|                                                        |                                                                                         
|------------------------------------------------------- | ----------------------------------------------------------------------------------------
|UNITED
STATES                                          
|SECURITIES
AND EXCHANGE COMMISSION                     
|WASHINGTON,
D.C. 20549                                 
|                                                       
|FORM 10-K                                              
|                                                        |                                                                                         
|þ                                                       | ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                        | For the fiscal year ended
December 31, 2009                                             
|                                                        |                                                                                         
|                                                        | OR                                                                                      
|o                                                       | TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                        | For the transition period
from ____________ to ____________                             
|                                                        |                                                                                         
|Commission
 file number: 001-33207                     
|                                                       
|Universal Power Group, Inc.                            
|(Exact
 name of registrant as specified in its charter)

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

|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------
|Common
 Stock, $0.01 Par Value                                                                                                                                                                                                                                                                                                                                                              |  | NYSE
 Amex                                 
|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            
|(Title
of Each Class)                                                                                                                                                                                                                                                                                                                                                                       |  | (Name
of each exchange on which registered)
|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                            
|Securities registered
 pursuant to Section 12(g) of the Act: None                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark if
 the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
 Securities Act     Yes o     No þ                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark if
 the registrant is not required to file reports pursuant to Section 13 or
 Section 15(d) of the Exchange Act.     Yes o     No þ                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark
 whether the registrant (1) has filed all reports required to be filed by
 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
 preceding 12 months (or for such shorter period that the registrant was
 required to file such reports), and (2) has been subject to such filing
 requirements for the past 90 days.     Yes þ     No o           
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark
 whether the registrant has submitted electronically and posted on its
 corporate Web site, if any, every Interactive Data File required to be
 submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
 chapter) during the preceding 12 months (or for such shorter period that the
 registrant was required to submit and post such files).
|Yes
 o     No o                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate
 by check mark if disclosure of delinquent filers
 pursuant to Item 405 of Regulation S-K is not contained herein, and will not
 be contained, to the best of registrants knowledge, in definitive proxy or
 information statements incorporated by reference in Part III of this Form
 10-K or any amendment to this Form 10-K.     þ                                           
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark
 whether the registrant is a large
 accelerated filer, an accelerated filer, a non-accelerated filer or smaller
 reporting company. See definitions of large accelerated filer, accelerated
 filer and smaller reporting company in Rule 12b-2 of the Exchange Act.                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                           
|Large
 accelerated filer o          Accelerated
 filer o          Non-accelerated
 filer o          Smaller Reporting Company þ                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                           
|Indicate by check mark whether the registrant is a shell
 company (as defined in Rule 12b-2 of the Exchange
 Act).     Yes o     No þ                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                           
|The aggregate market value
 of the voting and non-voting common equity held by non-affiliates of the
 registrant was $4,861,522 based on the price at which the common equity was
 last sold on the NYSE Amex as of June 30, 2009, the last business day of the
 registrants most recently completed second fiscal quarter.                                                               
|                                                                                                                                                                                                                                                                                                                                                                                           
|The number of shares
 outstanding of the registrants classes of common equity as of March 29, 2010
 was 5,000,000.                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                           
|DOCUMENTS INCORPORATED BY REFERENCE                                                                                                                                                                                                                                                                                                                                                        
|None                                                                                                                                                                                                                                                                                                                                                                                       

---



TABLE
OF CONTENTS

|            |                                                                                                               |  |     
|----------- | ------------------------------------------------------------------------------------------------------------- |  | ----
|            |                                                                                                               |  | Page
|            |                                                                                                               |  |     
|            |                                                                                                               |  |     
|            | PART I                                                                                                        |  |     
|Item 1.     | Business                                                                                                      |  | 3   
|Item 1A.    | Risk Factors                                                                                                  |  | 8   
|Item 1B.    | Unresolved Staff Comments                                                                                     |  | 14  
|Item 2.     | Properties                                                                                                    |  | 15  
|Item 3.     | Legal Proceedings                                                                                             |  | 15  
|Item 4.     | [Removed and Reserved]                                                                                        |  | 15  
|            |                                                                                                               |  |     
|            | PART II                                                                                                       |  |     
|Item 5.     | Market for Registrants Common
 Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 15  
|Item 6.     | Select Consolidated Financial
 Data                                                                           |  | 15  
|Item 7.     | Managements Discussion and
 Analysis of Financial Condition and Results of Operations                        |  | 15  
|Item 7A.    | Quantitative and Qualitative
 Disclosures About Market Risk                                                   |  | 20  
|Item 8.     | Financial Statements and
 Supplementary Data                                                                  |  | 20  
|Item 9.     | Changes in and Disagreements
 with Accountants on Accounting and Financial Disclosure                         |  | 20  
|Item 9A(T). | Controls and Procedures                                                                                       |  | 20  
|Item 9B.    | Other Information                                                                                             |  | 21  
|            |                                                                                                               |  |     
|            | PART III                                                                                                      |  |     
|Item 10.    | Directors, Executive Officers
 and Corporate Governance                                                       |  | 21  
|Item 11.    | Executive Compensation                                                                                        |  | 23  
|Item 12.    | Security Ownership of Certain
 Beneficial Owners and Management and Related Stockholder Matters               |  | 25  
|Item 13.    | Certain Relationship and
 Related Transactions and Director Independence                                      |  | 26  
|Item 14.    | Principal Accounting Fees and
 Services                                                                       |  | 27  
|            |                                                                                                               |  |     
|            | PART IV                                                                                                       |  |     
|Item 15.    | Exhibits and Consolidated
 Financial Statement Schedules                                                      |  | 27  
|            |                                                                                                               |  |     
|Signatures  |                                                                                                               |  | 29  

2

---



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 U.S. 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,
assumptions and other factors, described in Risk Factors and elsewhere in
this report, which could adversely affect our business and financial
performance. In addition, our past results of operations do not necessarily
indicate our future results. Finally, the third-party logistics services
business and the battery and related power accessory supply and distribution
business are highly competitive and rapidly changing. New risk factors emerge
from time to time and it is not possible for us to anticipate all the relevant
risks to our business. We cannot assess the impact of all such risks on our
business or the extent to which any risk, or combination of risks, may cause
actual results to differ materially from those contained in any forward-looking
statements.

Except
as otherwise required by applicable laws and regulations, 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

We
were organized in July 1968 under the laws of Texas. Our principal executive
office is located at 1720 Hayden Drive, Carrollton, Texas 75006, and our
telephone number is (469) 892-1122. Our web address is www.upgi.com. We have one active
subsidiary, Monarch Outdoor Adventures dba Monarch Hunting, which is located at
6112 West Pioneer Parkway (Highway 303), Arlington, Texas 76013, incorporated
in Texas, and 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, reducing its ownership interest in us 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 Securities and Exchange
Commission (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 a website 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 Overview

We
are (i) a leading supplier and distributor of batteries and related power
accessories and (ii) a third-party logistics services provider, specializing in
supply chain management and value-added services.

Distribution
Business

We
sell, distribute and market batteries and related power accessories under
various manufacturer brands, private labels and our own proprietary brands. We
are one of the leading domestic distributors of sealed, or maintenance-free,
lead-acid batteries (SLA batteries). 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 DC power
 accessories;                                         
| |   |                                                                                                                                      
| |  | security
 system components, such as alarm panels, perimeter access controls, horns,
 sirens, speakers, transformers, cable and wire.

3

---



Our
customers include original equipment manufacturers (OEMs), distributors and
both online and traditional retailers. Our products represent basic energy
solutions to a wide variety of existing applications in a broad market
spectrum. They are used in a
diverse and growing range of industries and applications including automotive,
medical mobility, consumer goods, electronics, marine, hunting, security and
surveillance, telecommunications, uninterruptible power supply, power sports,
solar and portable power.

The
demand for batteries and related power accessories is impacted by consumer
preferences, technological developments, fuel costs, which impact both
manufacturing and shipping, the cost of lead and copper, the two principal raw
materials used to manufacture batteries and general economic conditions. We
believe that technological change drives growth as new product introductions
accelerate sales and provide us with new opportunities. At the same time,
battery chemistries are also evolving due to changes in consumer demands and
preferences that are driven, in part, by environmental and safety concerns and
the need for greater density power and longer life. Therefore, we continue to
stay current regarding advances and changes in battery technology.

Third Party
Logistics

We
are also a third-party logistics services provider specializing in supply chain
management and value-added services, designed to help customers optimize
performance by allowing them to outsource supply chain management functions.
Our supply chain management services include inventory sourcing, procurement,
warehousing and fulfillment. Our value-added services include custom battery
pack assembly, custom kitting, private labeling, product development and engineering,
graphic design and sales and marketing.

We
believe that the demand for third-party logistics and supply chain management
solutions is growing, particularly with globalization. To be successful,
businesses have not only to excel in their core competencies, but they must
also execute their supply chain processes quickly and accurately. To remain
competitive, businesses strive to identify ways to more efficiently manage
their supply chain and streamline their logistics processes by minimizing
inventory levels, reducing order and cash-to-cash cycle lengths and outsourcing
manufacturing and assembly operations to low-cost locations. An efficient
supply chain has become a critical element to improving financial performance.
As a result, businesses are increasingly turning to organizations that provide
a broad array of logistics and supply chain solutions. These trends have been
further facilitated by the rapid growth of technology enabling seamless
electronic interfaces between systems of service providers and their customers.

Industry Background

The
battery and related power accessory industry is one of the largest and growing
multi-billion dollar industries in the United States. Batteries serve as an
energy storage solution for a wide range of consumer and commercial products
including computers, PDAs, electronic devices, motorcycles, lawnmowers, medical
scooters, boats, solar panels and security systems. We believe that the growth
in consumer and industrial demand for battery power will continue to be a trend
for the future as technological advances and globalization set the stage for a
more productive, mobile and portable society.

The
supply chain and third party logistics industry is another large and growing
market as OEMs, contract manufacturers and businesses large and small, choose
to outsource their procurement, inventory and materials management processes to
third parties in order to improve operational efficiencies and excel in a
competitive environment. Many large distribution companies not only fill these
procurement and materials management roles but also further serve as a single
supply source for OEMs and contract manufacturers and retailers, offering a
much broader line of products, rapid or scheduled deliveries and incremental
quality control measures.

We
believe that the third-party logistics industry 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.                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 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 with which they are unfamiliar and
 often are faced with unforeseen added overhead 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 their sourcing, warehousing,
 inventory management and distribution needs.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Increased competition.Increasing
 competition means businesses have to operate more efficiently. Businesses
 benefit by using third party logistics providers who already have established
 infrastructures, sourcing relationships and greater efficiencies.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Our Products and Services

The
principle products we handle as a distributor are as follows:

| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Batteries.We
 are one of the leading domestic distributors of 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

4

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| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                        | inventory of
 UPG-branded and private-label SLA batteries that we sell to retailers and distributors
 for consumer and industrial applications, and to OEMs. Our SLA batteries
 cater to a wide range of markets including automotive, trailer, security,
 marine, medical mobility, hunting and solar. Our Adventure Power® product
 line is a complete line of powersport batteries for the outdoor recreational
 and sporting markets, which includes motorcycles, jet skis, ATVs and
 snowmobiles. We continue to develop and provide new battery sizes for varying
 applications to meet customer and market needs.                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | We also
 stock and distribute a broad range of UPG-branded and private-label batteries
 of most chemistries, including nickel-cadmium, lithium, lithium polymer,
 nickel metal hydride, alkaline and carbon-zinc batteries, which are used
 primarily in consumer electronic products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | Our
 proprietary brands include the names Universal Battery, Universal and
 Adventure Power®.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | We offer
 value-added custom battery pack assembly services and were one of the first
 authorized Panasonic modification centers in the United States to build
 custom-designed Panasonic battery packs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                       | Power accessories, such as battery
 chargers, jump-starters, 12-volt power accessories and solar panels.To
 complement our battery offerings, we have an expanding line of power inverters,
 battery chargers and maintainers for various applications such as automotive,
 marine, hunting, motorcycles and medical scooters. We also offer tailored
 charging solutions for specialized applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | Our line of
 jump-starters, branded Starter-Up, 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 cell phones, laptops and radios sold to various retailers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | Under our
 licensing agreement with Eveready Battery Company/Energizer, we developed and
 are now marketing and selling Energizer-branded automotive battery chargers
 and maintainers, automotive jump-starters and power inverters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | We also have
 a line of break-away kits for trailers and our 12-volt DC accessory line
 which includes electric auto jacks, impact wrenches, cordless air
 compressors, spotlights, and others that plug into cigarette lighter sockets
 or any 12-volt DC power source.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | Our
 renewable power products now include solar panels, chargers and kits for use
 in various applications, including outdoor recreational activities such as
 hunting and camping.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                       | Security products.We
 carry a broad line of residential and commercial security products including
 alarm panels, perimeter access controls, transformers, sirens, horns, wire
 and cable and other related products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | We continue
 to actively explore, research and develop new and innovative products to add
 to our broad spectrum of product offerings.
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Our
 logistics services include:                                                                                                      
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                       | Inventory sourcing and procurement.We
 effectively source products for our customers and help lower their costs
 through our long-standing and strategic relationships with manufacturers in
 Asia,. We see this as a competitive advantage that will help us further
 secure and enhance customer relationships. Depending on customer needs, we
 can arrange to have the manufacturer ship directly to them or, alternatively,
 we can stock inventory for a customer in our warehouse according to their
 inventory needs and deliver as required. In some situations, based on
 customer qualification, we purchase and take ownership of the inventory on
 the customers behalf. Traditional logistics and fulfillment providers merely
 warehouse and distribute products leaving inventory ownership to the
 customer. We believe our ability to offer adaptive, flexible and tailored
 solutions to our customers gives us a competitive advantage.
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                       | Warehousing and distribution.Our
 primary distribution center is located in Carrollton, Texas, a suburb that is
 part of the Dallas-Ft. Worth metroplex demographic market. 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 specialized applications. As an example, we
 have the ability to develop custom battery packs for applications such as
 cordless phones, door locks, medical equipment, surveillance tools and toys.
 We have the expertise to cater for small businesses and larger scale projects
 such as for OEMs. Battery packs are custom assembled to order in nearly all
 instances and depending on scope of requirements, our customers have the
 flexibility of having packs built in-house at our Carrollton facilities or in
 China.                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                        | We also
 custom kit products and components as requested by customers. For instance,
 as a value-added service, we can pick and repackage products and components
 into shippable units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                       | Graphic design and marketing.We
 offer branding, packaging design and marketing services to assist customers
 in bringing their product from development to packaged product. In some
 instances, we help promote and sell the finished product through our sales
 and marketing team, trade shows and distribution network.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

5

---



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recycling.As
 an additional value-added service to our customers, and in doing our part in
 environmental conservation, we help coordinate pick up of all their used or
 spent SLA batteries with EPA authorized haulers to deliver to EPA
 authorized smelters for recycling.

Growth Strategy

Our
objective is to become a global supplier and distributor of batteries and
related power accessories and a leading provider of third-party logistics
services. Our long-term growth strategy includes the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand our logistics service offerings.We
 are dedicating more resources to market our logistic and supply chain
 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. We continue to add to our offerings and explore other
 value-added solutions such as freight forwarding and shipping, customs and
 brokerage, real-time visibility, electronic order entry and rapid order
 processing.                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Enhance information technology
 capabilities.We provide a customized web portal
 interface for our customers allowing them to easily place orders online with
 access to and management of their fulfillment 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.                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Increase our product offerings.Another
 effective means of improving margins, attracting new customers and expanding
 relationships with existing customers, is to increase and diversify our
 product offerings. We intend to offer new products that complement those
 already within our portfolio and expand our product lines to include a more
 comprehensive offering of batteries, chargers, inverters, jumpstarts and
 other power accessories. In addition, we plan to continue to monitor
 technological advances and changes in consumer preferences, expand our
 relationship with existing suppliers and forge alliances with strategic
 partners.              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Increase value-added service offerings.We
 intend to continue to enhance our service offerings including product
 development, engineering, graphic design, custom battery pack assembly and
 coordination of recycling efforts. Our goal is to be a complete solution to our
 customers where they can consolidate their processes and product needs and
 benefit from greater operational efficiencies.                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 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 towards technological
 advances and the increased demand for mobility and portability will in turn
 result in greater demand for our batteries and related power accessories and
 open up new opportunities and markets globally. In addition to the United
 States, 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 establish distribution centers in strategic
 locations.

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
certification under the international quality standard of ISO 9001:2000. The
International Standards Organization (ISO), created by the European Economic Community
(EEC), established this quality standard. The ISO created uniform standards of
measuring 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 consistently provide products that enhance
customer satisfaction and the assurance of conformity to customer and
applicable regulatory requirements.

Product
safety is a top priority 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 each customers
business location. These agency listings ensure that our products adhere to
specific quality and consistency standards.

Customers

Our
customers include OEMs, contract electronics manufacturers, distributors,
retailers and electronics manufacturing service providers that serve a broad
range of industries including: automotive, marine, sports and recreation,
medical mobility and other medical equipment, security and surveillance,
consumer goods and electronics, telecommunications and solar. Our customer list
includes over 2,500 active accounts. We define an active account as any customer
who has purchased goods from us within the last two years. Our largest customer
is Broadview Security for whom we function as a supply chain manager throughout
the United States and Canada. In 2009, Broadview Security accounted for
approximately 36% of our net sales. Broadview Security is our only customer
that accounted for more than 10% of our net sales. Our agreement with Broadview
expires in November 2010, but will continue to renew automatically for
successive one-year terms until either party terminates the agreement by giving
the other party 120-days prior written notice.

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 diversifying product lines, service offerings, expanding our
relationship with our current customers and adding new accounts through our
field and in-house sales and marketing teams.

6

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Sources and Availability of Products

We
purchase products from both domestic and foreign manufacturers. In 2009, we
purchased products from over 200 suppliers. During 2009, approximately 54% of
our purchases were from domestic suppliers and 46% were from foreign suppliers.
Approximately 51% of our 2008 purchases were from domestic suppliers and 49%
were from foreign suppliers. In addition, even though we purchase approximately
76% of our batteries from a single source, we believe that if that relationship
were to terminate we would be able to re-source those products from other
suppliers quickly, although our costs may be higher.

We
have significant long-term relationships with manufacturers located in Asia,
principally China. Other suppliers are located in Taiwan and Malaysia. In March
2009, in an effort to improve efficiencies within our sourcing channels, we
entered into an agreement with our primary independent sourcing agent,
canceling our relationship. As part of this agreement, the sourcing agent
assigned to us all of his North American distribution rights on products
manufactured by certain factories including our primary battery supplier.
Through closer partnerships with our suppliers, we anticipate additional
opportunities to enhance productivity and efficiency in our supply chain. Part
of this strategy includes working directly with our suppliers to improve the
competitive advantages of the products, and improve production scheduling and
better manage lead times to reduce inventory requirements. We are also
exploring opportunities to supplement our supply base in low-cost countries
through potential partnerships with suppliers in China and other areas of Asia.
In 2009, none of our product purchases were commissionable to the independent
sourcing agent. In 2008, approximately 45% of our product purchases were
commissionable to the independent sourcing agent including purchases from our
largest overseas supplier, representing approximately 38% of our total product
purchases and 92% of our battery purchases in 2008.

Competition

We
compete with numerous, well-established companies, many of which are larger and
have greater capital and management resources than we do. Our principal
competitors include battery distributors and logistics companies, shippers,
which provide supply chain management services, as well as companies like us
that are both distributors and logistics providers and distributors. However,
because of our broad platform of battery and power accessory offerings and our
third party logistics expertise, we believe we have a competitive advantage.
Our competitors include international, national, regional and local companies
in a variety of industries.

We
compete primarily based on price, inventory availability, flexibility, scope of
services, quality of products and services, delivery time and customer
relationships. Our ability to remain competitive will largely depend on our
ability to (i) continue to source products competitively 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.

Distribution

In
the battery and power accessory business, we compete with battery and other
electronics distributors or manufacturers. We offer a wider range of battery
chemistries and related power accessories and can be more responsive in
developing niche markets and responding to customer needs, market changes and
other trends.

We
are increasingly finding that manufacturers, particularly foreign
manufacturers, are competing against us, marketing and selling their products
directly to OEMs, 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.

Third
Party Logistics

In
the third-party logistics business, we compete with traditional logistics
service providers. In general, many of 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. We also compete directly with large overnight shipping companies who
have begun to market themselves as supply chain management service providers.

We
differentiate ourselves from other logistics companies in our overall
knowledge, experience and understanding of customer needs and requirements
coupled with our breadth of services. We believe our competitive advantages
include the following:

| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Well-established sourcing contacts.Our
 established relationships with qualified manufacturers in Asia, principally
 China enable us to provide our customers with competitive pricing, reliable
 quality and timely shipments.                                                         
| |   |                                                                                                                                                                                                                                                                                         
| |  | Key customer relationships.Over
 the last two years we have served more than 2,500 customers, from sole
 proprietors and small businesses to many large, well-known national, regional
 and local distributors and retailers.                                                           
| |   |                                                                                                                                                                                                                                                                                         
| |  | Extensive inventory permits prompt response
 to customer needs.We stock a broad range of
 products according to customer and seasonal needs. With extensive inventory
 covering 75 classes of products and approximately 3,740 SKUs, we can satisfy
 most customer demands immediately.

7

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | National distribution.Our
 primary logistics center and warehouse facility is strategically located in
 the Dallas, Texas metroplex; regional logistics centers are located in
 Oklahoma City, Oklahoma, Columbus, Georgia and Las Vegas, Nevada. As a
 result, we can deliver products to almost any location in the continental
 United States within 24 to 48 hours.                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Value-added services.We
 offer additional 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 efforts.                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Broad industry experience; experienced
 management and support professionals.We have
 been in business for more than 40 years and have extensive knowledge of our
 markets and products. 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 needs. 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 related power accessories. We have been ISO 9001:2000
 certified since October 2003.

Marketing and Sales

We
employ marketing, sales and sales support to actively pursue new business
opportunities and in order to 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, sales and sales representatives; (ii) general advertising, sales
referrals and marketing support from component manufacturers; (iii)
telemarketing; (iv) participation in industry tradeshows; and (v) our website.
We are pursuing more advertising including direct mail, additional trade and
magazine publications and online advertising as our product offerings and
customer base determine.

Customer
retention and strengthening current relationships to participate in new
business opportunities is important to us, and we emphasize this throughout our
organization. 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, some
of which are registered. These marks and names include the following: Adventure
Power®, All in One®, Batteries & Beyond®, Charge N Start®, Starter-Up, UB
Scootin®, 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. We also license Energizer® on an exclusive
and non-exclusive basis from Eveready Battery Company.

Warranties

We
offer warranties of various lengths ranging from 90 days to three years. We
also pass along any applicable manufacturers warranty. Our warranty is only for
product defects. To date, we have had minimal warranty claims.

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. Failure to comply with 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 SLA 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 SLA battery recycling. Our lithium batteries are
designated as Class 9 or hazardous. We work with manufacturers certified in
handling and packaging these batteries.

Employees

At
December 31, 2009, we had 106 employees all of which were full-time. We do not
have collective bargaining agreements with respect to any of our employees. We
have not experienced any work stoppages and we believe we have good relations
with our employees.

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

In
addition to other information in this Form 10-K, the following risk factors
should be carefully considered in evaluating our business, including our
financial statements and the notes to those statements and us. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us,

8

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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, it could have an adverse impact on our business, results of
operations or financial condition. Actual results could differ materially from
those projected in the forward- looking statements contained in this Form 10-K
because of the risk factors discussed below and elsewhere.

Risks Relating to Our Business

The
recession has adversely affected our operating results.

For
the year ended December 31, 2009, net sales, operating income, net income
before taxes and net (loss) all declined compared to the prior year. We cannot
assure you that we will be able to reverse this trend in the current year. If
we do not, the price of our common stock could decline.

We
derive a significant portion of our annual revenue 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, 2009 and 2008, Broadview Security accounted for
36% and 35% of our net sales, respectively. At December 31, 2009, our Broadview
Security receivable represented approximately 32% of our total accounts
receivable as of that date, none of which was outside our terms with the
customer (generally 30 days). If Broadview Security were to terminate its
relationship with us or significantly reduce the level of business it does with
us, it could have an adverse impact on our operating results. In addition, any
adverse developments in Broadview Security 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 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, 2009, the outstanding balance on our credit line was
$15.2 million and at December 31, 2008, it was $14.4 million. At those dates,
our total liabilities, including accounts payable, were $30.6 million and $37.0
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 our business.

First,
all of our assets, including inventory and receivables, secure the indebtedness
under the credit facility. 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 our business.

Second,
the agreement contains customary negative covenants restricting our ability to
take certain actions without the lenders consent, including incurring
additional indebtedness, transferring or encumbering assets, paying dividends
or making certain other payments, and acquiring other businesses. The payment
of the loans may be accelerated prior to their maturity upon certain specified
events of default, including failure to pay, bankruptcy, breach of covenants
and breach of representations and warranties.

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. In addition, 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
more risky than an investment in our competitors. 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,
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. Any disruption in our ability to
purchase products from our suppliers 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 Asia, 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 that 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.

9

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We
purchased 40% and 36% in 2009 and 2008, respectively, from one supplier. We do
not have a written agreement with this supplier. Our second largest supplier,
based in China, accounted for 33% and 38% of our inventory purchases in 2009
and 2008, respectively, including 76% of our battery purchases. We continue to
rely on that supplier as our principal source for batteries because of
favorable pricing, the quality of the products and because it carries a broad
range of battery chemistries and sizes. We believe that we obtain 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 and might have to source our purchases from multiple
factories. This could have an adverse impact on the price we pay for batteries
and other products and may adversely affect other factors such as the quality
of our products and the timeliness of our shipments. This could then adversely
affect 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 Broadview
Security and its authorized dealers, 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 deliver our products to our
customers on a timely basis. These delays could damage our reputation and
materially and adversely affect our operations and financial condition. In
addition, 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 expose us to various financial,
political and economic risks.

For
the years ended December 31, 2009 and 2008, we purchased approximately 46% and
49%, respectively, of our products through foreign sources, predominantly in
China. In some instances, particularly when we are dealing with a new supplier,
we are required to finance the tooling cost that the factory incurs to meet our
requirements. We are at risk if the factory cannot deliver the goods to us. The
following could adversely affect our ability to sell certain products:

| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | increases in
 tariffs or duties;                                                                              
| |   |                                                                                                               
| |  | changes in
 trade treaties;                                                                                   
| |   |                                                                                                               
| |  | strikes or
 delays in air or sea transportation;                                                              
| |   |                                                                                                               
| |  | future
 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.                                                       

Other
governmental actions and policy changes, including anti-dumping and
international antitrust legislation, could also adversely affect our ability to
be competitive with respect to sales of products made up of imported
components..

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
we record all of our transactions 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 Reminibi in relation to the U.S. dollar have increased the cost of
goods and raw materials for Chinese manufacturers, which they are incorporating
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.

Some
of the industries we sell to are cyclical, which causes our operating results
to fluctuate significantly.

Many
of the products that rely on batteries and related power accessories 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
continued 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 what impact
terrorism, war, or other factors may have on our industry. The electronic
components distribution industry has historically been affected by general
economic downturns. These economic downturns have often had an adverse

10

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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 that 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 are not widely accepted, 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 affects both manufacturing costs and
shipping costs. Over the past few years, prices for lead and copper have
increased significantly. In addition, the price of oil, a key factor in
determining shipping rates, has been extremely volatile over the last couple of
years. 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, because 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.

We
compete with numerous, well-established companies, many, if not most of which
are larger and have greater capital and management resources. In addition, we
are increasingly finding that manufacturers, particularly foreign
manufacturers, are competing against us. We compete primarily based on 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 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 would 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 or new companies.

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 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 products to 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.

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 to be 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

11

---



confidentiality
agreements with our employees, and with our customers and vendors whenever
possible, 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. 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 would 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 products we purchase from our suppliers do not and will
not infringe on issued patents or proprietary rights of others. Any claim, with
or without merit, could result in significant litigation costs and diversion of
resources, 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.

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.

We
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 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 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 address successfully
any of these risks, it could have an adverse impact on our business.

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 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.

12

---



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 and
other key personnel. Our business and operations may be adversely impacted by
the loss or interruption of the full-time service of one or more of these
employees or if we cannot replace any of our senior executives or key employees
quickly with someone of comparable skills.

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.

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 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, 2010.

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

Our
operations are subject to various federal, state, and local regulatory
requirements relating to employees, environmental, product disposal, and health
and safety matters. We could become subject to liabilities because of a failure
to comply with applicable laws and incur substantial costs to comply with
existing, new, modified, or more stringent requirements. Demand for our
products could also be affected by applicable state and local laws and
regulations.

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 in December 2006, 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.            

13

---



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 approximately 41% of our outstanding common stock. William Tan,
our chairman, is also the chairman of Zunicom. Ian Edmonds, our president, chief
    executive officer, interim chief financial officer, 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.

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 2,300,000 shares of
common stock reserved for future issuance as follows:

| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2,000,000
 shares reserved for issuance under our 2006 Stock Option Plan, of which
 1,371,842 are issuable upon exercise of outstanding options having a weighted
 exercise price of $6.65; and
| |   |                                                                                                                                                                                                
| |  | 300,000
 shares underlying warrants issued to the underwriters of our initial public
 offering (IPO).                                                                                        

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

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 following: (i) the
availability of authorized but unissued shares of common stock for issuance
from time to time at the discretion of the Board; (ii) 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; (iii) provisions in our Bylaws enabling the Board to increase the
size of the Board and to fill the vacancies created by the increase; and (iv)
provisions in our Bylaws 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
Organization Code 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, at the present time, and
we do not intend to declare or pay any cash dividends in the future. Future
payment of cash dividends will be at the discretion of the Board after taking
into account many factors, including our operating results, financial condition
and capital requirements.

|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS

None.

14

---



|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Our
executive offices are located in Carrollton, Texas.

On
February 1, 2002, we entered into a lease for a logistics 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 base payments for 2009 are approximately $41,900, $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 $1,700 per month.
The lease expires July 31, 2010. We expect we will be able to renew this lease
at comparable terms.

On
June 28, 2007, 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. This lease expires July
31, 2010.

On
April 30, 2008, we entered into a new lease agreement for 21,427 square feet of
retail and warehouse space in Las Vegas, Nevada. The lease term is from
September 2008 through August 31, 2011. Rent for September and October 2008 was
waived; from November 2008 through August 2009 was $13,607 per month; from
September 2009 through August 2010 will be $14,151 per month; and from September
2010 through August 2011 will be $14,718.

On
January 5, 2009, concurrent with the acquisition of Monarch, we entered into a
new lease agreement for 87,000 square feet of retail and manufacturing space in
Arlington, Texas. The lease term is from September 2008 through August 31,
2018. Base rent is $7,800 per month.

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

We
are not a party to any legal proceedings that we consider material.

|        |                       
|------- | ----------------------
|ITEM 4. | [REMOVED AND RESERVED]

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 NYSE 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 NYSE 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 2009 |  |              |      |     |   |      | 
|First
 Quarter   |  | $            | 3.24 |     | $ | 1.00 | 
|Second
 Quarter  |  | $            | 2.42 |     | $ | 1.09 | 
|Third
 Quarter   |  | $            | 2.90 |     | $ | 1.62 | 
|Fourth
 Quarter  |  | $            | 3.73 |     | $ | 1.83 | 
|                 |  |              |      |     |   |      | 
|Fiscal year 2008 |  |              |      |     |   |      | 
|First
 Quarter   |  | $            | 4.20 |     | $ | 2.65 | 
|Second
 Quarter  |  | $            | 5.12 |     | $ | 2.45 | 
|Third
 Quarter   |  | $            | 4.70 |     | $ | 2.43 | 
|Fourth
 Quarter  |  | $            | 3.63 |     | $ | 1.15 | 

On
March 29, 2010, the closing price of our common stock was $3.85.

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 29, 2010, the Company had 5,000,000 shares of common stock issued and
outstanding held by approximately 563 shareholders of record.

|        |                                   
|------- | ----------------------------------
|ITEM 6. | SELECT CONSOLIDATED FINANCIAL DATA

As
a smaller reporting company we are not required to provide the information
required by this Item.

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

Our
key operating results for 2009 include the following:

| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Although net
 sales for the 2009 year were down 5.7%, gross profit margin increased 1.9% to
 17.4% from 15.5% in 2008.

15

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We reported
 a net operating income of $2.1 million in 2009 compared to net operating
 income of $3.2 million in 2008, the decrease was attributable primarily to
 settlement expenses of $2.5 million incurred in the first quarter of 2009
 relating to our settlement agreement with Randy Hardin, in connection with
 his resignation and our agreement with our principal independent sourcing
 agent terminating our relationship with him. As reflected in the table below,
 excluding settlement charges, our net operating income for 2009, was
 approximately $4.7 million, an increase of approximately $1.4 million over
 net operating income for 2008.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Inventory
 levels were reduced by $6.3 million in 2009, in line with our commitment to
 reduce inventory levels from the high levels at the end of 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Accounts
 receivable have decreased approximately $1.0 million and accounts payable
 have decreased by approximately $4.4 million since the end of 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | We completed
 a new, expanded $30 million credit agreement, including a $10 million
 accordion feature with Wells Fargo. The agreement terminates July 30, 2013,
 which is one year later than the termination date on our previous credit
 facility with Compass Bank, lowers our overall cost of capital and provides
 greater flexibility to grow the business.                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | We
 negotiated a 7.5% principal reduction in exchange for the early repayment of
 previously outstanding notes payable, due June 20, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Reconciliation
of GAAP Operating Income and Income Before Provision for Income Taxes to
Non-GAAP Operating Income and Income Before Provision for Income Taxes
(Unaudited)

The
following table reconciles operating income and income before provision for
income taxes, as reported in accordance with U.S. Generally Accepted Accounting
Principals (GAAP), to non-GAAP operating income and income before provision
for income taxes. We believe that non-GAAP operating income, which is generally
operating income less costs related to settlement agreements, more accurately
reflects our operating efficiency. Non-GAAP operating income and income before provision
for income taxes are non-GAAP financial measures and should not be considered
an alternative to, or more meaningful than, net income prepared on a GAAP
basis. Additionally, non-GAAP operating income and income before provision for
income taxes may not be comparable to similar metrics used by others in our
industry.

|                                                                            |  |                                                        |            |      |   |            |  
|--------------------------------------------------------------------------- |  | ------------------------------------------------------ | ---------- | ---- | - | ---------- | -
|                                                                            |  | Financial Summary (Non-GAAP) 
 (unaudited)December 31, |           
|                                                                            |  |                                                        |           
|                                                                            |  | 2009                                                   |            | 2008 |  
|                                                                            |  |                                                        |            |      |  
|Operating
 income and income before provision for income taxes as reported: |  |                                                        |            |      |   |            |  
|Operating expenses                                                          |  | $                                                      | 14,714,680 |      | $ | 15,063,398 |  
|Settlement expenses                                                         |  |                                                        | 2,529,345  |      |   |           |  
|                                                                            |  |                                                        |            |      |   |            |  
|Total operating expenses                                                    |  |                                                        | 17,244,025 |      |   | 15,063,398 |  
|                                                                            |  |                                                        |            |      |   |            |  
|Operating income                                                            |  |                                                        | 2,128,878  |      |   | 3,234,670  |  
|Other expense, net                                                          |  |                                                        | (955,874   | )    |   | (957,557   | )
|                                                                            |  |                                                        |            |      |   |            |  
|Income before provision for income taxes                                    |  |                                                        | 1,173,004  |      |   | 2,277,113  |  
|                                                                            |  |                                                        |            |      |   |            |  
|Non-GAAP
 measures to exclude settlement expenses from operating expenses:  |  |                                                        |            |      |   |            |  
|Settlement expenses                                                         |  |                                                        | 2,529,345  |      |   |           |  
|                                                                            |  |                                                        |            |      |   |            |  
|Non-GAAP operating income                                                   |  | $                                                      | 4,658,223  |      | $ | 3,234,670  |  
|                                                                            |  |                                                        |            |      |   |            |  
|                                                                            |  |                                                        |            |      |   |            |  
|Non-GAAP income before provision for income
 taxes                          |  | $                                                      | 3,702,349  |      | $ | 2,277,113  |  
|                                                                            |  |                                                        |            |      |   |            |  

Our
2009 revenues from batteries, related power accessories and other products fell
5.8% to $61.0 million from $64.8 million for 2008. Revenues from Broadview
Security and its authorized dealers decreased to $50.2 million, down 5.6%
compared to $53.1 million for 2008. We believe this decrease primarily reflects
slower growth in the residential housing market.

We
believe the decline in revenue in 2009 over 2008 reflects the change in
consumer spending throughout the global economy. In addition to taking steps to
manage the difficult economic conditions, we are also focused on developing
higher-margin products and markets and diversifying our markets to minimize our
exposure to the broader economy. We expanded our battery, charger and power
accessory lines to better meet the evolving needs of our customers and
ultimately, the end-user. We will continue to capitalize on favorable industry
trends, such as the growing demand for productivity, mobility and portability
in the consumer electronics industry.

We
are cautiously and diligently evaluating markets and acquisition opportunities
that facilitate reaching our strategic objectives. We remain conservative on
this front due to the economic climate. However, we believe that the 2008-2009
recession and the associated deterioration in stock values and market prices
have created growth opportunities. We believe that with our strong balance
sheet and operations, we are well-positioned to take advantage of these
opportunities. We 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.

16

---



Results of Operations Year Ended December 31,
2009 Compared to December 31, 2008

The
following table compares our consolidated statement of operations data for the
years ended December 31, 2009 and 2008. The trends suggested by this table may
not be indicative of future operating results, which will depend on various
factors including the nature of revenues (sales of batteries and other power
accessory products versus logistics or value added services) and the relative
mix of products sold (batteries versus other power supply products), as well as
the state of the general economy.

In addition,
our operating results in future periods may also be affected by acquisitions.

|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|----------------------------------------- |  | -------------------------------- | ------- | ------- |  | ------ | -- | ------- | ------- | - |  | ----- | --
|                                          |  | For the years ended December 31, |        
|                                          |  |                                  |        
|                                          |  | 2009                             |         | 2008    | 
|                                          |  |                                  |         |         | 
|                                          |  | Amount                           |         | Percent |  | Amount |    | Percent |        
|                                          |  |                                  |         |         |  |        |    |         |        
|                                          |  | (dollars in thousands)           |        
|Net sales                                 |  | $                                | 111,171 |         |  | 100.0  | %  | $       | 117,898 |   |  | 100.0 | % 
|Cost of
 sales                            |  |                                  | 91,798  |         |  | 82.6   | %  |         | 99,600  |   |  | 84.5  | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Gross profit                              |  |                                  | 19,373  |         |  | 17.4   | %  |         | 18,298  |   |  | 15.5  | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Operating
 expenses                       |  |                                  | 14,715  |         |  | 13.2   | %  |         | 15,063  |   |  | 12.8  | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Settlement
 expenses                      |  |                                  | 2,529   |         |  | 2.3    | %  |         |        |   |  |      |   
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Total
 operating expenses                 |  |                                  | 17,244  |         |  | 15.5   | %  |         | 15,063  |   |  | 12.8  | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Operating
 income                         |  |                                  | 2,129   |         |  | 1.9    | %  |         | 3,235   |   |  | 2.7   | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Interest
 expense, net                    |  |                                  | (953    | )       |  | (0.9   | %) |         | (1,003  | ) |  | (0.9  | %)
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Other
 income/expense                     |  |                                  | (3      | )       |  |       |    |         | 45      |   |  |      |   
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Income
 before provision for income taxes |  |                                  | 1,173   |         |  | 1.1    | %  |         | 2,277   |   |  | 1.9   | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Provision
 for income taxes               |  |                                  | (1,308  | )       |  | (1.2   | %) |         | (1,051  | ) |  | (0.9  | %)
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Net income
 (loss)                        |  | $                                | (135    | )       |  |       |    | $       | 1,226   |   |  | 1.0   | % 
|                                          |  |                                  |         |         |  |        |    |         |         |   |  |       |   

Net Sales

Net sales for the year ended December 31,
2009 were $111.2 million compared to net revenues of $117.9 million for the
similar period in 2008, a decrease of $6.7 million, or 5.7%. Revenues from
Broadview Security and its authorized dealers, was $50.2 million for 2009
compared to $53.1 million in the 2008 period, a decrease of $2.9 million, or
5.6%. As most of our Broadview Security business is related to residential
security systems, we attribute this decrease primarily to the overall slowdown
in the residential construction industry, thus slowing the demand. Revenues
from batteries, related power accessories and other products decreased $3.8
million to approximately $61.0 million in 2009 from $64.8 million in 2008, or
5.8%.

Cost of sales

Cost
of sales is comprised of the base product cost, commissions to sourcing agents,
freight, duty and servicing fees where applicable. Cost of sales totaled $91.8
million for the year ended December 31, 2009, compared to $99.6 million in the
comparable 2008 period, a decrease of $7.8 million, or 7.8%. Cost of sales as a
percentage of sales decreased to 82.6% in the 2009 period from 84.5% for 2008.
This cost decrease was attributable to reduced volatility on raw material costs
and improved efficiencies across our supply chain, offset by a decrease in
sales to Broadview Security and its authorized dealers. Our overall gross
margin for the year ended December 31, 2009, was approximately 17.4% compared
to a gross margin of 15.5% for the comparable period in 2008.

Operating expenses

Selling,
general and administrative expenses increased approximately $2.2 million or
14.5% to approximately $17.2 million from $15.1 million for 2008. Increased
operating expenses include $2.5 million attributable to settlement costs (as
described further below), $0.4 million for facilities costs (of which $0.3
million are attributable to Monarch), $0.2 million each for increased
marketing, insurance and various other costs, offset by decreases of $0.7
million in bad debt expense and $0.3 million in personnel and entertainment
costs.

Settlement expenses

In
the first quarter of 2009, we entered into a settlement agreement with our
former chief executive officer relating to his resignation as an officer and
director and we entered into an agreement with our former principal independent
sourcing agent cancelling our relationship with such agent. The total amount
due under both agreements is $3.1 million. Of this amount, $0.5 million of the
settlement with the sourcing agent was applied to an existing payable balance
related to prior year inventory purchases, an aggregate of $2.5 million was
expensed as settlement expense in the first quarter of 2009 and an aggregate of
$0.1 million will be expensed as interest over the term of the agreements. The
payments due to the former chief executive officer are payable over a two-year
period beginning in January 2009 and the payments to the former sourcing agent
are due over a three-year period beginning in March 2009. Except for the
imputed interest expense, which will be amortized over the respective terms of
the agreements, we do not expect to incur any additional costs in connection
with these agreements.

17

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Operating income

Operating
income for the year ended December 31, 2009 decreased $1.1 million, or 34.2%,
compared to the comparable period in 2008. Non-GAAP operating income, excluding
settlement costs of $2.5 million, for the 2009 period was $4.7 million, a 44.0%
increase over 2008.

Interest expense

Our
interest expense totaled $1.0 million for the year ended December 31, 2009
compared to $1.0 million for the year ended December 31, 2008. For the year
ended December 31, 2009 the average outstanding loan balance on our line of
credit was $12.6 million, compared to $11.3 million for the year ended December
31, 2008.

Liquidity

We
had cash and cash equivalents of $2.1 million and $0.3 million at December 31,
2009 and 2008, respectively.

Net
cash provided by operating activities was $5.9 million through December 2009
compared to cash provided by operations of $0.6 million for 2008. The net cash
provided by operating activities during 2009 is due primarily to a decrease of
$5.9 million in inventories, an increase in accrued settlement expenses of $1.6
million, non-cash charges for depreciation, amortization, provision for bad
debts and obsolete inventory, loss on disposal of property, deferred income
taxes and stock based compensation expense of $1.6 million, a decrease in
income tax receivable/payable of $0.9 million and a decrease in accounts
receivable of $0.6 million, offset by a decrease in accounts payable of
approximately $4.4 million and changes in various other accounts of $0.6
million.

Cash
used in investing activities was $0.05 million through December 2009 compared
to $1.8 million for 2008. The cash used during 2009 was for purchases of
property and equipment as well as the purchase of the Monarch assets, offset by
the change in restricted cash previously set aside for the acquisition. The
cash used in 2008 was related to purchases of property and equipment totaling
approximately $0.9 million and $0.9 million in restricted cash deposited in
escrow for the purchase of the Monarch assets.

Net
cash used in financing activities during 2009 was $4.1 million compared to $0.8
million provided by financing activities for 2008. The net cash used in
financing activities for 2009 included $4.9 million for payment of notes payable
to Zunicom and $0.8 million net change in our line of credit. The net cash
provided by financing activities for 2008 included a $1.5 million net change in
our line of credit and a $0.7 million reduction in our notes payable to
Zunicom.

On
December 16, 2009, we entered into a credit agreement with Wells Fargo to
provide us with a new revolving credit facility. The agreement with Wells Fargo
provides that we may borrow up to $30.0 million, with the possibility that we
can increase the line to $40.0 million if we can satisfy certain defined
criteria. All of our assets secure our obligations under the agreement. Our
borrowing availability depends on our level of accounts receivable and
inventory. For each borrowing, we have the option to choose a Base Rate or Eurodollar
loan. Interest on Base Rate Loans is payable quarterly and interest on
Eurodollar Loans is generally payable monthly or quarterly as selected by the
Company. The annual rate of interest payable on Base Rate and Eurodollar loans
fluctuate depending upon a number of factors, all as described in the
Agreement. At December 31, 2009, the interest rate was 2.75%. The Agreement
terminates on July 30, 2013.

The
credit agreement contains customary negative covenants restricting our ability
to take certain actions without Wells Fargos consent, including incurring
additional indebtedness, transferring or encumbering assets, paying dividends
or making certain other payments, and acquiring other businesses. If there is
an event of default, including failure to pay, bankruptcy, breach of
covenants and breach of representations and warranties, all amounts outstanding
under the credit facility will become immediately due and payable. The lines
availability is based on a borrowing formula, which allows for borrowings equal
to 80% of our eligible accounts receivable and a percentage of eligible
inventory. In addition, we must maintain certain financial covenants on a
quarterly basis.

Upon
closing of the new credit facility, we immediately borrowed $14.3 million; of
which $10.5 million was used to repay the amounts due to Compass Bank under our
old credit facility and approximately $3.8 million was used to settle the
liability evidenced by the notes held by Zunicom, Inc. Those notes had an aggregate
outstanding principal amount of $4.0 million plus accrued and unpaid interest
of $50,000. As Zunicom is a related party, the gain on extinguishment of those
notes resulted in the gain net of income taxes being recorded as additional
paid-in capital.

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

As
a result of the refinancing of our line of credit, the interest swap agreement
we had entered into with Compass Bank in June, 2008 was terminated. The swap
agreement had locked-in a fixed rate of 5.85% on the first $6.0 million
outstanding under the line of credit, thus swapping the fixed rate for the
current variable rate as calculated under the original loan agreement with
Compass Bank through its maturity date of July 5, 2012. The interest rate swap
was accounted for as an effective cash flow hedge and the unrealized gains or
losses related to the change in fair value were recorded in accumulated other
comprehensive income (loss). As a result of the termination of the interest
swap agreement, we discontinued hedge accounting on December 16, 2009. The
de-designation of cash flow hedges requires that the net derivative gain or
loss related to the discontinued cash flow hedge should continue to be reported
in accumulated other comprehensive income (loss), unless it is probable that
the forecasted transaction will not occur by the end of the originally
specified time period or within an additional two-month period of time
thereafter. We continue to incur interest expense commensurate with our
original, hedged risk, and there is currently no indication that interest
payments on the hedged transaction would not continue. Therefore, the realized
loss related to this derivative will not be recognized immediately and will
remain in accumulated other comprehensive income (loss). These losses are
reclassified into earnings over the contractual terms of the swap agreement
starting as of December 16, 2009.

18

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Capital Resources

At
December 31, 2009 we did not have any material commitments for capital
expenditures. We may enter into various commitments during 2010 if expansion
opportunities arise. Material items will be disclosed in press releases and
other appropriate filings as they develop. We have no off balance sheet
financing arrangements.

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.

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

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

We
are a distributor who purchases both finished goods and components from
domestic and international suppliers. 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 and ship. Additionally, we have several
customers that require specific battery pack assemblies. We obtain batteries
and components and reconfigure finished goods based upon customer
specifications. We refer to this process as battery pack assemblies. We
recognize sales of finished goods at the time the customer takes title to the
product.

We
sell products to several customers in bulk quantities. We obtain the order from
the customer and arrange for the delivery of the product directly from our
vendor to the customer to reduce freight costs and wear and tear on the product
from excessive handling. We refer to these transactions as drop shipments
because the product is shipped directly from our vendor to our customer.
Revenues from drop shipment transactions are recognized on a gross basis at the
time the customer takes title to the product.

Income Taxes

Our
provision for income taxes and effective tax rates are calculated by legal
entity and jurisdiction and are based on a number of factors, including our
income tax planning strategies, differences between tax laws and accounting
rules, statutory tax rates and credits, uncertain tax positions and valuation
allowances. We use significant judgment and estimates in evaluating our tax
positions.

Tax law and accounting rules often differ as
to the timing and treatment of certain items of income and expense. As a
result, the tax rate reflected in our tax return (our current tax rate) is
different from the tax rate reflected in our Consolidated Financial Statements.
Some of the differences are permanent, while other differences are temporary as
they reverse over time. We record deferred tax assets and liabilities for any
temporary differences between the assets and liabilities in our Consolidated
Financial Statements and their respective tax bases. We establish valuation
allowances when we believe it is more likely than not that our deferred tax
assets will not be realized. Changes in future taxable income, tax liabilities
and our tax planning strategies may impact our effective tax rate, valuation
allowances and the associated carrying value of our deferred tax assets and
liabilities.

At any one
time our tax returns for various tax years are subject to examination by U.S.
Federal and state taxing jurisdictions. We establish tax liabilities in
accordance with FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, also codified under ASC 740. ASC 740 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial
statements and prescribes a recognition threshold and measurement attributes
for income tax positions taken or expected to be taken on a tax return. Under
ASC 740, the impact of an uncertain tax position taken or expected to be taken
on an income tax return must be recognized in the financial statements at the
largest amount that is more- likely-than-not to be sustained. An uncertain
income tax position will not be recognized in the financial statements unless
it is more-likely-than-not to be sustained. We adjust these tax liabilities, as
well as the related interest and penalties, based on the latest facts and
circumstances, including recently published rulings, court cases and outcomes
of tax audits. To the extent our actual tax liability differs from our
established tax liabilities for unrecognized tax benefits, our effective tax
rate may be materially impacted. While it is often difficult to predict the
final outcome of, the timing of, or the tax treatment of any particular tax
position or deduction, we believe that our tax balances reflect the
more-likely-than-not outcome of known tax contingencies.

Accounts
Receivable

Trade
accounts receivable are stated at the amount we expect to collect. We maintain
allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. Management considers the
following factors when determining the collectability of specific customer
accounts: customer credit-worthiness, past transaction history with the
customer, current economic industry trends and changes in customer payment
terms. If the financial condition of our customers were to deteriorate,
adversely affecting their ability to make

19

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payments,
additional allowances would be required. Based on managements assessment, we
provide for estimated uncollectible amounts through a charge to earnings and a
credit to a valuation allowance. Balances that remain outstanding after we have
used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable.

Stock-Based
Compensation

We
account for stock options under accounting provisions that require the
recognition of the fair value of stock-based compensation. Under these fair
value recognition provisions, we estimate stock-based compensation cost at the
grant date based on the fair value 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, which requires various judgmental 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 addition, we consider many factors when
estimating expected forfeitures 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.

Recent Accounting
Pronouncements

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

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

As
a smaller reporting company we are not required to provide the information
required by this Item.

|        |                                            
|------- | -------------------------------------------
|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.

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

a)
Evaluation of Disclosure Controls and
Procedures. Management, with the participation of our principal
executive officer and the principal financial officer, carried out an
evaluation of the effectiveness of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 (the 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, our interim principal executive
officer and interim principal financial officer 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 principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.

Our
management, including our interim principal executive officer and interim
principal 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, have been detected.

b)
Managements Report on Internal Control over
Financial Reporting.Our management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined
in rule 13a-15(f) under the Exchange Act). Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2009. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Our management has concluded that, as of
December 31, 2009, our internal control over financial reporting is effective
based on these criteria. 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.

c)
Changes in Internal Control over Financial
Reporting. There were no changes in our internal controls over
financial reporting that occurred during our fiscal fourth quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

20

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

None.

PART
III

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

DIRECTORS AND EXECUTIVE OFFICERS

The
names, ages and titles of our executive officers and directors, as of March 1,
2010, are as follows:

|                     |  |     |  |                                                                                     
|-------------------- |  | --- |  | ------------------------------------------------------------------------------------
|Name                 |  | Age |  | Positions                                                                           
|                     |  |     |  |                                                                                     
|                     |  |     |  |                                                                                     
|Ian Colin
 Edmonds   |  | 38  |  | Chief
 Executive Officer, President,
 Interim Chief Financial Officer and a Director
|Mimi Tan             |  | 36  |  | Senior Vice
 President Business Development and Marketing and Corporate Secretary   
|Julie
 Sansom-Reese  |  | 47  |  | Senior Vice
 President of Finance and Treasurer                                     
|Ramin Salehi         |  | 36  |  | Senior Vice
 President of Supply Chain and Information Technology                   
|William Tan          |  | 66  |  | Chairman of
 the Board                                                              
|Leslie
 Bernhard     |  | 65  |  | Director                                                                            
|Robert M.
 Gutkowski |  | 61  |  | Director                                                                            
|Hyun (Joyce)
 Park   |  | 38  |  | Director                                                                            

---

IAN
COLIN EDMONDS has been a director since January 1999, our chief executive
officer and president since June 1, 2009, and our interim chief financial
officer since December 12, 2008. Prior to being appointed chief executive
officer and president he was, serving in those positions on an interim basis since
January 21, 2009, our chief operating officer since May 2002, and our executive
vice president since October 2006. Mr. Edmonds also serves as a director of
Zunicom, Inc. (OTCBB: ZNCM) (Zunicom), the owner of approximately 41% of our
outstanding Common Stock, and from July 1997 through December 2006 served as an
officer, first as vice president and from April 2003 as executive vice
president of Zunicom. He also served as a director of AlphaNet, Inc. a
wholly-owned subsidiary of Zunicom, from October 1999 through December 2006.
Mr. Edmonds holds a Bachelors Degree in Marketing with a Minor in Statistics
from the University of Denver. Mr. Edmonds is the husband of Mimi Tan and the
son-in-law of William Tan.

MIMI
TAN has been our corporate secretary since February 1998, and our senior vice
president of business development and marketing since December 2006. She served
as our vice president of business development and marketing from May 2002
through December 2006. Her responsibilities include new business development
and projects, corporate marketing and overall branding strategies. She served
as Zunicoms director of operations and corporate secretary from February 1998
through December 2006 and as AlphaNets corporate secretary from October 1999 through
December 2006. Ms. Tan graduated cum laude from the University of Denver in
November 1996 with a Bachelors Degree in Marketing and a Minor in Statistics.
She is the daughter of William Tan and the wife of Ian Edmonds.

JULIE
SANSOM-REESE has been employed by us since 1986. She was our chief financial
officer from 1991 to October 2007 and is now serving as our senior vice
president of finance. She served as chief financial officer for Zunicom, Inc.
from 1992 through July 1997 and was appointed interim chief financial officer
of Zunicom in November 1999 and assumed that role on a permanent basis from
November 2000 through December 2006. She also served as chief financial officer
of AlphaNet from October 2003 through December 2006. Ms. Sansom-Reese earned a
Bachelor of Arts in Business from Texas Tech University in May 1986.

RAMIN
SALEHI joined the company in September 1997 as a database design analyst. In
December of 2006, Mr. Salehi was appointed senior vice president of supply chain
and information technology. In November 2009, he was appointed senior vice
president of operations. He is responsible for the overall direction and
tactical execution of supply chain and information systems operations of the
company. Mr. Salehi holds a Bachelor of Science degree in Computer Systems
Design from the University of Houston  Clear Lake.

Non-Employee Directors

WILLIAM
TAN has been chairman of the Board since January 1999. He has served as the
chairman of Zunicom since February 1997 and of AlphaNet since October 1999. Mr.
Tans principal business has been private investments and he has held senior
executive positions in a number of financing, insurance, textile, property
development and related businesses. Mr. Tan is the father of Mimi Tan and the
father-in-law of Ian Edmonds.

LESLIE
BERNHARD became a director in December 2006 upon the effectiveness of our
initial public offering. She is a co-founder of AdStar, Inc. (OTC: ADST.PK),
provider of technology services to the newspaper classified advertising
industry. She has been a director of AdStar since its inception in 1986 and its
president and chief executive officer since 1991. Ms. Bernhard also serves on
the board of directors of Milestone Scientific, Inc., (OTCBB: MLSS.OB): a
developer and manufacturer of medical and dental equipment. Ms. Bernhard holds
a B.S. degree from St. Johns University.

ROBERT
M. GUTKOWSKI became a director in December 2006 upon the effectiveness of our
initial public offering. He is the founder, president and chief executive
officer of Marketing Group International, a provider of consulting services to
businesses in the sports and entertainment industries. He advised the New York
Yankees in regard to the creation of the

21

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YES Network, a
regional sports and entertainment network. He previously served as chief
executive officer of the Marquee Group, Inc., a worldwide sports and
entertainment firm that managed, produced and marketed sports and entertainment
events and provided representation for athletes, entertainers and broadcasters.
From 1991 until 1994, he was president of Madison Square Garden, Inc. where he
was responsible for the operations of the New York Knickerbockers basketball
team, the New York Rangers hockey club and MSB Communications, which included
the MSG Television Network. Mr. Gutkowski was a member of the board of
directors of EuroTrust A/S, (Nasdaq: EURO) from May 2004 through May 2006.

HYUN
(JOYCE) PARK became a director in 2009. She has been the First Vice President
and a manager at Hanmi Bank, a California community bank, since August 2002.
Ms. Park has a background in compliance and auditing from her experience as an
internal auditor at Nara Bank, N.A., from March 2000 through August 2002 and a
staff auditor for Deloitte & Touche, LLP, from November 1997 through March
2000. She holds a Bachelor of Science in Business Administration from
California State University, Northridge.

Board Composition

The
Board currently consists of five directors. Each director is elected for a term
of one year and serves until a successor is duly elected and qualified or until
his or her death, resignation or removal. William Tan, Chairman of the Board,
is the father of Mimi Tan and the father-in-law of Ian Edmonds.

Disclosure of Director Qualifications

The
Board , acting through the Nominating and Corporate Governance Committee, is
responsible for assembling for stockholder consideration a group of nominees
that, taken together, have the experience, qualifications, attributes, and
skills appropriate for functioning effectively as a Board. The Nominating and
Corporate Governance Committee regularly reviews the composition of the Board
in light of changing circumstances, its assessment of the Boards performance,
and the inputs of stockholders and other key constituencies.

The
Nominating and Corporate Governance Committee looks for certain characteristics
common to all Board members, including integrity, strong professional
reputation and record of achievement, constructive and collegial personal
attributes, and the ability and commitment to devote sufficient time and energy
to Board service.

In
addition, the Nominating and Corporate Governance Committee seeks to include on
the Board a complementary mix of individuals with diverse backgrounds and
skills reflecting the broad set of challenges that the Board confronts. These
individual qualities can include matters like experience in the companys
industry, technical experience (for example, financial or technological
expertise), experience gained in situations comparable to the companys (e.g.,
financial service companies, growth companies, and companies that grow through
acquisitions), leadership experience, and relevant geographical experience.

Director Independence

A
majority of the Board is independent, as required by and as defined in Section
803(A) of the NYSE Amex listing standards. We believe that Messrs. Gutkowski,
Ms. Bernhard and Ms. Park are independent under those standards. A director is
considered independent as long as he or she does not have a relationship with
the company or management that would interfere with the exercise of independent
judgment in carrying out the directors responsibilities.

In
determining director independence, the Board applies the independence standards
set by NYSE Amex. In its application of such standards, the Board takes into
consideration all transactions with independent directors and the impact of
such transactions, if any, on any of the independent directors ability to
continue to serve on the Board. To that end, for the fiscal year ended 2009,
the Board considered all the fees paid to the independent directors disclosed
below in Item 11  Executive Compensation  Compensation of Directors, and
determined that those transactions were within the limits of the independence
standards set by NYSE Amex and did not impact their ability to continue to
serve as independent directors.

Board Meetings

The
Board met six times during 2009. A majority of the directors attended all of
the meetings of the Board. All persons who were directors during 2009 attended
at least 75% of these meetings. Absent special circumstance, each director is
expected to attend the annual meeting of shareholders.

Audit Committee. The Audit Committee
members consist of Leslie Bernhard, who serves as chairperson, and Robert M.
Gutkowski. The Board has determined that Leslie Bernhard is an audit committee
financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K,
and independent for purposes of NYSE Amex listing standards and Section
10A(m)(3) of the Securities Exchange Act of 1934.

The
Audit Committee oversees our accounting and financial reporting processes,
internal systems of accounting and financial controls, relationships with
auditors and audits of financial statements. Specifically, the Audit
Committees responsibilities include the following:

| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | selecting, hiring and terminating our independent auditors;                                                         
| |   |                                                                                                                     
| |  | evaluating the qualifications, independence and performance of
 our independent auditors;                           
| |   |                                                                                                                     
| |  | approving the audit and non-audit services to be performed by
 the independent auditors;                            
| |   |                                                                                                                     
| |  | reviewing the design, implementation and adequacy and
 effectiveness of our internal controls and critical policies;

22

---



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | overseeing and monitoring the integrity of our financial
 statements and our compliance with legal and regulatory requirements as they
 relate to our financial statements and other accounting matters;
| |   |                                                                                                                                                                                                         
| |  | with management and our independent auditors, reviewing any
 earnings announcements and other public announcements regarding our results
 of operations; and                                            
| |   |                                                                                                                                                                                                         
| |  | preparing the report that the Securities and Exchange Commission
 requires in our annual proxy statement.                                                                                               

Compensation
Committee.The
Compensation Committee members consist of Leslie Bernhard, who serves as
chairperson, and Joyce Park. The Compensation Committee assists the Board in
determining the development plans and compensation of our officers, directors
and employees. Specific responsibilities include the following:

| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | approving the compensation and benefits of our executive
 officers;               
| |   |                                                                                   
| |  | reviewing the performance objectives and actual performance of
 our officers; and 
| |   |                                                                                   
| |  | administering our stock option and other equity and incentive
 compensation plans.

The CEO may
not be present during any deliberations on his compensation.

Corporate
Governance and Nominating Committee.The Corporate Governance and Nominating
Committee consists of Joyce Park, who serves as chairperson, and Robert M.
Gutkowski. The Corporate Governance and Nominating Committee assists the Board
by identifying and recommending individuals qualified to become members of the
Board, reviewing correspondence from our shareholders, and establishing and
overseeing our corporate governance guidelines. Specific responsibilities
include the following:

| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | evaluating the composition, size and governance of the Board and
 its committees and making recommendations regarding future planning and the
 appointment of directors to our committees;
| |   |                                                                                                                                                                                           
| |  | establishing a policy for considering shareholder nominees to
 the Board;                                                                                                                 
| |   |                                                                                                                                                                                           
| |  | reviewing our corporate governance principles and making
 recommendations to the Board regarding possible changes; and                                                                    
| |   |                                                                                                                                                                                           
| |  | reviewing and monitoring compliance of our code of ethics and
 insider trading policy.                                                                                                    

Compensation Committee Interlocks and Insider
Participation

None
of our executive officers serves as a member of the Board or compensation
committee, or other committee serving an equivalent function, of any other
entity that has one or more of its executive officers serving as a member of
the Board or Compensation Committee. None of the persons who are members of our
Compensation Committee have ever been employed by us.

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 atwww.upgi.com.

Section 16(a) Beneficial Ownership Reporting
Compliance

Based
on our review of the Forms 3, 4 and 5 submitted during and with respect to the
year ended December 31, 2009, there have been no untimely filings of such required
forms.

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

Summary of Compensation

The
following table sets forth certain information with respect to compensation for
the year ended December 31, 2009 earned by or paid to our chief executive
officer and our two other most highly compensated executive officers, which are
referred to as the Named Executive Officers.

We
recorded compensation expense in our Financial Statements for the year ended
December 31, 2009 with respect to the awards included in this table since the
awards were effective and fully vested at the end of 2009.

23

---



Summary Compensation Table

|                                        |  |      |      |           |  |                |  |                   |         |                               |  |          |  |  |        |     |  |         | 
|--------------------------------------- |  | ---- | ---- | --------- |  | -------------- |  | ----------------- | ------- | ----------------------------- |  | -------- |  |  | ------ | --- |  | ------- | 
|Name & Principal Position               |  | Year |      | Salary($) |  | Cash
 Bonus($) |  | Option
 Awards($) |         | All
 Other
 Compensation
 ($) |  | Total($) | 
|                                        |  |      |      |           |  |                |  |                   |         |                               |  |          | 
|Randy Hardin                            |  |      | 2009 |           |  | 242,000        |  |                   |        |                               |  |         |  |  | 34,964 | (2) |  | 276,964 | 
|Former President & CEO(1)               |  |      | 2008 |           |  | 242,000        |  |                   | 178,706 |                               |  |         |  |  | 36,229 | (2) |  | 456,935 | 
|                                        |  |      |      |           |  |                |  |                   |         |                               |  |          |  |  |        |     |  |         | 
|Ian Edmonds                             |  |      | 2009 |           |  | 234,298        |  |                   | 320,671 |                               |  |         |  |  | 11,010 | (2) |  | 565,979 | 
|President, CEO, Interim CFO(3)          |  |      | 2008 |           |  | 214,500        |  |                   | 58,000  |                               |  |         |  |  | 30,519 | (2) |  | 303,019 | 
|                                        |  |      |      |           |  |                |  |                   |         |                               |  |          |  |  |        |     |  |         | 
|Mimi Tan                                |  |      | 2009 |           |  | 168,036        |  |                   | 65,000  |                               |  |         |  |  | 5,547  | (4) |  | 243,273 | 
|SVP of Business Development & Marketing |  |      | 2008 |           |  | 166,113        |  |                   | 46,000  |                               |  |         |  |  | 5,628  | (4) |  | 222,431 | 
|                                        |  |      |      |           |  |                |  |                   |         |                               |  |          |  |  |        |     |  |         | 
|Ramin Salehi                            |  |      | 2009 |           |  | 121,150        |  |                   | 65,000  |                               |  |         |  |  | 5,260  | (4) |  | 191,411 | 
|SVP of Operations                       |  |      | 2008 |           |  | 117,442        |  |                   | 42,000  |                               |  |         |  |  | 5,341  | (4) |  | 164,784 | 

|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Mr. Hardin
 resigned on January 21, 2009. For 2009, we included amounts paid under his
 Separation Agreement.                                          
|    |                                                                                                                                                        
|(2) | Car lease,
 medical insurance and long-term disability insurance payments.                                                                             
|    |                                                                                                                                                        
|(3) | Appointed
 Interim CEO, President and CFO on January 21, 2009. On June 1, 2009, he
 became the permanent CEO and President but remained as Interim CFO.
|    |                                                                                                                                                        
|(4) | Car lease,
 medical insurance and long-term disability insurance payments.                                                                             
|    |                                                                                                                                                        
|(5) | Medical
 insurance and long-term disability insurance payments.                                                                                        

Employment Agreements and Arrangements

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

We also had an
employment agreement with Ms. Tan, which expired in December 2009.

Outstanding Equity Awards

The
following table sets forth certain information with respect to outstanding
equity awards at December 31, 2009 with respect to the Named Executive
Officers. At December 31, 2009, there were no unvested stock awards.

Outstanding Equity Awards at Fiscal Year-End

|                                                          |  |                                                                          |         |                           |  |                         |  |  |            | 
|--------------------------------------------------------- |  | ------------------------------------------------------------------------ | ------- | ------------------------- |  | ----------------------- |  |  | ---------- | 
|                                                          |  | Option Awards                                                            |         |                           |  |                         | 
|                                                          |  |                                                                          |         |                           |  |                         | 
|Name                                                      |  | Number
 of Securities
 Underlying
 Unexercised Options
 (#)
 Exercisable |         | Option
 Exercise Price($) |  | Option
 Expiration Date | 
|                                                          |  |                                                                          |         |                           |  |                         | 
|Randy Hardin                                              |  |                                                                          |         |                           |  |                         |  |  |            | 
|President & CEO (1)                                       |  |                                                                          | 475,000 | (1)                       |  | 7.00                    |  |  | 12/19/2016 | 
|                                                          |  |                                                                          |         |                           |  |                         |  |  |            | 
|Ian Edmonds                                               |  |                                                                          |         |                           |  |                         |  |  |            | 
|President, CEO and Interim CFO                            |  |                                                                          | 356,250 | (2)                       |  | 7.00                    |  |  | 12/19/2016 | 
|                                                          |  |                                                                          |         |                           |  |                         |  |  |            | 
|Mimi Tan                                                  |  |                                                                          |         |                           |  |                         |  |  |            | 
|SVP Business Development & Marketing
 and Corp. Secretary |  |                                                                          | 7,000   | (3)                       |  | 7.00                    |  |  | 12/19/2016 | 
|                                                          |  |                                                                          |         |                           |  |                         |  |  |            | 
|Ramin Salehi                                              |  |                                                                          |         |                           |  |                         |  |  |            | 
|SVP of Operations                                         |  |                                                                          | 7,000   | (3)                       |  | 7.00                    |  |  | 12/19/2016 | 

|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Resigned
 effective January 21, 2009. At the time of his resignation, his options were
 fully vested and were not forfeited.
|    |                                                                                                                             
|(2) | Options are
 fully vested at December 31, 2006.                                                                             
|    |                                                                                                                             
|(3) | Options are
 fully vested at December 31, 2007.                                                                             

Compensation of Directors

Our
independent directors receive the following compensation:

| |   |                                   
| | - | ----------------------------------
| |  | An annual retainer fee of $10,000;

24

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $500 plus
 reimbursement for actual out-of-pocket expenses incurred in connection with
 attending each Board meeting in person and $200 for attending each Board
 meeting telephonically;                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | A stock
 option grant covering 10,000 shares upon his or her election or re-election
 to the Board. The options are exercisable immediately at a price per share
 equal to the fair market value of the stock on the date of grant;                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Each
 Committee member receives $500 plus reimbursement for actual out-of-pocket
 expenses incurred in connection with attending each Committee meeting in
 person or $200 for attending each Committee meeting telephonically, unless
 the Committee meeting immediately follows or precedes a Board meeting in
 which case the amounts are $200 for each meeting attended in person or $100
 for each meeting attended telephonically; and
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The Chairman
 of the Audit Committee receives an annual fee of $5,000 and the Chairman for
 the Compensation Committee and Corporate Governance and Nominating Committee
 each receives an annual fee of $2,500.                                                                                                                                                                                                                            

Director Compensation

The
following table presents information relating total compensation for our
non-employee directors for the year ended December 31, 2009.

|                     |  |                              |        |                   |   |                         |     |       |        |     |  |        | 
|-------------------- |  | ---------------------------- | ------ | ----------------- | - | ----------------------- | --- | ----- | ------ | --- |  | ------ | 
|Name                 |  | Fees Earned or
 Paid in Cash |        | Option
 Awards(1) |   | All Other
 Compensation |     | Total |       
|                     |  |                              |        |                   |   |                         |     |       |       
|William Tan          |  | $                            |       |                   | $ |                        |     | $     | 4,845  | (2) |  | 4,845  | 
|Leslie
 Bernhard     |  |                              | 17,983 |                   |   | 5,897                   | (1) |       | 70,000 | (3) |  | 93,880 | 
|Robert M.
 Gutkowski |  |                              | 14,875 |                   |   | 5,897                   | (1) |       | 14,225 | (2) |  | 34,997 | 
|Joyce Park           |  |                              | 5,275  |                   |   | 5,897                   | (1) |       |       |     |  | 11,172 | 
|William
 Bailey      |  |                              | 10,250 |                   |   |                        |     |       | 15,805 | (2) |  | 26,055 | 
|Bert Calvert         |  |                              | 7,133  |                   |   | 5,897                   | (1) |       |       |     |  | 13,030 | 

|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|   
|(1) | 2009 expense as calculated
 for a stock option grant covering 10,000 shares of our common stock.
|    |                                                                                                 
|(2) | Includes medical insurance
 through company plans.                                              
|    |                                                                                                 
|(3) | Services as chairperson of
 the Boards Sourcing Committee.                                     

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

The
following table sets forth information concerning the beneficial ownership of
our common stock as of March 29, 2010 (i) each person who is known by us to own
beneficially more than 5% of our common stock, (ii) each director, (iii) each
Named Executive Officer, and (iv) all directors and executive officers as a
group.

|                                                                       |  |                                               |  |                        |     |  |  |  |      |   | 
|---------------------------------------------------------------------- |  | --------------------------------------------- |  | ---------------------- | --- |  |  |  | ---- | - | 
|                                                                       |  | Common Stock                                  | 
|                                                                       |  |                                               | 
|Name and Address(1)                                                    |  | Amount and Nature of
 Beneficial Ownership(2) |  | Percentage of Class(3) |    
|                                                                       |  |                                               |  |                        |    
|                                                                       |  |                                               |  |                        |     |  | 
|Directors and Named Executive Officers                                 |  |                                               |  |                        |     |  |  |  |      |   | 
|William Tan                                                            |  |                                               |  | 2,406,120              | (4) |  |  |  | 44.9 | % | 
|Ian Colin Edmonds                                                      |  |                                               |  | 2,405,120              | (5) |  |  |  | 44.9 | % | 
|Mimi Tan                                                               |  |                                               |  | 7,000                  | (6) |  |  |  |      | * | 
|Leslie Bernhard                                                        |  |                                               |  | 30,000                 | (6) |  |  |  |      | * | 
|Robert M. Gutkowski                                                    |  |                                               |  | 30,000                 | (6) |  |  |  |      | * | 
|Joyce Park                                                             |  |                                               |  | 10,000                 | (6) |  |  |  |      | * | 
|All Directors and Named Executive Officers as a group
(7 persons)      |  |                                               |  | 2,829,370              | (7) |  |  |  | 49.0 | % | 
|                                                                       |  |                                               |  |                        |     |  |  |  |      |   | 
|5% Shareholders                                                        |  |                                               |  |                        |     |  |  |  |      |   | 
|                                                                       |  |                                               |  |                        |     |  |  |  |      |   | 
|Zunicom, Inc.4315 W. Lovers LaneDallas, TX 75209                       |  |                                               |  | 2,048,870              |     |  |  |  | 41.0 | % | 
|                                                                       |  |                                               |  |                        |     |  |  |  |      |   | 
|Randy Hardin370 Town East BlvdSunnyvale, TX 75182                      |  |                                               |  | 475,000                | (8) |  |  |  | 8.7  | % | 
|                                                                       |  |                                               |  |                        |     |  |  |  |      |   | 
|Wilen Management Co. Inc2360 W Jopa Rd, Ste 226
Lutherville, MD 21093  |  |                                               |  | 682,999                |     |  |  |  | 13.7 | % | 
|                                                                       |  |                                               |  |                        |     |  |  |  |      |   | 
|Julian Tymczysz11 King George St.Greenwich, London SE10
United Kingdom |  |                                               |  | 275,637                |     |  |  |  | 5.5  | % | 

|    |                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|*   | Less than 1.0%.                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                   
|(1) | Unless indicated otherwise, all addresses for
 officers and directors are c/o Universal Power Group, Inc., 1720 Hayden Road,
 Carrollton, TX 75006.                                                                                               
|    |                                                                                                                                                                                                                                                   
|(2) | Except as otherwise indicated and subject to
 applicable community property and similar laws, we assume that each named
 person has the sole voting and investment power with respect to his or her
 shares, other than shares subject to options.

25

---



|    |                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Percent of Class is based
 on the 5,000,000 shares outstanding as of March 29, 2010. In addition, shares
 which a person had the right to acquire within 60 days are also deemed
 outstanding in calculating the percentage ownership of the person but not deemed
 outstanding as to any other person.                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(4) | Includes (i) 356,250 shares
 underlying options; (ii) 2,048,870 shares owned by Zunicom over which Mr. Tan
 has voting control by virtue of the fact that he is a director of Zunicom;
 and (iii) 1,000 shares owned by Placement & Acceptance, Inc., a British
 Virgin Islands corporation, of which Mr. Tan is a director.                                            
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(5) | Includes (i) 356,250 shares
 underlying options; and (ii) 2,048,870 shares owned by Zunicom over which Mr.
 Edmonds has voting control by virtue of the fact that he is a director of
 Zunicom. Mr. Edmonds does not own any shares of our common stock directly.                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(6) | Represents shares
 underlying options.                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(7) | Includes (i) 2,048,870
 shares owned by Zunicom over which Messrs. Tan and Edmonds have voting
 control by virtue of the fact that they are directors of Zunicom; (ii) 1,000
 shares owned by Placement & Acceptance, Inc. over which Mr. Tan has
 voting control; and (iii) 779,500 shares underlying options held by all
 directors and executive officers as a group.
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(8) | Represents shares
 underlying options. Mr. Hardin resigned from his positions with us on January
 21, 2009. The options expire December 19, 2016.                                                                                                                                                                                                                       

As
of March 29, 2010, we are not aware of any pledges of our common stock which
may at a subsequent date result in a change in control of the company.

Equity Compensation Plan Information

The
following table summarizes the options granted under the Plan as well as
options and warrants granted outside the Plan as of December 31, 2009. The
shares covered by outstanding options are subject to adjustment for changes in
capitalization stock splits, stock dividends and similar events.

|                                                           |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       |  |                 |  | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------- | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | 
|                                                           |  | Equity Compensation Plan Table                                                                      | 
|                                                           |  |                                                                                                     | 
|                                                           |  | Number of securities to be
 issued upon exercise of
 Outstanding options,
 warrants and rights
 (a) |  | Weighted-average
 exercise price of
 outstanding options,
 warrants and rights
 (b) |      | Number of securities
 remaining available for
 future issuance under
 equity compensation plans
 (excluding securities
 reflected in column (a))
 (c) | 
|                                                           |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       | 
|Equity Compensation Plans Approved By Security Holders     |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       |  |                 |  | 
|Grants under the 2006 Stock Option Plan                    |  | 1,371,842                                                                                           |  | $                                                                                   | 6.65 |                                                                                                                                                       |  | 628,158         | 
|                                                           |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       |  |                 |  | 
|Equity Compensation Plans Not Approved By Security Holders |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       |  |                 |  | 
|Warrants (1)                                               |  | 300,000                                                                                             |  | $                                                                                   | 8.40 |                                                                                                                                                       |  | Not
 applicable | 
|Common Stock Options (2)                                   |  | 20,000                                                                                              |  | $                                                                                   | 7.00 |                                                                                                                                                       |  | Not
 applicable | 
|                                                           |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       |  |                 |  | 
|                                                           |  |                                                                                                     |  |                                                                                     |      |                                                                                                                                                       |  |                 |  | 
|Total                                                      |  | 1,691,842                                                                                           |  | $                                                                                   | 6.96 |                                                                                                                                                       |  | 628,158         | 

|    |                                                                                                                                                                                                               | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|   
|(1) | The warrants, issued in
 connection with our IPO in December 2006, are exercisable at $8.40 per share
 any time beginning 365 days after the grant date and until the fifth
 anniversary of that date.       
|    |                                                                                                                                                                                                              
|(2) | On March 21, 2007, we issued
 stock options to non-employees to purchase 20,000 shares of our common stock
 at an exercise price of $7.00 per share vesting over three years and expiring
 December 19, 2016.

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

Policies and Corporate Governance

The
Board has adopted a resolution that, in the future, any transactions between us
and another person or entity who is deemed to be an affiliate or a related
party must be approved by a majority of our disinterested directors.

Transactions with Related Parties

From
January 1, 2009 through December 31, 2009 we engaged in the following related
party transactions:

Immediately
before our IPO, 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 installments of
$187,500 beginning September 20, 2008. The $2.062 million balance of the note
less a 7.5% discount for early extinguishment was paid on December 16, 2009.

Immediately
before the IPO, we issued a note to Zunicom in the original principal amount of
$2.85 million, representing the value of Zunicoms net operating losses that we
were able to use to offset our taxable income in the years prior to the IPO.
The note bears interest at the rate of 6% per annum and matures on 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. The $1.959
million balance of the note less a 7.5% discount for early extinguishment was
paid on December 16,2009.

On
December 12, 2008, we entered into a separation agreement with our former chief
financial officer under which we agreed to pay him severance of approximately $147,000
and to provide him with health insurance coverage for as long as he is eligible
to participate in our health insurance plan under COBRA. For the year ended
December 31, 2009, we paid

26

---



him a total of
$142,287 in cash and paid approximately $11,609 in health insurance premiums on
his behalf. We have no further obligations to him for cash payments although we
continue to pay health insurance costs on his behalf.

On
January 21, 2009, in connection with the resignation of Randy Hardin from his
positions as president and chief executive officer, we entered into a
Separation Agreement which is described in Item 11, above.

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

The
Board has reviewed the following audit and non-audit fees we paid to our
independent public accountants for purposes of considering whether such fees
are compatible with maintaining the auditors independence. The policy of the
Board is to pre-approve all audit and non-audit services performed by its
independent public accountants before the services are performed.

Audit
Fees. Fees billed for service rendered by BKD LLP for the audit of the
financial statements and for the reviews of our Form 10-Q filings were
approximately $40,000 for 2009 and $0 for 2008. Fees billed for service
rendered by KBA Group LLP for the audit of the financial statements and for the
reviews of our Form 10-Q filings were approximately $140,000 for 2009 and
approximately $165,000 for 2008.

Audit-Related
Fees. None

Tax
Fees. Aggregate fees billed for permissible tax services rendered by BKD LLP
consisted of $14,000 for 2009 and $0 for 2008. These amounts include tax
consulting, preparation of federal and state income tax returns and franchise
tax returns. Aggregate fees billed for permissible tax services rendered by KBA
Group LLP consisted of approximately $70,000 for 2009 and approximately $34,000
for 2008. These amounts include tax consulting, preparation of federal and
state income tax returns and franchise tax returns.

All
Other Fees. Fees billed for services rendered by KBA Group LLP for review of
our annual proxy statements and Form 8-K filings were $0 for 2009 and
approximately $6,000 for 2008.

PART IV

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

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

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

|             |  |                                                                                                               
|------------ |  | --------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                   
|             |  |                                                                                                               
|3(i)         |  | Amended and
 Restated Certificate of Formation (including Amended and Restated Articles of
 Incorporation) (1)
|             |  |                                                                                                               
|3(ii)        |  | Amended and
 Restated Bylaws (1)                                                                              
|             |  |                                                                                                               
|4.1          |  | Specimen
 stock certificate (1)                                                                               
|             |  |                                                                                                               
|4.2          |  | Form of
 representatives warrant (1)                                                                         
|             |  |                                                                                                               
|10.1(a)**    |  | Form of 2006
 Stock Option Plan (1)                                                                           
|             |  |                                                                                                               
|10.1(b)      |  | Form of
 Stock Option Agreement (1)                                                                           
|             |  |                                                                                                               
|10.1(c)**    |  | Amendment to
 the 2006 Stock Option Plan (6)                                                                  
|             |  |                                                                                                               
|10.2         |  | Separation
 Agreement between UPG and Randy Hardin (2)                                                        
|             |  |                                                                                                               
|10.3**       |  | Form of Ian
 Edmonds Employment Agreement (7)                                                                 
|             |  |                                                                                                               
|10.7         |  | Real
 Property Lease for 1720 Hayden Drive, Carrollton, Texas (1)                                             
|             |  |                                                                                                               
|10.8         |  | Real
 Property Lease for 11605-B North Santa Fe, Oklahoma City, Oklahoma (1)                                  
|             |  |                                                                                                               
|10.9         |  | Real
 Property Lease for Las Vegas, Nevada (1)                                                                
|             |  |                                                                                                               
|10.10        |  | Termination
 Agreement with Stan Battat d/b/a Import Consultants (3)                                          

27

---



|      |  |                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 |  | Third Party
 Logistics & Purchase Agreement, dated as of November 3, 2008, with Brinks
 Home Security, Inc., (currently Broadview Security, Inc.) (4)                                        
|      |  |                                                                                                                                                                                              
|10.14 |  | Credit
 Agreement with Wells Fargo Bank, National Association (8)                                                                                                                            
|      |  |                                                                                                                                                                                              
|10.15 |  | Security
 Agreement with Wells Fargo Bank, National Association (8)                                                                                                                          
|      |  |                                                                                                                                                                                              
|23.1  |  | Consent of
 Independent Registered Public Accounting Firm*                                                                                                                                   
|      |  |                                                                                                                                                                                              
|23.2  |  | Consent of
 Independent Registered Public Accounting Firm*                                                                                                                                   
|      |  |                                                                                                                                                                                              
|31.1  |  | Certification
 of the Principal Executive Officer pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002*                                                                                
|      |  |                                                                                                                                                                                              
|31.2  |  | Certification
 of the Principal Financial Officer pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002*                                                                                
|      |  |                                                                                                                                                                                              
|32.1  |  | Certification
 of the Principal Executive Officer and Principal Financial Officer Pursuant
 to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
 Sarbanes-Oxley Act of 2002*

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

(c)
Other Financial Statement Schedules.

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

28

---



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
 31, 2010       
| |                              |                   
| | Universal
 Power Group, Inc.
| |                              |                   
| | By:                          | /s/ Ian
 Edmonds  
| |                              |                   
| |                              | Ian Edmonds       
| |                              | 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           
|                        |  |                                         |  |                
|                        |  |                                         |  |                
|/s/ Ian Edmonds         |  | Chief
 Executive Officer, Interim Chief |  |                
|                        |  | Financial
 Officer and Director         |  |                
|Ian Edmonds             |  | (Principal
 Executive and Financial     |  |                
|                        |  | Officer)                                |  | March 31,
 2010
|                        |  |                                         |  |                
|/s/ William Tan         |  | Chairman of
 the Board                  |  | March 31,
 2010
|                        |  |                                         |  |                
|William Tan             |  |                                         |  |                
|                        |  |                                         |  |                
|/s/ Robert M. Gutkowski |  | Director                                |  | March 31,
 2010
|                        |  |                                         |  |                
|Robert M. Gutkowski     |  |                                         |  |                
|                        |  |                                         |  |                
|/s/ Leslie Bernhard     |  | Director                                |  | March 31,
 2010
|                        |  |                                         |  |                
|Leslie Bernhard         |  |                                         |  |                
|                        |  |                                         |  |                
|/s/ Hyun (Joyce) Park   |  | Director                                |  | March 31,
 2010
|                        |  |                                         |  |                
|Hyun (Joyce) Park       |  |                                         |  |                

29

---



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

DECEMBER 31, 2009

F-1

---



INDEX TO FINANCIAL STATEMENTS 
UNIVERSAL POWER GROUP, INC.

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

F-2

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying consolidated balance sheet of Universal Power
Group, Inc. and subsidiary (the Company) as of December 31, 2009 and the
related statements of operations, changes in shareholders equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We
conducted our audit in accordance with 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, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

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

|                | 
|--------------- | 
|/s/ BKD LLP     | 
|                | 
|Dallas,
 Texas  | 
|March 31,
 2010 | 

F-3

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying balance sheet of Universal Power Group, Inc. (the
Company) as of December 31, 2008 and the related statements of operations,
changes in shareholders equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We
conducted our audit in accordance with 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, an audit of its internal control
over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

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

|                  | 
|----------------- | 
|/s/ KBA GROUP LLP | 
|                  | 
|Dallas,
 Texas    | 
|March 31,
 2009   | 

F-4

---



UNIVERSAL POWER
GROUP, INC. 
CONSOLIDATED BALANCE SHEETS 
ASSETS

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

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

F-5

---



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

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

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

F-6

---



UNIVERSAL POWER
GROUP, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS

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

The accompanying
notes are integral part of these financial statements.

F-7

---



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

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

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

F-8

---



UNIVERSAL POWER
GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

F-9

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE A. ORGANIZATION AND BASIS OF
PRESENTATION

Organization

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

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

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

Consolidation

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

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Cash and Cash Equivalents

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

Restricted Cash

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

Accounts Receivable

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

Inventories

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

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

Property and Equipment

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

F-10

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

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

Income Taxes

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

Long-Lived Assets

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

Deferred Rent

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

Revenue Recognition

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

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

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

Post Shipment Obligations

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

Advertising costs

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

F-11

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL
STATEMENTS

NOTE B. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Shipping and Handling Costs

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

Earnings (loss) Per Share

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

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

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

Fair Value of Financial Instruments

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

Stock-Based Compensation and Restricted Stock

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

Accounting for Non-Employee Stock Options and
Warrants

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

Accounting for Derivative Activities

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

Taxes Collected from Customers and Remitted
to Governmental Authorities

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

Use of Estimates and Assumptions

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

Segment and Geographic Information

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

F-12

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

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

Reclassifications

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

NOTE C. INVENTORIES

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

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

NOTE D. LINE OF CREDIT

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

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

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

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

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

Interest Rate Swap

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

F-13

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL STATEMENTS

NOTE D. LINE OF CREDIT (CONTINUED)

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

NOTE E. NOTES PAYABLE TO ZUNICOM, INC.

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

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

NOTE F  LONG TERM
DEBT

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

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

NOTE G. INCOME TAXES

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

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

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

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

F-14

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE G. INCOME TAXES
(CONTINUED)

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

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

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

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

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

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

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

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

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

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

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

NOTE H. STOCK-BASED COMPENSATION

Stock
options

2006
Equity Incentive Compensation Plan

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

F-15

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL STATEMENTS

NOTE H. STOCK-BASED
COMPENSATION (CONTINUED)

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

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

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

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

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

Valuation
Assumptions

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

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

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

Stock
Incentive Plan Summary

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

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

F-16

---



UNIVERSAL POWER GROUP, INC.NOTES TO FINANCIAL STATEMENTS

NOTE H. STOCK-BASED
COMPENSATION (CONTINUED)

Stock
Options Outstanding and Exercisable

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

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

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

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

Non-Employee
Stock Options

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

Warrants

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

Restricted Stock

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

NOTE I. FAIR VALUE
MEASUREMENTS

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

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

The
fair value hierarchy consists of the following three levels:

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

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

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

F-17

---



UNIVERSAL POWER GROUP, INC. 
NOTES TO FINANCIAL STATEMENTS

NOTE I. FAIR VALUE MEASUREMENTS (CONTINUED)

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

NOTE J. CREDIT CONCENTRATIONS AND SIGNIFICANT
CUSTOMERS

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

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

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

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

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

NOTE K. SETTLEMENT AGREEMENT

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

NOTE L. COMMITMENTS AND CONTINGENCIES

Licensing

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

Litigation

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

F-18

---



UNIVERSAL POWER GROUP, INC. 
NOTES TO FINANCIAL STATEMENTS

NOTE L. COMMITMENTS AND CONTINGENCIES
(CONTINUED)

Operating Leases

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

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

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

Employment
Agreements and Arrangements

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

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

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

NOTE M. BUSINESS COMBINATION

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

NOTE N. EMPLOYEE BENEFIT PLAN

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

F-19

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