGENCIES
(CONTINUED)

warehouse
facilities by approximately 67,000 square feet to a total of approximately
216,000 square feet. The amended lease extends the Companys terms through
March 31, 2013 with monthly payments beginning January 1, 2007 totaling
approximately $38,800 for 2007, $41,900 for 2008 and 2009, $46,400 for 2010
through 2012, and $0 (zero) for the final three months, January 1, 2013 through
March 31, 2013. The Company entered into a warehouse facility lease effective
August 1, 2007 with monthly payments of approximately $6,000 through July 31,
2010. The vehicle and equipment leases mature on various dates through 2012.
Minimum future payments on these leases as of December 31, 2007 are as follows:

|                          |  |   |           | 
|------------------------- |  | - | --------- | 
|Years ending December 31, |  |   |           | 
|                          |  |   |           | 
|2008                      |  | $ | 825,037   | 
|2009                      |  |   | 710,089   | 
|2010                      |  |   | 686,405   | 
|2011                      |  |   | 627,602   | 
|2012                      |  |   | 613,071   | 
|Thereafter                |  |   | 15,078    | 
|                          |  |   |           | 
|                          |  | $ | 3,477,282 | 
|                          |  |   |           | 

Rent
expense for the years ended December 31, 2007, 2006, and 2005 totaled
approximately $818,000, $571,000, and $451,000, respectively.

Employment Agreements

The
Company has employment agreements with three key officers of the Company. The
agreements call for severance compensation in the event the officers employment
is terminated by reason of (i) the death, illness or incapacity of the officer;
(ii) the termination of the officers employment by the Company for any reason
other than act of breach; or (iii) the termination of the officers employment
by the officer because of a substantial breach of the employment agreement by
the Company. If severance compensation is required, the Company will pay the
officer a lump sum equal to twelve months of the officers current salary plus
twelve months of Cobra insurance coverage for the officer and the officers
family. One of the key officers is also entitled to an annual incentive bonus
on a target net income amount based upon the Companys annual operating budget
as more thoroughly defined in his employment agreement. This bonus is payable
annually and is payable for the calendar year in which the officer is
terminated. This officer received an option to purchase 10% of the outstanding
common stock of the Company during 2006. The other key officers may be paid an
annual incentive bonus to be determined solely by the Board of Directors of the
Company at the end of each year. One of these officers also received options to
purchase 7.5% of the outstanding common stock of the Company during 2006. Both
employment agreements state that any options granted to these two key officers
will be fully vested and immediately exercisable for a period of ten years at a
per share exercise price equal to the initial public offering price of $7.00
per share.

NOTE L. 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, 2007, 2006, and 2005.

NOTE M. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected
quarterly financial information (unaudited) for the years ended December 31,
2007 and 2006 is set forth below:

|                |  |            |             |               |   |             |  |       |           |         |                         |       |                                        |         |      |  |  |           |  |  |           | 
|--------------- |  | ---------- | ----------- | ------------- | - | ----------- |  | ----- | --------- | ------- | ----------------------- | ----- | -------------------------------------- | ------- | ---- |  |  | --------- |  |  | --------- | 
|                |  |            |             |               |   |             |  |       |           |         | Net
 Income 
 Per Share |       | Weighted
 Average Shares 
 Outstanding |        
|                |  |            |             |               |   |             |  |       |           |         |                         |       |                                        |        
|2007            |  | Net
 Sales |             | Gross
 Profit |   | Net
 Income |  | Basic |           | Diluted |                         | Basic |                                        | Diluted |     
|                |  |            |             |               |   |             |  |       |           |         |                         |       |                                        |         |     
|First
 quarter  |  | $          | 23,539,873  |               | $ | 3,440,635   |  | $     | 367,959   |         | $                       | 0.07  |                                        | $       | 0.07 |  |  | 5,000,000 |  |  | 5,000,870 | 
|Second
 quarter |  | $          | 26,403,048  |               | $ | 4,144,858   |  | $     | 733,705   |         | $                       | 0.15  |                                        | $       | 0.15 |  |  | 5,000,000 |  |  | 5,002,114 | 
|Third
 quarter  |  | $          | 29,788,479  |               | $ | 4,242,702   |  | $     | 681,905   |         | $                       | 0.14  |                                        | $       | 0.14 |  |  | 5,000,000 |  |  | 5,000,980 | 
|Fourth
 quarter |  | $          | 28,785,696  |               | $ | 4,147,169   |  | $     | 440,387   |         | $                       | 0.08  |                                        | $       | 0.08 |  |  | 5,000,000 |  |  | 5,000,000 | 
|For the year    |  | $          | 108,517,097 |               | $ | 15,975,362  |  | $     | 2,223,953 |         | $                       | 0.44  |                                        | $       | 0.44 |  |  | 5,000,000 |  |  | 5,001,305 | 
|                |  |            |             |               |   |             |  |       |           |         |                         |       |                                        |         |      |  |  |           |  |  |           | 

F-18

---



UNIVERSAL POWER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE M. QUARTERLY FINANCIAL INFORMATION
(UNAUDITED) (CONTINUED)

|                |  |            |            |               |   |                    |  |       |          |         |                                |       |                                        |         |       |   |  |           |  |  |           | 
|--------------- |  | ---------- | ---------- | ------------- | - | ------------------ |  | ----- | -------- | ------- | ------------------------------ | ----- | -------------------------------------- | ------- | ----- | - |  | --------- |  |  | --------- | 
|                |  |            |            |               |   |                    |  |       |          |         | Net
 Income (Loss) 
 Per Share |       | Weighted
 Average Shares 
 Outstanding |        
|                |  |            |            |               |   |                    |  |       |          |         |                                |       |                                        |        
|2006            |  | Net
 Sales |            | Gross
 Profit |   | Net
 Income (Loss) |  | Basic |          | Diluted |                                | Basic |                                        | Diluted |      
|                |  |            |            |               |   |                    |  |       |          |         |                                |       |                                        |         |      
|First
 quarter  |  | $          | 20,740,624 |               | $ | 2,930,468          |  | $     | 316,822  |         | $                              | 0.11  |                                        | $       | 0.11  |   |  | 3,000,000 |  |  | 3,000,000 | 
|Second
 quarter |  | $          | 23,504,175 |               | $ | 3,268,163          |  | $     | 397,086  |         | $                              | 0.13  |                                        | $       | 0.13  |   |  | 3,000,000 |  |  | 3,000,000 | 
|Third
 quarter  |  | $          | 23,772,154 |               | $ | 3,475,674          |  | $     | 454,400  |         | $                              | 0.15  |                                        | $       | 0.15  |   |  | 3,000,000 |  |  | 3,000,000 | 
|Fourth
 quarter |  | $          | 24,566,568 |               | $ | 3,482,946          |  | $     | (880,395 | )       | $                              | (0.29 | )                                      | $       | (0.29 | ) |  | 3,088,889 |  |  | 3,088,889 | 
|For the year    |  | $          | 92,583,521 |               | $ | 13,157,251         |  | $     | 287,913  |         | $                              | 0.10  |                                        | $       | 0.07  |   |  | 3,021,918 |  |  | 4,174,817 | 

F-19

---



UNIVERSAL POWER GROUP,
INC.

SCHEDULE IIVALUATION AND QUALIFYING
ACCOUNTS
For three Years Ended December 31,
2007

|                                |  |   |                                    |  |   |                                             |  |   |            |   |   |                              | 
|------------------------------- |  | - | ---------------------------------- |  | - | ------------------------------------------- |  | - | ---------- | - | - | ---------------------------- | 
|Description                     |  |   | Balance at
  Beginning of
  Period |  |   | Additions
  Charged
  to Expense
  or other |  |   | Deductions |   |   | Balance
  at End
  of Period | 
|                                |  |   |                                    |  |   |                                             |  |   |           
|Inventory obsolescence reserve: |  |   |                                    |  |   |                                             |  |   |            |   |   |                              | 
|Year ended:                     |  |   |                                    |  |   |                                             |  |   |            |   |   |                              | 
|December 31,
2005               |  | $ | 263,313                            |  | $ | 55,962                                      |  | $ | (168,560   | ) | $ | 150,715                      | 
|December 31,
2006               |  | $ | 150,715                            |  | $ | 50,000                                      |  | $ |           |   | $ | 200,715                      | 
|December 31,
2007               |  | $ | 200,715                            |  | $ | 45,000                                      |  | $ | (51,935    | ) | $ | 193,780                      | 
|Accounts receivable reserve:    |  |   |                                    |  |   |                                             |  |   |            |   |   |                              | 
|Year ended:                     |  |   |                                    |  |   |                                             |  |   |            |   |   |                              | 
|December 31,
2005               |  | $ | 196,502                            |  | $ | 48,187                                      |  | $ | (44,687    | ) | $ | 200,002                      | 
|December 31,
2006               |  | $ | 200,002                            |  | $ | 126,127                                     |  | $ | (211,872   | ) | $ | 114,257                      | 
|December 31,
2007               |  | $ | 114,257                            |  | $ | 93,980                                      |  | $ | (78,866    | ) | $ | 129,371                      | 

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

S-1

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