---

---

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

|   |                                                                                          
|-- | -----------------------------------------------------------------------------------------
|x  | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|   | For the
 fiscal year ended December 31, 2008                                             
|   |                                                                                          
|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 oNo x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act.                 
   Yes oNo x

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.                   
                      
               
                      
                      
                  
                      
                      
                      
    Yes xNo 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.                   
                      
               
                      
                      
                  
                      
                      
                      
                      
 x

Indicate by check mark
whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or smaller
reporting company. See definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.


|                           |                     |                         |                            
|-------------------------- | ------------------- | ----------------------- | ---------------------------
|Large
 accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).                 
                         
   Yes o No x

The aggregate market value of
the voting and non-voting common equity held by non-affiliates of the
registrant was $13,182,000 based on the price at which the common equity was
last sold on the NYSE Amex (formerly known as NYSE Alternext US) as of June 30,
2008, 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 20, 2009
was 5,000,000.

DOCUMENTS INCORPORATED BY REFERENCE
None

---

---



TABLE OF CONTENTS

|            |  |                                                                                                               |      | 
|----------- |  | ------------------------------------------------------------------------------------------------------------- | ---- | 
|            |  |                                                                                                               | Page
|            |  |                                                                                                               |     
|            |  |                                                                                                               |      | 
|PART I     
|Item 1.     |  | Business                                                                                                      | 3    | 
|Item 1A.    |  | Risk Factors                                                                                                  | 9    | 
|Item 1B.    |  | Unresolved Staff Comments                                                                                     | 16   | 
|Item 2.     |  | Properties                                                                                                    | 16   | 
|Item 3.     |  | Legal Proceedings                                                                                             | 16   | 
|Item 4.     |  | Submission of Matters to a Vote of Security Holders                                                           | 16   | 
|            |  |                                                                                                               |      | 
|PART II    
|Item 5.     |  | Market for Registrants Common Equity, Related Stockholder Matters
 and Issuer Purchases of Equity Securities | 17   | 
|Item 6.     |  | Selected
 Financial Data                                                                                      |      | 
|Item 7.     |  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                        | 17   | 
|Item 7A.    |  | Quantitative
 and Qualitative Disclosures about Market Risk                                                   |      | 
|Item 8.     |  | Financial Statements and Supplementary Data                                                                   | 21   | 
|Item 9.     |  | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure                         | 21   | 
|Item 9A(T). |  | Controls and Procedures                                                                                       | 21   | 
|Item 9B.    |  | Other Information                                                                                             | 22   | 
|            |  |                                                                                                               |      | 
|PART III   
|Item 10.    |  | Directors, Executive Officers and Corporate Governance                                                        | 22   | 
|Item 11.    |  | Executive Compensation                                                                                        | 25   | 
|Item 12.    |  | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters               | 27   | 
|Item 13.    |  | Certain Relationship and Related Transactions and Director
 Independence                                      | 28   | 
|Item 14.    |  | Principal Accounting Fees and Services                                                                        | 28   | 
|            |  |                                                                                                               |      | 
|PART IV    
|Item 15.    |  | Exhibits and Financial Statement Schedules                                                                    | 28   | 
|            |  |                                                                                                               |      | 
|Signatures  |  |                                                                                                               | 30   | 

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 and
assumptions described in Risk Factors and elsewhere in this report. In addition,
our past results of operations do not necessarily indicate our future results.

Other
sections of this report may include additional factors which could adversely
affect our business and financial performance. Moreover, the 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, and 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. Those factors include, among others, those
matters disclosed as Risk Factors in Item 1A contained in this Annual
Report on Form 10-K.

Except
as otherwise required by applicable laws 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 three inactive
wholly-owned subsidiaries, two of which are incorporated in Texas and one of
which is incorporated in Nevada. Until December 20, 2006, we operated as a
wholly-owned consolidated subsidiary of Zunicom, Inc. (Zunicom), a Texas
corporation, whose stock is traded on the OTC Bulletin Board under the symbol
ZNCM.OB. On December 21, 2006, we sold 2,000,000 shares of our common stock
in an underwritten initial public offering (IPO). In addition, in the
offering Zunicom sold 1,000,000 shares of our common stock that it owned. As a
result, Zunicoms ownership interest in us was reduced to 40%. Notwithstanding
the fact that Zunicom no longer owns a controlling interest in us, it still has
significant influence.

Available Information

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

3

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| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | security
 system components, such as alarm panels, perimeter access controls, horns,
 sirens, speakers, transformers, cable and wire.

Our
customers include original equipment manufacturers (OEMs), distributors and
both online and traditional retailers. The products we source, sell, distribute
and market are used in a diverse and growing range of industries including
automotive, medical mobility, medical, consumer goods, electronics, marine,
hunting, security and surveillance, telecommunications, uninterruptible power
supply (UPS), 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. Our products represent
basic energy solutions to a wide variety of existing applications in a broad
market spectrum. 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. 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. Our third-party logistics services are designed to help
customers optimize performance by allowing them to outsource supply chain
management functions.

We
believe that the demand for third-party logistics and supply chain management
solutions is growing, particularly with globalization. To be successful,
businesses have to not only 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 cell phones, PDAs, 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:

4

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| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                      | 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 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, motorcycle, jet-ski,
snowmobile, security, marine, medical mobility, hunting and solar. We
continue to 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 currently private label our products for many large
 customers including HD Supply, RadioShack, Bass Pro, Cabelas and others.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                       | We offer
 value-added custom battery pack assembly services and are also one of the
 nations first authorized Panasonic modification centers that builds
 custom-designed battery packs comprised of Panasonic batteries for customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                      | 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. Our jump-starters are sold to
 various retailers including RadioShack, Bass Pro and Cabelas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                       | Recently, we
 entered into an agreement with Eveready Battery Company/Energizer, under
 which we have the exclusive right to develop, market and sell
 Energizer-branded automotive battery chargers and maintainers and automotive
 jump-starters and the non-exclusive right to develop, market and sell
 Energizer-branded power inverters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                       | We also have
 break-away kits for trailers and our own expanding 12-volt DC accessory line
 which includes electric auto jacks, impact wrenches, handheld vacuums,
 cordless air compressors, warmers/coolers, spotlights, electric mugs and
 others that plug into cigarette lighter sockets or any 12-volt DC power
 source.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                       | Our
 renewable power products now include solar panels, chargers and kits for use
 in multiple applications, including outdoor recreational activities such as
 hunting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                      | 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 review, research and develop new and innovative products to add
 to our broad spectrum of product offerings.
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Our
 logistics services include:                                                                                                     
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                      | Inventory sourcing and procurement. Due to our long-standing and strategic
 relationships with manufacturers in Asia, we can effectively source products
 for our customers and at the same time help lower their costs. We see this as
 a competitive advantage that will help us 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 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 of Dallas. 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 large OEMs.
 Battery packs are assembled to order in nearly all instances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                       | We also
 custom kit products and components as required by customers. For instance, as
 a value-added service, we can pick and repackage products and components into
 shippable units. We provide this service to a number of our customers,
 notably Brinks Home Security and its authorized dealers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

5

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| |   |                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Graphic design and marketing.We
 offer branding, packaging design and marketing services to assist customers
 in bringing their product from development to packaged product. In some
 instances, we help promote and sell the finished product through our sales
 and marketing team and distribution network.
| |   |                                                                                                                                                                                                                                                                                                                
| |  | Recycling.As
 an additional value-added service to our customers, and in ensuring that we
 contribute to environmental conservation, we help coordinate pick up of all
 their used or spent 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 that allows 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. This
quality standard was established by the International Standards Organization
(ISO), created by the European Economic Community (EEC). The ISO created
uniform standards of measuring 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
Brinks Home Security for whom we function as a supply chain manager throughout
the United States and Canada. Under our agreement with Brinks Home Security,
we purchase and distribute various components for their security installations,
some of which we purchase from Brinks Home Securitys designated suppliers.
In 2008 Brinks Home Security accounted for approximately 35% of our net
sales; Brinks Home Security is our only customer that accounted for more
than 10% of our net sales. In November 2008 we signed a new two year agreement
with Brinks
Home Security. This agreement renews automatically for one additional year.
Brinks Home Security has the right to terminate the agreement at any time
upon 120 days prior written notice.

6

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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.

Sources and Availability of Products

We
purchase products from both domestic and foreign manufacturers. In 2008, we
purchased products from over 200 suppliers. During 2008, approximately 51% of
our purchases were from domestic suppliers and 49% were from foreign suppliers.
Approximately 50% of our 2007 purchases were from domestic suppliers and 50%
were from foreign suppliers. We do not have supply agreements with any of these
sources, although Brinks Home Security has written agreements with Honeywell
Security and Custom Electronics (HS&CE), which accounted for approximately
36% of our inventory purchases in 2008. In addition, even though we purchase
approximately 92% 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 fairly quickly, although our costs may be higher.
Other than HS&CE and our major battery supplier, we do not depend on any
single source for products.

We
have significant long-term relationships with manufacturers located in Asia,
    principally China. Other suppliers are located in Taiwan and Malaysia. We
    manage these relationships, many exceeding a decade, either directly or indirectly
    through an independent sourcing agent. We paid the independent sourcing agent
    a commission for goods purchased from factories that he introduced. Approximately
    45% of our product purchases in 2008 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. In March 2009, in an effort to improve efficiencies within
our sourcing channels, we entered into an agreement with the 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.

Competition

We
compete with numerous, well-established companies, many, if not most, of which
    are larger and have greater capital and management resources and greater
    name recognition. 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 on the basis of 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, such as Interstate Batteries, MK
Battery, Powersonic and Yuasa. 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. The major companies in this industry include C.H. Robinson
Worldwide, Inc., EGL, Inc., Stonepath Group and UTI Worldwide, Inc. In general,
these companies provide freight transportation services but could also provide
supply chain management solutions. In comparison, we provide limited in-house
freight transportation services. This could make us a less attractive
alternative to some potential customers. However, we do engage freight
forwarding companies to work with us on consolidating and securing price
competitive freight transportation services. We also compete directly with
large overnight shipping companies, such as UPS, FedEx and DHL 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.We
 have long-standing relationships with manufacturers in Asia, principally
 China. For example, we were one of the first authorized distributors of
 Panasonic batteries in the United States. We bring additional value to our
 customers by locating lower-cost suppliers.
| |   |                                                                                                                                                                                                                                                                                                                  
| |  | 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                                                                                               

7

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | retailers.
 Our customers include well known names such as Brinks Home Security,
 RadioShack, Bass Pro, Cabelas, Pride Mobility, The Scooter Store, Protection
 One, Monitronics, HD Supply and GE Security.                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | 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.                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | National distribution.Our
 primary logistics center and warehouse facility is 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 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 had ISO 9001:2000
 certification since October 2003.

Marketing and Sales

We
employ marketing, sales and sales support to actively pursue new business
opportunities and retain and grow existing accounts. We also engage outside
sales representatives. We use a variety of techniques to market our products
including: (i) direct marketing through personal visits to customers by
management, sales and sales representatives; (ii) general advertising, sales
referrals and marketing support from component manufacturers; (iii)
telemarketing; (iv) active participation in industry tradeshows throughout the year;
and (v) our website. We have undertaken minimal advertising in trade
publications, though we foresee pursuing more advertising avenues including
direct mail, additional trade and magazine publications and online advertising
as our product offerings and customer base 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:
Starter-Up, UB Scootin®, Adventure Power®, Batteries & Beyond, Charge N
Start, UNILOK, Let Us Power You and UPG. We believe that these marks are
important and have helped us develop a brand identity in certain markets and in
connection with certain products. We also license Energizer® on an exclusive
and non-exclusive basis from Eveready Battery Company.

We
have a patent pending on a battery cross-reference system and method that
enables users of all levels of knowledge to search for a battery based on
various search criteria including chemistry, category, application, product
brand model, manufacturer and battery model. We believe that this technology
will help us gain new business at retailers and at the same time, offer
retailers a competitive advantage and a value-added service.

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 in the foreseeable future. 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.

8

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Employees

At
December 31, 2008, we had a total of 90 full time employees, of which 75 people
were based in our Texas facility, 5 were based in each of our regional
logistics centers in Oklahoma, Georgia and Nevada. We have 5 senior executives,
33 marketing, sales and sales support personnel (including the employees in our
regional logistics centers), 16 information technology, accounting,
administrative and purchasing personnel, 9 engineering and packing personnel
and 12 warehouse and shipping personnel. All of our employees are full-time. We
do not have collective bargaining agreements with respect to any of our
employees. We have not experienced any work stoppages and consider our
relations with employees to be good.

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

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

Risks Relating to Our Business

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

For
the years ended December 31, 2008 and 2007, Brinks Home Security accounted
for 35% and 41% of our net sales, respectively. At December 31, 2008 our
Brinks Home Security receivable was $3.8 million, representing approximately
28% of our total accounts receivable as of that date, none of which was outside
our terms with the customer (generally 30 days). We have carried as much as
$13.2 million of inventory to fulfill our obligations to Brinks Home Security.
Under the agreement, if Brinks Home Security were to terminate our services,
they would purchase all inventory in stock and in transit; however, there is
no specified time requirement for this buy-back provision which might cause us
to incur some extended carrying costs. If Brinks Home Security were to
terminate its relationship with us or significantly reduce the level of business
it does with us, our revenues and profitability would be adversely impacted.
In addition, any adverse developments in Brinks Home 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 with Compass Bank contains restrictive covenants
that could impede our growth and our ability to compete.

Our
working capital requirements are significant. To fund our operations we rely on
cash flow from operations and a $30.0 million working capital revolving credit
facility. At December 31, 2008, the outstanding balance on our credit line was
$14.4 million and at December 31, 2007, it was $12.8 million. At those dates
our total liabilities, including accounts payable, were $37.0 million and $32.0
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,
the indebtedness under the credit facility is secured by all of our assets,
including inventory and receivables. If we were to breach any of the terms of
our agreement with the bank and the bank were to exercise its right to declare
a default and a court of competent jurisdiction were to determine that we are
in default, the bank could foreclose on its security interests. Any foreclosure
action could cause us to seek protection under the federal bankruptcy code
which, in turn, would have a material adverse effect on our ability to operate
at a level required to maintain or achieve profitability, which, in turn, could
adversely impact our business.

Second,
the credit agreement contains numerous negative covenants, such as restricting
our ability to undertake any other financing transaction without the banks
consent or prohibiting us from buying another business or assets having a
purchase price in excess of $7.5 million without the banks consent. The
consequences of these covenants may include one or more of the following:

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

Third,
the agreement requires us to maintain various financial ratios and satisfy
various other financial and operating requirements and conditions, including a
borrowing base computation. These ratios and the borrowing base computation
limit our ability to draw on the facility. Also, failure to satisfy these
ratios, requirements and conditions could result in a

9

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

As of December 31, 2008, we were in default of the loan agreement as a
result of our failure to satisfy certain financial and non-financial covenants.
We also expect that we will be in default for the quarter ending March 31, 2009
as a result of our failure to satisfy certain financial covenants. This latter
failure is attributable to the fact that we will incur charges of approximately
$2.6 million in the first quarter of 2009 relating to the separation agreements
that we entered into with our former chief executive officer and independent
sourcing agent (see Note L) in the first quarter of 2009. The bank has waived
the events of default that existed at December 31, 2008 and those that we believe
    exist with respect to the quarter ended March 31, 2009. In addition, the
    bank intends to modify the relevant covenants such that we may be in compliance
    commencing with the quarter ending June 30, 2009.

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

All
of our products are manufactured and assembled by third-party manufacturers,
many of which are located in 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 which we may not
be able to pass on to our customers, lost sales opportunities, and/or a
decrease in customer satisfaction, which could damage our reputation.

Our
largest domestic supplier is HS&CE, formerly known as Ademco, a division of
Honeywell International, Inc., and the source of much of our Brinks Home
Security inventory. We purchased 36% and 34% in 2008 and 2007, respectively,
from HS&CE. We do not have a written agreement with HS&CE, although
Brinks Home Security does. Our second largest supplier, based in China,
accounted for 38% and 42% of our inventory purchases in 2008 and 2007,
respectively, including 92% of our battery purchases. We continue to rely on
that supplier as our principal source for batteries because of its price, the
quality of its products, its ability to satisfy our need for a broad range of
battery 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 impact other factors such as the quality of our products and the
timeliness of our shipments. This could then adversely impact our ability to
meet customer expectations and damage our reputation.

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

Other
than some of the items we purchase to fulfill our obligations to Brinks Home
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 timely deliver our products
to our customers. These delays could damage our reputation and materially and
adversely affect our operations and financial condition. Also, these
interruptions could increase our costs, if, for example, we were forced to ship
our products via air rather than ocean freight or if insurance costs were to
increase significantly as a result of terrorism or acts of war.

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

For
the years ended December 31, 2008 and 2007, we purchased approximately 49% and
50%, 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. Our
ability to sell certain products at competitive prices could be adversely
affected by any of the following:

| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | 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;

10

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| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | changes in
 local laws and regulations;                                               
| |   |                                                                                       
| |  | wars,
 hostilities or other military activity;                                        
| |   |                                                                                       
| |  | expropriation
 of private enterprises;                                                
| |   |                                                                                       
| |  | currency
 limitations including restrictions on repatriation or transfer of funds; and
| |   |                                                                                       
| |  | turbulence
 in offshore economies or financial markets.                               

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

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

Although
all of our transactions are recorded in U.S. dollars, adverse currency
fluctuations could make components manufactured abroad more expensive, cause
shortages due to unfavorable export conditions or cause our foreign suppliers
to limit exports to the United States. Significant changes in the value of the
Chinese Renminbi in relation to the U.S. dollar has 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 will be
exacerbated by terrorism or war or other factors on our industry. The
electronic components distribution industry has historically been affected by
general economic downturns. These economic downturns have often had an adverse
economic effect upon manufacturers, end-users of electronic components and
electronic components distributors. Our industry also directly depends on the
continued growth of the electronic components industry and indirectly on
end-user demand for our customers products. The timing of new product
developments, the life-cycle of existing electronic products and the level of
acceptance and growth of new products can also affect demand for electronic
components. Due to changing conditions, our customers have experienced and may
in the future experience, periods of inventory corrections which could have a
significant negative impact on our results. We have supported in the past and
expect in the future to support new technologies and emerging markets. If these
new technologies and emerging markets fail to be accepted or grow, our
operating results could suffer significantly. Our operating results have
significantly fluctuated in the past, and will likely fluctuate in the future,
because of these market changes and factors.

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

The
electronics industry, in general, has been susceptible to supply shortages and
price volatility. In part, these conditions are attributable to the price of
lead and copper, the two principal raw materials used to manufacture electronic
components, and the price of oil, which impacts both manufacturing costs and
shipping costs. Over the past few years, prices for lead and copper have
increased significantly. In 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, as a result of the Internet and other recent
developments contributing to the global economy, OEMs and retailers have the
opportunity to contract directly with the component manufacturers, bypassing
the distributors. If that direct contact becomes a trend, our sales would be
materially adversely affected.

11

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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. Our principal
competitors include other logistics companies, shippers, such as UPS Supply
Chain, FedEx and DHL who also provide supply chain management services, and
battery distributors, such as Interstate Batteries, MK Battery, Powersonic and
Yuasa, as well as companies like us that are both logistics providers and
distributors. In addition, we are increasingly finding that manufacturers,
particularly foreign manufacturers, are competing against us. We compete
primarily on the basis of price, inventory availability, scope of services,
quality of products and services, delivery time and customer relationships. We
expect competition to intensify in the future. To the extent our competitors
have superior financial resources, they may be better able to withstand price
competition and 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.

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 successfully address
any of these risks, our business could be harmed.

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

In
order to achieve our growth strategy, we will need to expand all aspects of our
business, including our computer systems and related infrastructure, customer
service capabilities and sales and marketing efforts. We cannot assure you

12

---



that our
infrastructure, technical staff and technical resources will adequately
accommodate or facilitate our expanded operations. To be successful, we will
need to continually improve our financial and managerial controls, billing
systems, reporting systems and procedures, and we will also need to continue to
expand, train and manage our workforce. In addition, as we offer new products
and services, we will need to increase the size and expand the training of our
customer service staff to ensure that they can adequately respond to customer
inquiries. If we fail to adequately train our customer service staff and
provide staffing sufficient to support our new products and services, we may
lose customers.

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. The loss or interruption of the full-time service of one
or more of these employees could materially and adversely affect our business
and operations. If we were to lose any of our senior executives or key
employees and were not able to replace them quickly with someone of comparable skills,
our operations would be adversely impacted. In December 2008, our chief
financial officer, Roger Tannery, resigned and in January 2009 we entered into
a separation agreement with Randy Hardin, who had served as our chief executive
officer since 1992. We appointed Ian Edmonds, our executive vice president and
chief operating officer, to fill both positions on an interim basis. It is too
soon for us to assess the impact these departures will have on our business.

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

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

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

We
regard our trademarks, trade names, service marks, service names, trade secrets
and other intellectual property rights 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 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. In fact, we are
a named defendant in an action brought by Energizer Holdings, Inc. and Eveready
Battery Company, Inc. more than 20 other respondents relating to the
manufacture, importation and sale of certain alkaline batteries alleged to
infringe on one of their patents. On March 23, 2009 Energizers petition for
certiorari was denied by the U.S. Supreme Court. 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.

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

As
of December 31, 2008 we owed to Zunicom, our former corporate parent and
largest shareholder, an aggregate of $5.1 million. The debt is evidenced by two
notes, each of which bear interest of 6% per annum and require quarterly
payments aggregating $365,625. The combined payments under both notes may
adversely impact our working capital position.

13

---



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

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

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

Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (S-Ox 404), we are required to
furnish a report on our internal controls over financial reporting. The
internal control report must contain (a) a statement of managements
responsibility for establishing and maintaining adequate internal control over
financial reporting, (b) a statement identifying the framework used by
management to conduct the required evaluation of the effectiveness of our
internal control over financial reporting, (c) managements assessment of the
effectiveness of our internal control over financial reporting as of the end of
our most recent fiscal year, including a statement as to whether or not
internal control over financial reporting is effective and (d) a statement that
our independent registered public accounting firm has issued an attestation
report on managements assessment of internal control over financial reporting.
Managements assessment report was completed for the period covered by this
report and current rules require the independent registered public accounting
firms attestation report must be completed before we file our annual report
for the year ending December 31, 2009.

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

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

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 as a result of a
failure to comply with applicable laws and incur substantial costs to comply
with existing, new, modified, or more stringent requirements. The use of our
products is also governed by a variety of state and local ordinances that could
affect the demand for our products.

Risks Related to Our Stock

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

Since
our stock began trading 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.            

14

---



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

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

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

Zunicom
directly owns 41% of our outstanding common stock. William Tan, our chairman,
is also the chairman of Zunicom. Ian Edmonds, our chief operating officer,
acting chief executive officer, acting 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; 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.

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

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

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

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

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

Our
amended and restated articles of incorporation and bylaws and the corporate
laws of the State of Texas include provisions designed to provide the Board
with time to consider whether a hostile takeover offer is in our and
shareholders best interests, but could be utilized by the Board to deter a
transaction that would provide shareholders

15

---



with a premium
over the market price of our shares. These provisions include the availability
of authorized but unissued shares of common stock for issuance from time to
time at the discretion of the Board; the availability of authorized shares of
preferred stock, the number of which to be issued from time to time and their
terms and conditions being solely in the discretion of the Board; bylaws
provisions enabling the Board to increase the size of the board and to fill the
vacancies created by the increase; and bylaw provisions establishing advance
notice procedures with regard to business to be presented at shareholder
meetings or to director nominations (other than those by or at the direction of
the Board). The Texas Business 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, and we do not intend to declare or
pay any cash dividends in the foreseeable future. Future payment of cash
dividends will be at the discretion of our board of directors after taking into
account many factors, including our operating results, financial condition and
capital requirements.

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

None.

|        |                           
|------- | --------------------------
|ITEM 2. | DESCRIPTION
 OF 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 2008 and 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, 2009. 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.

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

Energizer
Holdings, Inc. and Eveready Battery Company, Inc. (collectively Eveready)
have initiated legal proceedings against us and over 20 other respondents
relating to the manufacture, importation and sale of certain alkaline batteries
alleged to infringe U.S. Patent No. 5,464,709. Eveready is seeking a general
exclusion order with respect to future importation of these batteries. We
denied infringement and have been vigorously defending this action. The
International Trade Commission ruled against Eveready and Eveready then
appealed to the United States Court of Appeals for the Federal Circuit. On
January 25, 2006, in the Federal Circuit reversed the Commissions holding of
invalidity and remanded for further proceedings based on its construction of
Evereadys patent. On February 23, 2007, the International Trade Commission
again ruled that Evereadys patent was invalid and terminated the
investigation. Eveready appealed that decision to the Federal Circuit where
oral arguments were heard on November 5, 2007. On April 21, 2008 a three judge
panel of the Federal Circuit Court affirmed the International Trade
Commissions ruling of invalidity. On June 5, 2008 Eveready filed a Petition
for Rehearing and an En Banc Petition (both of which have since been denied).
On February 11, 2009, Eveready filed a Petition for Writ of Certiorari with the
United States Supreme Court, which is currently pending. For more
information, see In re Certain Zero-Mercury-Added Alkaline Batteries, Parts
Thereof and Products Containing Same, Investigation No. 337-TA-493, in the
United States International Trade Commission. On March 23, 2009 Energizers
petition for certiorari was denied by the U.S. Supreme Court.

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

None.

16

---



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 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 | 
|                 |  |              |      |     |   |      | 
|Fiscal year
2007 |  |              |      |     |   |      | 
|First
 Quarter   |  | $            | 7.10 |     | $ | 3.96 | 
|Second
 Quarter  |  | $            | 5.40 |     | $ | 4.05 | 
|Third Quarter    |  | $            | 5.00 |     | $ | 3.99 | 
|Fourth
 Quarter  |  | $            | 5.05 |     | $ | 3.77 | 

On
March 20, 2009, the closing price of our common stock was $1.40.

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

As
of March 20, 2009, the Company had 5,000,000 shares of common stock issued and
outstanding held by approximately 527 shareholders of record.

Use of Proceeds from Registered Securities
and Other Information

Our
IPO was declared effective on December 20, 2006. In the offering, we received
net proceeds of approximately $11.8 million. Initially, the IPO proceeds were
used to pay down the balance on our credit facility, which allowed us to increase
our inventory purchases. In addition, we have allocated the IPO proceeds as
follows:

| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | $1.4 million to develop
 and implement our new warehouse management system;
| |   |                                                                            
| |  | $0.3 million to establish
 a new distribution center in Columbus, Georgia; 
| |   |                                                                            
| |  | $0.1 million to establish
 a new distribution center in Las Vegas, Nevada; 
| |   |                                                                            
| |  | $0.3 million in connection
 with new product development;                  
| |   |                                                                            
| |  | $1.0 million to purchase
 the Monarch assets.                              

We
have not used any of the IPO proceeds to make direct or indirect payments to
any directors or officers.

|        |                                     
|------- | ------------------------------------
|ITEM 6. | SELECTED 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

The
year 2008 marked our second full year as a publicly traded company. Consistent
with our operating history, we continued to grow our business in the rapidly
expanding battery and supply chain management industries. Overall, our 8.6%
revenue growth compared to 2007 was accomplished by increasing our penetration
of new and existing customer accounts and diversifying our product mix.

For
the full-year 2008, our revenues increased to $117.9 million, up $9.4 million,
or 8.6%, from $108.5 million for 2007. Our operating income decreased to $3.2
million in 2008, down $1.0 million from $4.2 million in 2007. Our net income
decreased to $1.2 million in 2008, down $1.0 million from $2.2 million in 2007.

Our
2008 revenues from sources other than Brinks Home Security and its authorized
dealers rose 21.0% to $64.8 million from $53.6 million for 2007, reflecting
growth of new and existing customer accounts and improved product mix. Growth
in our higher margin business for 2008 was driven approximately 38% by volume
and 62% by price increases. Revenues from Brinks Home Security and its
authorized dealers decreased to $53.1 million, down 3.4% compared to $55.0
million for 2007. We believe this decrease primarily reflects slower growth in
the residential housing market.

Gross
margin improved as a percentage of revenues for the year ended December 31,
2008 to 15.5% compared to 14.7% for the comparable period in 2007 due primarily
to an improved product mix.

We
believe the 21.0% revenue growth in 2008 over 2007 in our battery and related
power accessory business reflects more focused marketing efforts and increased
market penetration. We also 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.

While
2008s financial results were comparatively strong, the year was not without
its challenges. Throughout the full year, we faced higher raw material costs as
prices of lead, copper and zinc reached new levels. Sales to Brinks Home
Security and its authorized dealers was down 3.4% in 2008, offset by continued
growth and strength of our battery and related power accessory business. Our
business has also been impacted by the severest recession to hit the U.S.
economy in over a generation. Despite these challenges, we are on financially
sound footing with a strong balance sheet and line of credit to provide the
resources for continued growth.

17

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In
    December 2008, Roger Tannery, our chief financial officer, resigned and in
    January 2009 we entered into a  separation agreement with Randy Hardin who
    had served as our chief executive officer since 1992. Ian Edmonds, our executive
    vice president and chief operating officer, was appointed  to fill both positions
    on an interim basis. In the fourth quarter of 2008, we expensed $147,000
    in connection with Mr. Tannerys
resignation. The total payments due to or for the benefit of Mr. Hardin under
his separation agreement total approximately $513,000, payable over a two-year
    period, will be expensed in the first quarter of 2009. In March 2009 we entered
    into an agreement canceling the arrangement we had with our primary independent
    sourcing agent. The total payments due to our former independent sourcing
    agent under this cancellation agreement total $2.565 million, payable over
    a three-year period, of which $469,000 was expensed in 2008 and approximately
    $2.1 million will be expensed in the first quarter of 2009.

We
remain cautiously optimistic and opportunistic about 2009. Our core business,
though growing slower than we anticipated, is strong despite the recession. 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.

In
January 2009, we completed the acquisition of the assets and hunting product
line, including all tangible and intangible property related thereto, marketed
under the tradename Monarch. The high-quality Monarch product line is a
strategic extension of both our existing outdoor product line and customer
base. We plan to leverage our global network of suppliers and expertise in
supply chain logistics to reduce manufacturing and other supply chain costs for
the acquired product line.

We
are cautiously and diligently evaluating markets and acquisition opportunities
that will facilitate reaching our strategic objectives. We remain conservative
on this front due to the economic climate. However, we believe that the current
recession and the associated deterioration in stock values and market prices
has created growth opportunities. We believe that with our strong balance
sheet, a relatively healthy core business and unused capacity under our banking
facility, 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.

Results of Operations Year Ended December 31,
2008 Compared to December 31, 2007

Revenues

Net
revenues for the year ended December 31, 2008 were $117.9 million compared to
net revenues of $108.5 million for the similar period in 2007, an increase of
$9.4 million, or 8.6%. Revenues from Brinks Home Security and its authorized
dealers, was $53.1 million compared to $55.0 million in the 2007 period, a
decrease of $1.8 million, or 3.3%. As most of our Brinks Home 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 for certain security products. Revenues from batteries
and related power accessories increased $11.2 million to approximately $64.8
million in 2008 from $53.6 million in 2007, or 21.0%. We attribute this
increase to a more focused marketing effort to existing and new accounts.

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 $99.6
million for the year ended December 31, 2008, compared to $92.5 million in the
comparable 2007 period, an increase of $7.1 million, or 7.6%. Cost of sales as
a percentage of sales decreased to 84.5% in the 2008 period from 85.3% for the
comparable 2007 period. This cost decrease was attributable to higher margins
on batteries and related power accessories but offset by lower margins earned
on sales to Brinks Home Security and its authorized dealers. Our overall gross
margin for the year ended December 31, 2008, was approximately 15.5% compared
to a gross margin of 14.7% for the comparable period in 2007.

Operating expenses

Selling,
general and administrative expenses increased approximately $3.3 million or
28.1% to approximately $15.1 million from $11.8 million for the similar period
in 2007. Of this increase, approximate amounts totaling $1.0 million was
attributable to bad debts, $0.8 million was attributable to compensation and
other employee related expenses, including the amount payable to our former
chief financial officer under his separation agreement, $0.7 million for
additional facilities costs including the transition to a larger warehouse
facility, $0.4 million for sales-related costs including marketing, travel and
trade show participation, and general corporate expenses of $0.4 million.

Interest expense

Our
interest expense totaled $1.0 million for the year ended December 31, 2008
compared to $1.2 million for the year ended December 31, 2007, a decrease of
$0.2 million, or 16.1%. The decrease is due to a decrease in the interest rate
on the portion of our outstanding borrowings under our bank line of credit that
were not hedged under our swap agreement. For the year ended December 31, 2008
the average outstanding loan balance on our line of credit was $11.3 million,
compared to $10.0 million for the year ended December 31, 2007.

Liquidity

We
had cash and cash equivalents of $0.3 million and $0.7 million at December 31,
2008 and 2007, respectively.

18

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Net
cash provided by operating activities was $0.6 million through December 2008
compared to cash used in operations of $9.1 million for 2007.

Cash
used in investing activities was $1.8 million through December 2008 compared to
$1.4 million for 2007. The cash used in 2008 was used for the purchase of
property and equipment totaling $0.9 million and restricted cash deposited in
escrow totaling $0.9 million under the Monarch asset purchase agreement. The
cash used in 2007 was used for the purchase of property and equipment.

Net
cash provided by financing activities during 2008 was $0.8 million compared to
$1.8 million used by financing activities for 2007. 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. The net
cash used in 2007 was related to $1.7 million in net borrowings under our line
of credit.

We
have a $30 million line of credit with Compass Bank, which matures on July 5,
2012. This credit facility bears interest at LIBOR Index Rate plus a sliding
range from 1.25% to 2.50% based on quarterly covenant performance. At December
31, 2008 that rate was 2.58%. In June, 2008 we entered into an interest rate
swap agreement which locks-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
through its maturity date of July 5, 2012. The interest rate swap is accounted
for as an effective cash flow hedge and the unrealized gains or losses related
to the change in fair value is recorded in accumulated other comprehensive income
(loss). The line of credit is due on demand and is secured by accounts
receivable, inventories and equipment. The lines availability is based
on a borrowing formula, which allows for borrowings equal to 85% of our eligible
accounts receivable and a percentage of eligible inventory. In addition, we
must maintain certain financial covenants including ratios on funded debt to
EBITDA, as well as a fixed charge ratio. At December 31, 2008, approximately
$14.4 million was outstanding under the line of credit and approximately $7
million remained available for borrowings under the line of credit based on the
borrowing formula.

As
    of December 31, 2008, we were in default of the loan agreement with Compass
    as a result of our failure to satisfy certain financial and non-financial
    covenants. We also expect that we will be in default for the quarter ending
    March 31, 2009 as a result of our failure to satisfy certain financial covenants.
     This latter failure is attributable to the fact that we will incur charges
    of approximately $2.6 million in the first quarter of 2009 relating to the
    separation agreements that we entered  into with our former chief executive
    officer and independent sourcing agent (see Note L) in the first quarter
    of 2009. The bank has waived the events of default that existed at December
    31, 2008 and those that we believe exist with respect to the quarter ended
    March 31, 2009. In addition, the bank intends to modify the relevant covenants
    such that we may be in compliance commencing with the quarter ending June
    30, 2009.

Capital Resources

At
December 31, 2008 we did not have any material commitments for capital
expenditures. We may enter into various commitments during 2009 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.

Contractual Obligations

The
following table summarizes the amounts of payments due under specified
contractual obligations at December 31, 2008.

|                         |  |                        |           |                   |   |           |  |           |           |                    |   |        |  |   |   | 
|------------------------ |  | ---------------------- | --------- | ----------------- | - | --------- |  | --------- | --------- | ------------------ | - | ------ |  | - | - | 
|                         |  | Payments Due by Period |          
|                         |  |                        |          
|Contractual
 Obligations |  | Total                  |           | Less Than
 1 Year |   | 1-3 Years |  | 3-5 Years |           | More Than
 5 Years |  
|                         |  |                        |           |                   |   |           |  |           |           |                    |  
|Long-Term Debt           |  | $                      | 5,118,750 |                   | $ | 1,462,500 |  | $         | 3,656,250 |                    | $ |       |  | $ |  | 
|Facilities Leases        |  |                        | 2,657,261 |                   |   | 654,501   |  |           | 2,002,760 |                    |   |       |  |   |  | 
|Equipment Leases         |  |                        | 533,811   |                   |   | 178,180   |  |           | 319,679   |                    |   | 35,952 |  |   |  | 
|Separation Agreement     |  |                        | 147,000   |                   |   | 147,000   |  |           |          |                    |   |       |  |   |  | 
|                         |  |                        |           |                   |   |           |  |           |           |                    |   |        |  |   |   | 
|Total                    |  | $                      | 8,456,822 |                   | $ | 2,442,181 |  | $         | 5,978,689 |                    | $ | 35,952 |  | $ |  | 
|                         |  |                        |           |                   |   |           |  |           |           |                    |   |        |  |   |   | 

In
2006, we issued two notes to our former parent, Zunicom. These obligations are
reflected in the table above as Long-Term Debt. One note, in the original
principal amount of $3 million, represented the final dividend prior to our
IPO. The second note, in the original principal amount of $2.85 million,
represented 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. Both notes bear
interest at 6%, require quarterly payments of interest and principal beginning
September 20, 2008 and mature on June 30, 2012. The aggregate balance due on
the notes as of December 31, 2008 was $5.1 million.

In
December 2008 we entered into a separation agreement with our former chief
financial officer. Under the agreement, we are obligated to make payments
aggregating approximately $147,000 over a twelve month period ending December
2009, which includes the premiums payable to our health insurance carrier for
as long as he is entitled to maintain such insurance under COBRA.

The
table above does not include payments due to Randy Hardin under his Separation
Agreement or to our former independent sourcing agent, under his cancellation
agreement. Both of those agreements were entered into in 2009. Mr. Hardin will
receive aggregate payments of approximately $513,000 over a two-year period,
which includes health insurance costs over that period. The former sourcing
agent will receive aggregate payments of $2.565 million over a three year
period, including $469,000 which was accrued in 2008.

19

---



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 in accordance with Staff Accounting Bulletin No. 104 when
persuasive evidence of an arrangement exists, delivery has occurred, the price
is fixed and determinable and collectibility 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. We
also have an inventory fulfillment agreement with Brinks Home Security. We
purchase, handle, assemble and deliver security and installation components to
Brinks Home Security and to its authorized dealers. Revenues from drop shipment
transactions and pursuant to the Brinks Home Security agreement, are
recognized on a gross basis at the time the customer takes title to the
product, based on our analysis of the criteria defined in Emerging Issues Task
Force Issue No. 99-19 for gross revenue reporting. Specifically, (i) we are the
primary obligor; (ii) we have general and physical loss inventory risk; (iii)
we have credit risk; (iv) in most cases, we have discretion in supplier
selection and product specifications; and (v) we have reasonable latitude
within economic constraints to negotiate prices and terms with our customers.

Income Taxes

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

We
utilize the asset and liability approach to accounting and reporting for income
taxes in accordance with SFAS No. 109, Accounting 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.

We
use an estimate of our annual income tax rate to recognize a provision for
income taxes in financial statements for interim periods. However, changes in
facts and circumstances could result in adjustments to our effective tax rate
in future quarterly or annual periods.

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 collectibility of specific customer
accounts: customer credit-worthiness, past transaction history with the
customer, current economic industry trends and changes in customer payment
terms. If the financial condition of our customers were to deteriorate,
adversely affecting their ability to make 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 the Company has 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 the provisions of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (FAS 123(R)), which
requires the recognition of the fair value of stock-based compensation. Under
the fair value recognition provisions for FAS 123(R), stock-based compensation
cost is estimated at the grant date

20

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based on the
fair vlaue of the awards expected to vest and recognized as expense ratably
over the requisite service period of the award. We have used the Black-Scholes
valuation model to estimate fair value of our stock-based awards, 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

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No.
133 (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial
reporting. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. SFAS No. 161 encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. Management is
currently evaluating the effects of SFAS No. 161, but the standard is not
expected to have a material impact on the Companys financial statements.

On
January 1, 2008 we adopted SFAS No. 157, Fair Value Measurements. (SFAS
No. 157) which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing
a fair value hierarchy used to classify the source of the information. On
December 14, 2007, the FASB issued FSP FAS 157-b which would delay the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). This proposed
FSP partially defers the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal
years for items within the scope of this FSP. The adoption of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities is not expected to have a
material impact on the Companys financial position, results of operations
or cash flows.

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)),
which replaces SFAS 141. The provisions of SFAS No. 141(R) are similar
to those of SFAS No. 141; however, SFAS No. 141(R) requires companies to
record most identifiable assets, liabilities, noncontrolling interests and goodwill
acquired in a business combination at full fair value. SFAS No.
141(R) also requires companies to record fair value estimates of contingent
consideration and certain other potential liabilities during the original
purchase price allocation and to expense acquisition costs as incurred. This
statement applies to all business combinations, including combinations by
contract alone. Further, under SFAS No. 141(R), all business combinations
will be accounted for by applying the acquisition method. SFAS No. 141(R)
is effective for fiscal years beginning on or after December 15, 2008. The
Company will apply the provisions of SFAS No. 141(R) to business
combinations after December 31, 2008.

|         |                                                           
|-------- | ----------------------------------------------------------
|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, 2008. 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, 2008, 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

21

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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.

|         |                  
|-------- | -----------------
|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,
2009, are as follows:

|                       |  |     |  |                                                                                                                                            
|---------------------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|Name                   |  | Age |  | Positions                                                                                                                                  
|                       |  |     |  |                                                                                                                                            
|                       |  |     |  |                                                                                                                                            
|Ian Colin
 Edmonds (1) |  | 37  |  | Executive
 Vice President, Chief Operating Officer, Interim Chief Executive Officer,
 President and Chief Financial Officer
 and a Director
|Mimi Tan               |  | 35  |  | Senior Vice
 President Business Development and Marketing and Corporate Secretary                                                          
|Julie Sansom-Reese     |  | 46  |  | Senior Vice
 President of Finance and Treasurer                                                                                            
|Ramin Salehi           |  | 35  |  | Senior Vice
 President of Supply Chain and
 Information Technology                                                                         
|William Tan            |  | 65  |  | Chairman of
 the Board                                                                                                                     
|William
 Bailey        |  | 48  |  | Director                                                                                                                                   
|Leslie
 Bernhard       |  | 64  |  | Director                                                                                                                                   
|Bert Calvert           |  | 55  |  | Director                                                                                                                                   
|Robert M.
 Gutkowski   |  | 60  |  | Director                                                                                                                                   

|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Appointed
 Interim Chief Financial Officer as of December 12, 2008 upon resignation of
 Roger Tannery. Appointed Interim Chief Executive Officer and Interim
 President on January 21, 2009 upon resignation of Randy Hardin.

IAN
COLIN EDMONDS has been a director since January 1999, our chief operating
officer since May 2002, our executive vice president since October 2006, our
interim chief financial officer since December 12, 2008 and our interim chief
executive officer and interim president since January 21, 2009. He is
responsible for overall operations, corporate finance, M&A and planning
activities and risk management. Mr. Edmonds serves as a director of Zunicom 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. 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.

22

---



WILLIAM
H. BAILEY became a director in August 2008. He has been Managing Partner of the
CPA firm of Bailey, Smith & Sorrells, LLP and the law firm of Bailey &
Smith, PLLC, where he has dual practices in public accounting and law. Since
2005, he has been engaged in broad accounting and tax matters including mergers
and acquisitions for a wide variety of corporate, partnership and estate
clients. From 1987 until 2005, Mr. Bailey was employed by TXU Corporation and
served in both accounting and legal counsel roles with emphasis on planning,
compliance, acquisitions and dispositions, reorganization and restructuring
including SEC tax reporting and compliance as well as internal and external
auditing. Mr. Bailey has a Bachelor of Science in accounting and economics from
Southeastern Oklahoma State University (with honors), holds a Juris Doctorate
from Texas Wesleyan University School of Law and is a Certified Public
Accountant in the State of Texas.

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.

BERT
CALVERT became a director in August 2008. He has been the Vice President and
Chief Operating Officer of J-COR Enterprises, Inc. / Elite Realty Group of
Texas, a residential, commercial and property management firm, since January,
2007. He has also been a member of the Board of Directors of J-COR Enterprises
since July, 1987. Mr. Calvert is also President of Lagniappe Development, Inc.,
a property development company, since July 2006. From 1985 through
2006, he was the owner of Calvert Development Company, a residential and
commercial building and development company based in Midlothian, Texas.

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 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.

Board Composition

Our
Board currently consists of seven 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.

Director Independence

A
majority of our Board is independent, as required by and as defined in Section
803(A) of the NYSE Amex listing standards. We believe that Messrs. Bailey,
Calvert and Gutkowski and Ms. Bernhard 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, our 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 our Board. To that end, for the fiscal year ended 2008,
our 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 seven times during 2008. A majority of the directors attended all of
the meetings of the Board. All persons who were directors during 2008 attended
at least 75% of these meetings. Absent special circumstance, each director is
expected to attend the annual meeting of shareholders.

Committees Established by the Board

The
Board has established three standing committees: an Audit Committee, a
Compensation Committee and a Corporate Governance and Nominating Committee.
Each committee is made up entirely of independent directors.

|                     |  |                  |  |                         |  |                                                
|-------------------- |  | ---------------- |  | ----------------------- |  | -----------------------------------------------
|Name                 |  | Audit
 Committee |  | Compensation
 Committee |  | Corporate
 Governance and
 Nominating Committee
|                     |  |                  |  |                         |  |                                                
|William H.
 Bailey   |  | Chairperson      |  |                         |  | *                                              
|Leslie
 Bernhard     |  | *                |  | Chairperson             |  | *                                              
|Robert M.
 Gutkowski |  | *                |  | *                       |  | Chairperson                                    
|Bert Calvert         |  |                  |  | *                       |  |                                                

|                   
|-------------------
|                   
|* indicates
 member

23

---



Audit
Committee. The Audit Committee members consist of William H. Bailey,
who serves as chairperson, Leslie Bernhard and Robert M. Gutkowski. The Board
has determined that William H. Bailey 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;                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 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, as chairperson, Robert M. Gutkowski and Bert
 Calvert. 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 Robert M. Gutkowski, as chairperson, William
 H. Bailey and Leslie Bernhard. 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 our 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 our 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 serve 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
our 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, 2008, there have been no untimely filings of such
required forms.

24

---



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

Summary
of Compensation

The
following table sets forth certain information with respect to compensation for
the year ended December 31, 2008 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.

Under
the SFAS No. 123(R), we recorded compensation expense in our Financial
Statements for the year ended December 31, 2008 with respect to the awards
included in this table since the awards were effective and fully vested at the
end of 2008.

Summary Compensation Table

|                           |  |      |  |           |  |               |     |                  |       |                            |  |          |     |  |         | 
|-------------------------- |  | ---- |  | --------- |  | ------------- | --- | ---------------- | ----- | -------------------------- |  | -------- | --- |  | ------- | 
|Name
 & Principal Position |  | Year |  | Salary($) |  | Cash Bonus($) |     | Option Awards($) |       | All Other
 Compensation($) |  | Total($) |    
|                           |  |      |  |           |  |               |     |                  |       |                            |  |          |    
|Randy Hardin
 (1)          |  | 2008 |  | 242,000   |  | 178,707       |     |                  | 0     |                            |  | 36,229   | (4) |  | 456,936 | 
|President
 and CEO         |  | 2007 |  | 220,000   |  | 424,870       | (2) |                  | 0     |                            |  | 35,995   | (4) |  | 680,864 | 
|                           |  |      |  |           |  |               |     |                  |       |                            |  |          |     |  |         | 
|Ian Edmonds                |  | 2008 |  | 214,500   |  | 58,000        |     |                  | 0     |                            |  | 30,519   | (4) |  | 303,019 | 
|EVP &
 COO                 |  | 2007 |  | 195,000   |  | 64,000        |     |                  | 0     |                            |  | 28,604   | (4) |  | 287,604 | 
|                           |  |      |  |           |  |               |     |                  |       |                            |  |          |     |  |         | 
|Mimi Tan                   |  | 2008 |  | 166,113   |  | 46,000        |     |                  | 0     |                            |  | 5,628    | (5) |  | 222,431 | 
|SVP Business               |  | 2007 |  | 161,200   |  | 41,000        |     |                  | 2,602 | (3)                        |  | 5,463    | (5) |  | 220,453 | 
|Development
 & Marketing   |  |      |  |           |  |               |     |                  |       |                            |  |          |     |  |         | 




|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(1) | Resigned on
 January 21, 2009                                                          
|    |                                                                                        
|(2) | Of this amount,
 $202,489 was paid in 2007 and the balance, $222,381, was paid in 2008.
|    |                                                                                        
|(3) | Option award
 expense as calculated by SFAS No. 123(R).                                
|    |                                                                                        
|(4) | Car lease,
 medical insurance and long-term disability insurance payments.             
|    |                                                                                        
|(5) | Medical
 insurance and long-term disability insurance payments.                        

Employment Agreements and
Arrangements

In
December 2006 we entered into a three-year employment contract with Randy
Hardin under which he served as former president and chief executive officer.
Under that agreement, we agreed to pay Mr. Hardin, in addition to benefits
generally available to all other executives of the company, a base salary plus
an annual bonus equal to 10% of our audited pre-tax net income as adjusted
provided that our pre-tax net income exceeded a targeted amount established by
the Board. The employment agreement also provided for a grant of options to
acquire 475,000 shares of our common stock at the IPO price ($7.00 per share)
and the use of a company-leased vehicle.

On
January 21, 2009 we entered into a Separation Agreement with Mr. Hardin under
which his employment agreement was terminated. Under the Separation Agreement,
we agreed to continue to pay Mr. 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
we paid for such insurance immediately prior to the termination of his
employment agreement. Mr. Hardin agreed that he will not during the Restricted
Period (i) compete with us in any of our lines of business including our
battery and related power accessory business and our third party logistics
business; (ii) solicit or hire any of our employees; or (iii) encourage any person
or entity that has an existing business relationship with us to curtail or
cancel its relationship with us. In addition, Mr. Hardin agreed not to disclose
any of our confidential or proprietary information.

In
December 2006 we entered into a three-year employment contract with Ian
Edmonds under which he serves as our executive vice-president and chief
operating officer. Under the agreement, Mr. Edmonds received, in addition to
benefits generally available to all other employees, an annual base salary, an
annual bonus based on company performance and his individual performance that
is completely at the discretion of the Board, an initial grant of options to
acquire 356,250 shares of our common stock and the use of a company leased
vehicle.

In
December 2006 we entered into a three-year employment contract with Mimi Tan
under which she serves as our senior vice-president of business development and
marketing and corporate secretary. Under the agreement, Ms. Tan received, in
addition to benefits generally available to all other employees, an annual base
salary and an annual bonus based on company performance and her individual
performance that is completely at the discretion of the Board.

Outstanding Equity Awards

The
following table sets forth certain information with respect to outstanding
equity awards at December 31, 2008 with respect to the Named Executive
Officers. At December 31, 2008, there were no unvested stock awards.

Outstanding Equity Awards at Fiscal Year-End

|                                                                   |  |                                                                 |     |                          |      |                         |  |            | 
|------------------------------------------------------------------ |  | --------------------------------------------------------------- | --- | ------------------------ | ---- | ----------------------- |  | ---------- | 
|Option Awards                                                     
|                                                                  
|Name                                                               |  | Number of SecuritiesUnderlyingUnexercised Options(#)Exercisable |     | Option Exercise Price($) |      | Option Expiration
 Date | 
|                                                                   |  |                                                                 |     |                          |      |                         | 
|Randy Hardin
 (1)                                                  |  |                                                                 |     |                          |      |                         |  |            | 
|President
 & CEO                                                   |  | 475,000                                                         | (2) |                          | 7.00 |                         |  | 12/19/2016 | 
|                                                                   |  |                                                                 |     |                          |      |                         |  |            | 
|Ian Edmonds                                                        |  |                                                                 |     |                          |      |                         |  |            | 
|EVP, COO                                                           |  | 356,250                                                         | (2) |                          | 7.00 |                         |  | 12/19/2016 | 
|                                                                   |  |                                                                 |     |                          |      |                         |  |            | 
|Mimi Tan                                                           |  |                                                                 |     |                          |      |                         |  |            | 
|Sr. V.P. of
 Business Development
 & Marketing and Corp. Secretary |  | 7,000                                                           | (3) |                          | 7.00 |                         |  | 12/19/2016 | 




|    |                                                
|--- | -----------------------------------------------
|(1) | Resigned
 effective January 21,2009.           
|    |                                                
|(2) | Options are
 fully vested at December 31, 2006.
|    |                                                
|(3) | Options are
 fully vested at December 31, 2007.

25

---



Compensation of Directors

| |                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our
 independent directors receive the following compensation:
| |                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                 | An annual
 retainer fee of $10,000;                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                 | $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, 2008.

|                     |  |                            |        |                 |   |                       |     |       |        |        |  |       
|-------------------- |  | -------------------------- | ------ | --------------- | - | --------------------- | --- | ----- | ------ | ------ |  | ------
|Name                 |  | Fees Earned orPaid in Cash |        | OptionAwards(1) |   | All OtherCompensation |     | Total |       
|                     |  |                            |        |                 |   |                       |     |       |       
|William Tan          |  | $                          |       |                 | $ |                      |     | $     | 5,473  | (2)    |  | 5,473 
|Leslie
 Bernhard     |  |                            | 14,925 |                 |   | 9,198                 | (1) |       | 25,000 | (3)    |  | 49,123
|William
 Bailey      |  |                            | 6,290  |                 |   | 9,198                 | (1) |       |       |        |  | 15,488
|Bert Calvert         |  |                            | 5,100  |                 |   | 9,198                 | (1) |       |       |        |  | 14,298
|Robert M.
 Gutkowski |  |                            | 14,925 |                 |   | 9,198                 | (1) |       | 15,665 | (2)    |  | 39,789
|Marvin Haas
 (4)     |  |                            | 8,641  |                 |   | 5,749                 | (6) |       |       |        |  | 14,390
|Garland
 Asher (4)   |  |                            | 14,000 |                 |   | 9,198                 | (1) |       | 13,048 | (2)(5) |  | 36,247




|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | 2008 expense
 as calculated by SFAS No. 123(R) for a stock option grant covering 10,000
 shares of our common stock. 
|    |                                                                                                                      
|(2) | Includes
 medical insurance through company plans.                                                                   
|    |                                                                                                                      
|(3) | Services as
 chairman of our Boards Sourcing Committee.                                                             
|    |                                                                                                                      
|(4) | Retired from
 our Board on August 2008. Received an option grant in connection with his
 retirement.                 
|    |                                                                                                                      
|(5) | Paid one
 time consulting fee                                                                                        
|    |                                                                                                                      
|(6) | 2008 expense
 as calculated by SFAS No. 123(R) for the stock option grant covering 6,250
 shares of our common stock.

26

---



|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|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 20, 2009 (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                                                    |  | 20,000                                         | (6) |                         |      | * | 
|Robert M. Gutkowski                                                |  | 20,000                                         | (6) |                         |      | * | 
|William Bailey                                                     |  | 10,000                                         | (6) |                         |      | * | 
|Bert Calvert                                                       |  | 10,000                                         | (6) |                         |      | * | 
|All Directors and Named
 Executive Officers as a group (7 persons) |  | 2,829,370                                      | (7) |                         | 49.0 | % | 
|                                                                   |  |                                                |     |                         |      |   | 
|5%
 Shareholders                                                   |  |                                                |     |                         |      |   | 
|                                                                   |  |                                                |     |                         |      |   | 
|Zunicom, Inc.                                                      |  | 2,048,870                                      |     |                         | 41.0 | % | 
|4315 W. Lovers Lane                                                |  |                                                |     |                         |      |   | 
|Dallas, TX 75209                                                   |  |                                                |     |                         |      |   | 
|                                                                   |  |                                                |     |                         |      |   | 
|Randy Hardin                                                       |  | 475,000                                        | (8) |                         | 8.7  | % | 
|370 Town East Blvd                                                 |  |                                                |     |                         |      |   | 
|Sunnyvale, TX 75182                                                |  |                                                |     |                         |      |   | 
|                                                                   |  |                                                |     |                         |      |   | 
|Wilen Management Co. Inc                                           |  | 690,074                                        |     |                         | 13.9 | % | 
|2360 W Jopa Rd, Ste 226                                            |  |                                                |     |                         |      |   | 
|Lutherville, MD 21093                                              |  |                                                |     |                         |      |   | 
|                                                                   |  |                                                |     |                         |      |   | 
|Julian Tymczysz                                                    |  | 268,488                                        |     |                         | 5.4  | % | 
|11 King George St.                                                 |  |                                                |     |                         |      |   | 
|Greenwich, London SE10                                             |  |                                                |     |                         |      |   | 
|United Kingdom                                                     |  |                                                |     |                         |      |   | 




|    |                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Less than
 1.0%.                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(1) | Unless indicated otherwise,
 all addresses 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.                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(3) | Percent of Class is based
 on the 5,000,000 shares outstanding as of March 20, 2009. 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 20, 2009, 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.

27

---



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, 2008. 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 beissued upon exercise ofOutstanding options,warrants and rights(a) |  | Weighted-averageexercise price ofoutstanding options,warrants and rights(b) |   | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column (a))(c) | 
|                                                           |  |                                                                                             |  |                                                                             |   |                                                                                                                                           | 
|Equity Compensation Plans Approved By Security Holders     |  |                                                                                             |  |                                                                             |   |                                                                                                                                           |  |      |  |                |  | 
|                                                           |  |                                                                                             |  |                                                                             |   |                                                                                                                                           |  |      |  |                |  | 
|Grants under
 the 2006 Stock Option Plan                   |  | 1,336,114                                                                                   |  |                                                                             | $ |                                                                                                                                           |  | 6.79 |  | 663,886        |  | 
|                                                           |  |                                                                                             |  |                                                                             |   |                                                                                                                                           |  |      |  |                |  | 
|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                                                      |  | 1,656,114                                                                                   |  |                                                                             | $ |                                                                                                                                           |  | 7.08 |  | 663,886        |  | 

---

|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2008 through December 31, 2008 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
 unamortized balance at December 31, 2008 was $2.625 million.                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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
 unamortized balance at December 31, 2008 was $2.494 million.

On
December 12, 2008, Roger Tannery, resigned from his position as our chief
financial officer and Ian Edmonds was appointed interim chief financial
officer. We entered into a separation agreement with the following terms (i) he
will provide consulting services to us on an as-needed basis, (ii) he releases
us from any and all claims, (iii) he will not solicit any of our employees or
customers through December 2009, (iv) we will pay him an aggregate of
approximately $147,000 through December 2009; and (v) we will continue to
provide him with health insurance coverage for as long as he is eligible to
participate in our health insurance plan under COBRA.

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 KBA Group LLP for the audit of the
financial statements and for the reviews of our Form 10-Q filings were
approximately $165,000 for 2008 and approximately $161,000 for 2007.

Audit-Related Fees.
None

Tax
Fees. Aggregate fees billed for permissible tax services rendered by KBA Group
LLP consisted of approximately $34,000 for 2008 and approximately $24,000 for
2007. 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 approximately $6,000 for
2008 and approximately $7,000 for 2007.

PART IV

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

| |     |    |                      
| | --- | -- | ---------------------
| | (a) | 1. | Financial Statements.

The
following financial statements of Universal Power Group, Inc. are submitted as
a separate section of this report (See F-pages) and are incorporated by
reference in Item 8:

| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | Report of
 Independent Registered Public Accounting Firm                                     
| |   |                                                                                              
| |  | Balance
 Sheets as of December 31, 2008 and 2007                                             
| |   |                                                                                              
| |  | Statements
 of Income for the years ended December 31, 2008 and 2007                         
| |   |                                                                                              
| |  | Statement of
 Changes in Shareholders Equity for the years ended December 31, 2008 and
 2007

28

---



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | Statements
 of Cash Flows for the years ended December 31, 2008 and 2007
| |   |                                                                         
| |  | Notes to
 Financial Statements                                          

| |     |          |                                                                  
| | --- | -------- | -----------------------------------------------------------------
| |     | 2.       | Financial Statement Schedules  See response to Item 15(c) below.
| |     |          |                                                                  
| |     | 3.       | Exhibits.  See response to Item 15(b) below.                    
| |     |          |                                                                  
| | (b) | Exhibits

|             |  |                                                                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                                                                                                  
|             |  |                                                                                                                                                                                              
|3(i)         |  | Amended and Restated
 Certificate of Formation (including Amended and Restated Articles of
 Incorporation) (1)                                                                               
|             |  |                                                                                                                                                                                              
|3(ii)        |  | Amended and Restated
 Bylaws (1)                                                                                                                                                             
|             |  |                                                                                                                                                                                              
|4.1          |  | Specimen stock certificate
 (1)                                                                                                                                                              
|             |  |                                                                                                                                                                                              
|4.2          |  | Form of representatives
 warrant (1)                                                                                                                                                        
|             |  |                                                                                                                                                                                              
|10.1(a)**    |  | Form of 2006 Stock Option
 Plan (1)                                                                                                                                                          
|             |  |                                                                                                                                                                                              
|10.1(b)      |  | Form of Stock Option
 Agreement (1)                                                                                                                                                          
|             |  |                                                                                                                                                                                              
|10.1(c)**    |  | Amendment to the 2006
 Stock Option Plan *                                                                                                                                                   
|             |  |                                                                                                                                                                                              
|10.2         |  | Separation Agreement
 between UPG and Randy Hardin(2)                                                                                                                                        
|             |  |                                                                                                                                                                                              
|10.3**       |  | Form of Ian Edmonds
 Employment Agreement (1)                                                                                                                                                
|             |  |                                                                                                                                                                                              
|10.4**       |  | Form of Mimi Tan
 Employment Agreement (1)                                                                                                                                                   
|             |  |                                                                                                                                                                                              
|10.5         |  | Amended and Restated
 Revolving Credit and Security Agreement with Compass Bank dated June 19, 2007
 (1)                                                                                     
|             |  |                                                                                                                                                                                              
|10.6         |  | Asset Purchase Agreement
 for Monarch Hunting Products dated September 19, 2008. (5)                                                                                                         
|             |  |                                                                                                                                                                                              
|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 a/b/a Import Consultants(3)                                                                                                                          
|             |  |                                                                                                                                                                                              
|10.11(a)     |  | Form of Promissory Note in
 the amount of $2,850,000 payable to Zunicom (1)                                                                                                                  
|             |  |                                                                                                                                                                                              
|10.11(b)     |  | Form of Promissory Note in
 the amount of $3,000,000 payable to Zunicom (1)                                                                                                                  
|             |  |                                                                                                                                                                                              
|10.13        |  | Third Party
 Logistics & Purchase Agreement, dated as of November 3, 2008, with Brinks
 Home Security, Inc. (4)                                                                              
|             |  |                                                                                                                                                                                              
|23.1         |  | Consent of KBA Group LLP *                                                                                                                                                                   
|             |  |                                                                                                                                                                                              
|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.                                                             
|    |                                                                                                                                                                         |                                     
|    | (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.

29

---



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, 2009        |                           
| |                              |                            | 
| | Universal
 Power Group, Inc. |                           
| |                              |                            | 
| | By:                          | /s/ Ian
 Edmonds           | 
| |                              |                            | 
| |                              | Ian Edmonds                | 
| |                              | Interim
 President and CEO | 

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

|                                            |  |                                                                                |  |                
|------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ---------------
|Signature                                   |  | Capacity                                                                       |  | Date           
|                                            |  |                                                                                |  |                
|                                           
|Principal
 Executive and Financial Officer: |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|/s/ Ian Edmonds                             |  | Interim
 Chief Executive Officer, Interim Chief Financial Officer and Director |  | March 31,
 2009
|                                            |  |                                                                                | 
|Ian Edmonds                                 |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|Directors:                                  |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|/s/ William Tan                             |  | Chairman of
 the Board                                                         |  | March 31,
 2009
|                                            |  |                                                                                |  |                
|William Tan                                 |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|/s/ William H. Bailey                       |  | Director                                                                       |  | March 31,
 2009
|                                            |  |                                                                                |  |                
|William H. Bailey                           |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|/s/ Bert Calvert                            |  | Director                                                                       |  | March 31,
 2009
|                                            |  |                                                                                |  |                
|Bert Calvert                                |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|/s/ Robert M. Gutkowski                     |  | Director                                                                       |  | March 31,
 2009
|                                            |  |                                                                                |  |                
|Robert M. Gutkowski                         |  |                                                                                |  |                
|                                            |  |                                                                                |  |                
|/s/ Leslie Bernhard                         |  | Director                                                                       |  | March 31,
 2009
|                                            |  |                                                                                |  |                
|Leslie Bernhard                             |  |                                                                                |  |                

30

---



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

DECEMBER 31, 2008

F-1

---



INDEX TO FINANCIAL STATEMENTS
UNIVERSAL POWER GROUP, INC.

|                                                                                             |  |      | 
|-------------------------------------------------------------------------------------------- |  | ---- | 
|                                                                                             |  | Page | 
|                                                                                             |  |      | 
|                                                                                             |  |      | 
|Report of Independent Registered Public Accounting Firm                                      |  | F-3  | 
|Balance Sheets at December 31, 2008 and 2007                                                 |  | F-4  | 
|Statements of Income for the years ended December 31, 2008 and 2007                          |  | F-6  | 
|Statement of Changes in Shareholders Equity for the years ended
 December 31, 2008 and 2007 |  | F-7  | 
|Statements of Cash Flows for the years ended December 31, 2008 and
 2007                     |  | F-8  | 
|Notes to Financial Statements                                                                |  | F-9  | 

F-2

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying balance sheets of Universal Power Group, Inc.
(the Company) as of December 31, 2008 and 2007 and the related statements of
income, changes in shareholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Universal Power Group, Inc., as of
December 31, 2008 and 2007, and the results of its operations and its cash
flows for each the years 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-3

---



UNIVERSAL POWER GROUP, INC.
BALANCE SHEETS
ASSETS

|                                                                                          |  |               |            |      |   |            |  
|----------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---- | - | ---------- | -
|                                                                                          |  | December
 31, |           
|                                                                                          |  |               |           
|                                                                                          |  | 2008          |            | 2007 |  
|                                                                                          |  |               |            |      |  
|CURRENT ASSETS                                                                            |  |               |            |      |   |            |  
|Cash and cash equivalents                                                                 |  | $             | 326,194    |      | $ | 691,288    |  
|Restricted cash                                                                           |  |               | 900,000    |      |   |           |  
|Accounts receivable:                                                                      |  |               |            |      |   |            |  
|Trade, net of allowance for doubtful
 accounts of $1,143,213 and $129,371                 |  |               | 12,423,279 |      |   | 12,593,430 |  
|Other                                                                                     |  |               | 50,303     |      |   | 149,262    |  
|Inventories  finished goods, net of
 allowance for obsolescence of $358,350 and $193,780 |  |               | 37,304,500 |      |   | 32,345,377 |  
|Current deferred tax asset                                                                |  |               | 1,555,173  |      |   | 983,114    |  
|Income tax receivable                                                                     |  |               | 193,386    |      |   |           |  
|Prepaid expenses and other current assets                                                 |  |               | 880,528    |      |   | 880,907    |  
|                                                                                          |  |               |            |      |   |            |  
|Total current assets                                                                      |  |               | 53,633,363 |      |   | 47,643,378 |  
|PROPERTY AND EQUIPMENT                                                                    |  |               |            |      |   |            |  
|Logistics and distribution systems                                                        |  |               | 1,795,935  |      |   | 1,417,269  |  
|Machinery and equipment                                                                   |  |               | 651,916    |      |   | 338,220    |  
|Furniture and fixtures                                                                    |  |               | 436,424    |      |   | 492,267    |  
|Leasehold improvements                                                                    |  |               | 388,334    |      |   | 272,096    |  
|Vehicles                                                                                  |  |               | 155,630    |      |   | 151,598    |  
|                                                                                          |  |               |            |      |   |            |  
|                                                                                          |  |               | 3,428,239  |      |   | 2,671,450  |  
|Less accumulated depreciation and
 amortization                                           |  |               | (1,407,712 | )    |   | (985,735   | )
|                                                                                          |  |               |            |      |   |            |  
|Net property and equipment                                                                |  |               | 2,020,527  |      |   | 1,685,715  |  
|OTHER ASSETS                                                                              |  |               | 86,879     |      |   | 81,459     |  
|                                                                                          |  |               |            |      |   |            |  
|TOTAL ASSETS                                                                              |  | $             | 55,740,769 |      | $ | 49,410,552 |  
|                                                                                          |  |               |            |      |   |            |  

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

F-4

---



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

|                                                                                                       |  |               |            |      |   |            | 
|------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | ---- | - | ---------- | 
|                                                                                                       |  | December
 31, |           
|                                                                                                       |  |               |           
|                                                                                                       |  | 2008          |            | 2007 |  
|                                                                                                       |  |               |            |      |  
|CURRENT LIABILITIES                                                                                    |  |               |            |      |   |            | 
|Line of credit                                                                                         |  | $             | 14,351,775 |      | $ | 12,833,031 | 
|Accounts payable                                                                                       |  |               | 16,418,768 |      |   | 12,257,350 | 
|Accrued liabilities                                                                                    |  |               | 200,100    |      |   | 537,248    | 
|Interest rate swap liability                                                                           |  |               | 484,131    |      |   |           | 
|Current portion of payable to Zunicom, Inc.                                                            |  |               | 1,462,500  |      |   | 731,250    | 
|Current portion of capital lease
 obligations                                                          |  |               |           |      |   | 6,609      | 
|Current portion of deferred rent                                                                       |  |               | 57,984     |      |   | 64,446     | 
|                                                                                                       |  |               |            |      |   |            | 
|Total current liabilities                                                                              |  |               | 32,975,258 |      |   | 26,429,934 | 
|NOTES PAYABLE TO ZUNICOM, INC, less
 current portion                                                   |  |               | 3,656,250  |      |   | 5,118,750  | 
|NON-CURRENT DEFERRED TAX LIABILITY                                                                     |  |               | 230,611    |      |   | 25,455     | 
|DEFERRED RENT, less current portion                                                                    |  |               | 168,317    |      |   | 180,776    | 
|                                                                                                       |  |               |            |      |   |            | 
|Total liabilities                                                                                      |  |               | 37,030,436 |      |   | 31,754,915 | 
|COMMITMENTS                                                                                            |  |               |            |      |   |            | 
|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                                                                             |  |               | 15,529,783 |      |   | 15,381,684 | 
|Retained earnings                                                                                      |  |               | 3,450,076  |      |   | 2,223,953  | 
|Accumulated other comprehensive loss                                                                   |  |               | (319,526   | )    |   |           | 
|                                                                                                       |  |               |            |      |   |            | 
|Total shareholders equity                                                                             |  |               | 18,710,333 |      |   | 17,655,637 | 
|                                                                                                       |  |               |            |      |   |            | 
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                             |  | $             | 55,740,769 |      | $ | 49,410,552 | 
|                                                                                                       |  |               |            |      |   |            | 

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

F-5

---



UNIVERSAL POWER GROUP, INC.
STATEMENTS OF INCOME

|                                                                     |  |               |             |      |   |             |  
|-------------------------------------------------------------------- |  | ------------- | ----------- | ---- | - | ----------- | -
|                                                                     |  | December
 31, |            
|                                                                     |  |               |            
|                                                                     |  | 2008          |             | 2007 |  
|                                                                     |  |               |             |      |  
|Net sales                                                            |  | $             | 117,897,644 |      | $ | 108,517,097 |  
|Cost of sales                                                        |  |               | 99,599,576  |      |   | 92,541,735  |  
|                                                                     |  |               |             |      |   |             |  
|Gross profit                                                         |  |               | 18,298,068  |      |   | 15,975,362  |  
|Operating expenses                                                   |  |               | 15,063,398  |      |   | 11,761,427  |  
|                                                                     |  |               |             |      |   |             |  
|Operating income                                                     |  |               | 3,234,670   |      |   | 4,213,935   |  
|Other income (expense)                                               |  |               |             |      |   |             |  
|Interest expense (including $346,000 and
 $351,000 to Zunicom, Inc.) |  |               | (1,003,195  | )    |   | (1,195,079  | )
|Interest income                                                      |  |               | 569         |      |   | 396,083     |  
|Other, net                                                           |  |               | 45,069      |      |   |            |  
|                                                                     |  |               |             |      |   |             |  
|Total other expense, net                                             |  |               | (957,557    | )    |   | (798,996    | )
|                                                                     |  |               |             |      |   |             |  
|Income before provision for income taxes                             |  |               | 2,277,113   |      |   | 3,414,939   |  
|Provision for income taxes                                           |  |               | (1,050,990  | )    |   | (1,190,986  | )
|                                                                     |  |               |             |      |   |             |  
|Net income                                                           |  | $             | 1,226,123   |      | $ | 2,223,953   |  
|                                                                     |  |               |             |      |   |             |  
|Net income per share                                                 |  |               |             |      |   |             |  
|Basic                                                                |  | $             | 0.25        |      | $ | 0.44        |  
|                                                                     |  |               |             |      |   |             |  
|Diluted                                                              |  | $             | 0.25        |      | $ | 0.44        |  
|                                                                     |  |               |             |      |   |             |  
|Weighted average shares outstanding                                  |  |               |             |      |   |             |  
|Basic                                                                |  |               | 5,000,000   |      |   | 5,000,000   |  
|                                                                     |  |               |             |      |   |             |  
|Diluted                                                              |  |               | 5,000,000   |      |   | 5,001,305   |  
|                                                                     |  |               |             |      |   |             |  

The accompanying notes are integral part of
these financial statements.

F-6

---



UNIVERSAL POWER GROUP, INC.
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, 2007                                                 |  |              | 5,000,000 |                             | $ | 50,000             |  | $                                       | 15,263,457 |       | $ |          |  | $ |         |   | $ | 15,313,457 |  
|Stock-based compensation expense                                            |  |              |          |                             |   |                   |  |                                         | 118,227    |       |   |          |  |   |         |   |   | 118,227    |  
|Net income                                                                  |  |              |          |                             |   |                   |  |                                         |           |       |   | 2,223,953 |  |   |         |   |   | 2,223,953  |  
|                                                                            |  |              |           |                             |   |                    |  |                                         |            |       |   |           |  |   |          |   |   |            |  
|Balances at December 31, 2007                                               |  |              | 5,000,000 |                             |   | 50,000             |  |                                         | 15,381,684 |       |   | 2,223,953 |  |   |         |   |   | 17,655,637 |  
|                                                                            |  |              |           |                             |   |                    |  |                                         |            |       |   |           |  |   |          |   |   |            |  
|Stock-based compensation expense                                            |  |              |          |                             |   |                   |  |                                         | 148,099    |       |   |          |  |   |         |   |   | 148,099    |  
|Net 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 |  
|                                                                            |  |              |           |                             |   |                    |  |                                         |            |       |   |           |  |   |          |   |   |            |  

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

F-7

---



UNIVERSAL POWER GROUP, INC.
STATEMENTS OF CASH FLOWS

|                                                                                             |  |               |            |      |   |             |  
|-------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---- | - | ----------- | -
|                                                                                             |  | December
 31, |           
|                                                                                             |  |               |           
|                                                                                             |  | 2008          |            | 2007 |  
|                                                                                             |  |               |            |      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                         |  |               |            |      |   |             |  
|Net income                                                                                   |  | $             | 1,226,123  |      | $ | 2,223,953   |  
|Adjustments to reconcile net income to net
 cash provided by (used in) operating activities: |  |               |            |      |   |             |  
|Depreciation and amortization of property
 and equipment                                     |  |               | 547,256    |      |   | 235,681     |  
|Provision for bad debts                                                                      |  |               | 1,143,213  |      |   | 93,980      |  
|Provision for obsolete inventory                                                             |  |               | 180,000    |      |   | 45,000      |  
|Deferred income taxes                                                                        |  |               | (202,298   | )    |   | 64,841      |  
|Loss on disposal of property and equipment                                                   |  |               | 6,064      |      |   |            |  
|Stock-based compensation                                                                     |  |               | 148,099    |      |   | 118,227     |  
|Changes in operating assets and
 liabilities:                                                |  |               |            |      |   |             |  
|Accounts receivable  trade                                                                  |  |               | (973,062   | )    |   | (2,516,355  | )
|Accounts receivable  other                                                                  |  |               | 98,959     |      |   | (124,025    | )
|Inventories                                                                                  |  |               | (5,139,123 | )    |   | (9,818,843  | )
|Income tax receivable                                                                        |  |               | (193,386   | )    |   |            |  
|Prepaid expenses and other current assets                                                    |  |               | 379        |      |   | (309,834    | )
|Other assets                                                                                 |  |               | (42,920    | )    |   | (85,886     | )
|Accounts payable                                                                             |  |               | 4,161,418  |      |   | 728,347     |  
|Accrued liabilities                                                                          |  |               | (337,148   | )    |   | (3,590      | )
|Due to Zunicom, Inc.                                                                         |  |               |           |      |   | 186,617     |  
|Deferred rent                                                                                |  |               | (18,921    | )    |   | 22,824      |  
|                                                                                             |  |               |            |      |   |             |  
|Net cash provided by (used in) operating
 activities                                         |  |               | 604,653    |      |   | (9,139,063  | )
|                                                                                             |  |               |            |      |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                         |  |               |            |      |   |             |  
|Purchase of property and equipment                                                           |  |               | (851,766   | )    |   | (1,446,802  | )
|Proceeds from sale of equipment                                                              |  |               | 1,134      |      |   |            |  
|Escrow deposit                                                                               |  |               | (900,000   | )    |   |            |  
|                                                                                             |  |               |            |      |   |             |  
|Net cash used in investing activities                                                        |  |               | (1,750,632 | )    |   | (1,446,802  | )
|                                                                                             |  |               |            |      |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                         |  |               |            |      |   |             |  
|Net activity on line of credit                                                               |  |               | 1,518,744  |      |   | (1,740,564  | )
|Payments on capital lease obligations                                                        |  |               | (6,609     | )    |   | (18,730     | )
|Payment on notes to Zunicom, Inc.                                                            |  |               | (731,250   | )    |   |            |  
|                                                                                             |  |               |            |      |   |             |  
|Net cash provided by (used in) financing
 activities                                         |  |               | 780,885    |      |   | (1,759,294  | )
|                                                                                             |  |               |            |      |   |             |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                    |  |               | (365,094   | )    |   | (12,345,159 | )
|Cash and cash equivalents at beginning of
 year                                              |  |               | 691,288    |      |   | 13,036,447  |  
|                                                                                             |  |               |            |      |   |             |  
|Cash and cash equivalents at end of year                                                     |  | $             | 326,194    |      | $ | 691,288     |  
|                                                                                             |  |               |            |      |   |             |  
|                                                                                             |  |               |            |      |   |             |  
|SUPPLEMENTAL DISCLOSURES                                                                     |  |               |            |      |   |             |  
|Income taxes paid                                                                            |  | $             | 1,387,650  |      | $ | 1,356,108   |  
|                                                                                             |  |               |            |      |   |             |  
|Interest paid                                                                                |  | $             | 1,003,195  |      | $ | 1,205,657   |  
|                                                                                             |  |               |            |      |   |             |  

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

F-8

---



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 are to customers located in the United Kingdom,
Australia, Ireland, China and Canada.

Until
December 20, 2006, the Company was a wholly-owned consolidated subsidiary of
Zunicom, Inc. (Zunicom), a Texas corporation, whose stock is traded on the
OTC Bulletin Board under the symbol ZNCM.OB. On December 20, 2006, the U.S.
Securities and Exchange Commission declared effective a registration statement
filed by the Company registering the sale of 2,000,000 shares of its common
stock by the Company and 1,000,000 of the Companys common stock owned by
Zunicom (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.

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 related to a
line of outdoor hunting and recreational products marketed under the brand name
Monarch. The acquisition closed in January 2009.

Accounts Receivable

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

Inventories

Inventories
consist of finished goods, primarily of batteries and security products related
to the Companys third party fulfillment services and materials used in the
assembly of batteries into packs. All items are stated at the lower of cost,
determined using the average cost method by specific 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 Brinks Home Security, Inc. (Brinks Home
Security). In order to meet its obligations to Brinks Home Security, the Company
maintains certain required inventory levels at all times. Inventory held
related to the Companys relationship with Brinks Home Security, primarily
security products, totaled approximately $13.2 million and $10.0 million,
respectively, at December 31, 2008 and 2007. Brinks Home Security is obligated
to purchase from the Company any and all remaining inventory held by the
Company pursuant to an agreement with Brinks Home Security (including
inventory in transit) and reimburse the Company for any applicable cancellation
fees to the manufacturer upon early termination of the relationship.

Property and Equipment

Property
and equipment are carried at cost 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
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

F-9

---



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. The Companys management has evaluated its long-lived assets and has not
identified any impairment as of December 31, 2008 and 2007.

Deferred Rent

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

Revenue Recognition

The
Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB)
No. 104 when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed and determinable and collectibility is reasonably
assured.

The
Company is a distributor who purchases both finished goods and components from
domestic and international suppliers. The Company adds value to products and
components by packaging them in customer specified kits or tailor made units
that are convenient for the customer to order and ship. Additionally, the Company
has several customers that require specific battery 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 Brinks Home Security. The Company purchases, handles, assembles
and delivers security and installation components to Brinks Home Security and
to its authorized dealers. Revenues from drop shipment transactions and
pursuant to the Brinks Home 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 in Emerging Issues Task Force Issue No. 99-19 for gross
revenue reporting. Specifically, (i) the Company is the primary obligor; (ii)
the Company has general and physical loss inventory risk; (iii) the Company has
credit risk; (iv) in most cases, the Company has discretion in supplier
selection and product specifications; and (v) the Company has reasonable
latitude within economic constraints to negotiate prices and terms with its
customers.

Post Shipment Obligations

The
Company offers its customers a limited warranty for replacement of finished
goods that do not function properly. Generally, the limited warranty period is
for one year. The most common types of warranty claims are batteries that leak
or batteries that do not provide the voltage they are intended to supply. The
Companys written warranty is limited to the replacement of the product
purchased and does not cover the product the battery is intended to power. The
Companys replacement rate is insignificant, and is therefore recorded when the
warranty expense is incurred. If the Company determines that a shipment of
product had a manufacturing defect, the Company has recourse with the
manufacturer to recover the replacement costs incurred. The costs of isolated
or individual instances of defects are borne by the Company. At December 31,
2008 and 2007, the Company has a warranty reserve of approximately $10,000.

Advertising costs

Advertising
costs are charged to operations when incurred. Advertising expense totaled
approximately $281,000 and $209,000 for the years ended December 31, 2008 and
2007, respectively.

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 income.

Earnings Per Share

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

F-10

---



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, 2008 the dilutive effects of 1,336,114 stock
options and 300,000 warrants are excluded from the calculation of diluted net
income per share as they are antidilutive. For the year ended December 31, 2007
the dilutive effects of 40,000 stock options are included in the diluted net
income per share calculation and 1,269,364 stock options and 300,000 warrants
are excluded from the calculation of diluted net income per share as they are
antidilutive.

Fair Value of Financial Information

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

Stock-Based Compensation and Restricted Stock

The
Company accounts for employee stock-based compensation in accordance with SFAS
No. 123R, Share-Based Payment (SFAS No. 123R). Stock-based compensation
expense recognized in the statements of income during the years ended December
31, 2008 and 2007 includes compensation expense for fully vested stock options
and the amortization of partially vested stock-based payment awards. SFAS No.
123(R) requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates.

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

Accounting for Non-Employee Stock Options and
Warrants

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

Accounting for Derivative Activities

The
Company uses an interest rate swap agreement (see Note D) to limit exposure to
changes in interest rates. The interest rate swap is a derivative financial
instrument, which the Company accounts for pursuant to Statement of Financial
Accounting Standards SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and requires that all
derivatives be measured at fair value and recognized as either assets or
liabilities on the balance sheet. Changes in fair value of derivative financial
instruments are either recognized in other comprehensive income (a component of
shareholders equity) or net income depending on whether the derivative is
being used to hedge changes in cash flows or fair value. The Company has
determined that changes in value of its interest rate swap should be accounted
for as a cash flow hedge and recorded as other comprehensive income (loss) in
shareholders equity if the cash flow hedge is effective or through the
statement of income if ineffective.

Use of Estimates and Assumptions

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

Recent Accounting Pronouncements

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No.
133 (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial
reporting. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application
encouraged. SFAS No. 161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. Management is currently
evaluating the effects of SFAS No. 161, but the standard is not expected to
have a material impact on the Companys financial statements.

On
January 1, 2008 the Company adopted SFAS No. 157, Fair Value Measurements.
(SFAS No. 157) which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS No. 157 does not require any
new fair value measurements, but provides guidance on how to measure fair value
by providing a fair value hierarchy used to classify the source of the
information. On December 14, 2007, the FASB issued FSP FAS 157-b which would
delay the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).
This proposed FSP partially defers the effective date of SFAS

F-11

---



No. 157 to
fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years for items within the scope of this FSP. The adoption of SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities is not expected to
have a material impact on the Companys financial position, results of
operations or cash flows.

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)),
which replaces SFAS 141. The provisions of SFAS No. 141(R) are similar
to those of SFAS No. 141; however, SFAS No. 141(R) requires companies to
record most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination at full fair value. SFAS No.
141(R) also requires companies to record fair value estimates of contingent
consideration and certain other potential liabilities during the original
purchase price allocation and to expense acquisition costs as incurred. This
statement applies to all business combinations, including combinations by
contract alone. Further, under SFAS No. 141(R), all business combinations
will be accounted for by applying the acquisition method. SFAS No. 141(R)
is effective for fiscal years beginning on or after December 15, 2008. The
Company will apply the provisions of SFAS No. 141(R) to business
combinations after December 31, 2008.

Reclassifications

Certain
2007 amounts have been reclassified to conform to 2008 presentation.

NOTE C. INVENTORIES

Inventories
at December 31, 2008 and 2007 consist of the following:

|                                 |  |              |            |      |   |            |  
|-------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                 |  | December 31, |           
|                                 |  |              |           
|                                 |  | 2008         |            | 2007 |  
|                                 |  |              |            |      |  
|Battery and
 related inventory   |  | $            | 21,256,255 |      | $ | 20,330,701 |  
|Security
 related inventory      |  |              | 13,178,947 |      |   | 10,220,444 |  
|Electronic
 components inventory |  |              | 3,227,648  |      |   | 1,988,012  |  
|Inventory
 obsolescence reserve  |  |              | (358,350   | )    |   | (193,780   | )
|                                 |  |              |            |      |   |            |  
|                                 |  | $            | 37,304,500 |      | $ | 32,345,377 |  
|                                 |  |              |            |      |   |            |  

NOTE D. LINE OF CREDIT

The
Company has a $30 million line of credit with Compass Bank which matures on
July 5, 2012. The facility bears interest at LIBOR Index Rate plus a sliding
range from 1.25% to 2.50% based on quarterly covenant performance. At December
31, 2008 that rate was 2.58%. The line of credit is due on demand and is
secured by accounts receivable, inventories, and equipment. The lines
availability is based on a borrowing formula, which allows for borrowings equal
to 85% of UPGs eligible accounts receivable and a percentage of eligible
inventory. In addition, the Company must maintain certain financial covenants
including ratios on funded debt to EBITDA, as well as a fixed charge ratio. At
December 31, 2008, approximately $14.4 million was outstanding under the line
of credit and approximately $7 million remained available for borrowings under
the line of credit based on the borrowing formula.

As
    of December 31, 2008, the Company was in default of the loan agreement with
    Compass Bank as a result of its failure to satisfy certain financial and
    non-financial covenants. The Company also expects that it will be in default
    for the quarter ending March 31, 2009 as a result of its failure to satisfy
    certain financial covenants. This latter failure is attributable to the fact
    that the Company will incur charges of approximately $2.6 million in the
    first quarter of 2009 relating to the separation agreements with its former
    chief executive officer and independent sourcing agent that it entered into
    in that period (see Note L). Compass Bank has waived the events of default
    that existed at December 31, 2008 and those that the Company believes exist
    with respect to the quarter ended March 31, 2009. In addition Compass Bank
    intends to modify the relevant covenants such that the Company may be in
    compliance commencing with the quarter ending June 30, 2009.

Interest Rate Swap

In
June, 2008 the Company entered into an interest rate swap agreement which
locks-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 agreements through its maturity date of
July 5, 2012. The notional amount of the swap is $6.0 million and the term runs
concurrent with the line of credit. The interest rate swap is accounted for as
an effective cash flow hedge and the unrealized gains or losses related to the
change in fair value are recorded in accumulated other comprehensive income
(loss). The Company has recorded the fair value of the interest rate swap
liability in the amount of $484,131 at December 31, 2008. The unrealized loss,
net of income taxes totaling $164,605, of $319,526 has been recorded in
accumulated other comprehensive loss at December 31, 2008.

NOTE E. NOTES PAYABLE TO ZUNICOM, INC.

The
Company has 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, evidences a final dividend declared by the Company. The
second note, in the original principal amount of $2.85 million, represents 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 are unsecured obligations,
maturing June 20, 2012. The notes bear interest at the rate of 6% per annum,
payable quarterly, in arrears, the principal amount is being repaid in 16 equal
quarterly installments of $365,625. Payment on these notes began in September
2008. The aggregate outstanding principal balance of the notes at December 31,
2008 was $5.1 million.

Payments
due to Zunicom at December 31, 2008 are as follows:

|                      |  |   |            |  
|--------------------- |  | - | ---------- | -
|2009                  |  | $ | 1,462,500  |  
|2010                  |  |   | 1,462,500  |  
|2011                  |  |   | 1,462,500  |  
|2012                  |  |   | 731,250    |  
|                      |  |   |            |  
|Total                 |  |   | 5,118,750  |  
|Less current
 portion |  |   | (1,462,500 | )
|                      |  |   |            |  
|Non-current
 portion  |  | $ | 3,656,250  |  
|                      |  |   |            |  

F-12

---



During
the years ended December 31, 2008 and 2007 the Company paid interest totaling
$346,000 and $351,000, respectively, to Zunicom with respect to these notes.

NOTE F. INCOME TAXES

Deferred
tax assets and liabilities at December 31, 2008 and 2007 consist of the
following:

|                                    |  |               |           |      |   |         |  
|----------------------------------- |  | ------------- | --------- | ---- | - | ------- | -
|                                    |  | December
 31, |          
|                                    |  |               |          
|                                    |  | 2008          |           | 2007 |  
|                                    |  |               |           |      |  
|Deferred tax
 assets:               |  |               |           |      |   |         |  
|Inventory obsolescence              |  | $             | 121,839   |      | $ | 65,885  |  
|Allowance for doubtful accounts     |  |               | 388,692   |      |   | 43,986  |  
|Accrued liabilities                 |  |               |          |      |   | 93,534  |  
|Interest rate swap                  |  |               | 164,605   |      |   |        |  
|Severance compensation              |  |               | 49,975    |      |   |        |  
|Stock-based compensation            |  |               | 830,062   |      |   | 779,709 |  
|                                    |  |               |           |      |   |         |  
|Current
 deferred tax asset         |  |               | 1,555,173 |      |   | 983,114 |  
|                                    |  |               |           |      |   |         |  
|Non-current
 deferred tax liability |  | $             | (230,611  | )    | $ | (24,455 | )
|                                    |  |               |           |      |   |         |  

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, 2008 and
2007 is comprised as follows:

|                                            |  |      |           |      |   |           |  
|------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                            |  | 2008 |           | 2007 |  
|                                            |  |      |           |      |  
|Current
 federal income tax expense         |  | $    | 1,051,619 |      | $ | 1,299,504 |  
|Current
 state income tax expense (benefit) |  |      | 201,669   |      |   | (173,359  | )
|Deferred
 income tax expense (benefit)      |  |      | (202,298  | )    |   | 64,841    |  
|                                            |  |      |           |      |   |           |  
|Provision for
 income taxes                 |  | $    | 1,050,990 |      | $ | 1,190,986 |  
|                                            |  |      |           |      |   |           |  

The
Companys income tax expense for the years ended December 31, 2008 and 2007
differed from the statutory federal rate of 34 percent as follows:

|                                                      |  |      |           |      |   |           |  
|----------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                      |  | 2008 |           | 2007 |  
|                                                      |  |      |           |      |  
|Statutory rate
 applied to income before income taxes |  | $    | 774,221   |      | $ | 1,161,080 |  
|Amounts not
 deductible for income tax purposes       |  |      | 91,690    |      |   | 83,752    |  
|State income
 taxes, net of federal income tax effect |  |      | 53,316    |      |   | (53,846   | )
|Change in
 prior year state income tax estimate       |  |      | 120,887   |      |   |          |  
|Other                                                 |  |      | 10,876    |      |   |          |  
|                                                      |  |      |           |      |   |           |  
|Income tax
 expense                                   |  | $    | 1,050,990 |      | $ | 1,190,986 |  
|                                                      |  |      |           |      |   |           |  

NOTE G. 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 Plan will be
administered by the compensation committee of the board of directors. Except as
may otherwise be provided in the Plan, the Boards compensation committee (the
Compensation Committee) will have complete authority and discretion to
determine the terms of awards.

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

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

F-13

---



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, 2008, 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, 2008, 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, 2008
there are 1,336,114 options outstanding under the Plan and 663,886 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, 2008 and 2007:

|                                        |  |      |       |      |  |               |  
|--------------------------------------- |  | ---- | ----- | ---- |  | ------------- | -
|                                        |  | 2008 |       | 2007 | 
|                                        |  |      |       |      | 
|Weighted
 average assumptions used:     |  |      |       |      |  |               |  
|Expected dividend yield                 |  |      | 0.00  | %    |  | 0.00          | %
|Risk-free interest rate                 |  |      | 3.87  | %    |  | 4.57% - 4.68  | %
|Expected volatility                     |  |      | 17.00 | %    |  | 17.00% -18.00 | %
|Expected life (in years)                |  |      | 5     |      |  | 5             |  
|Weighted
 average grant date fair value |  |      | $0.92 |      |  | $0.67         |  

The
Company has elected to use the calculated value method to estimate expected
volatility in 2008 and 2007. As the
stock of the Company became publicly traded in December, 2006 and has traded
for a relatively short period time, it is not practicable for management to
estimate the expected volatility of share price, or a peer company price because
there is not sufficient historical information about volatility. The Company used historical volatility of
the Dow Jones Small Cap Non-Durable Household Companies, which is
representative of the Companys size and industry. The Company has used the historical closing values of that index
to estimate volatility which was calculated at 17%. 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, 2008 and 2007
was as follows:

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

---

Stock
Options Outstanding and Exercisable

The
following summarizes stock options outstanding under our 2006 Stock Option Plan
at December 31, 2008:

|                                    |              |                                 |  |                                                           |  |  |      | 
|----------------------------------- | ------------ | ------------------------------- |  | --------------------------------------------------------- |  |  | ---- | 
|Options Outstanding and Exercisable |             
|                                    |             
|Exercise Prices                     |              | Number of
 Options
 Outstanding |  | Weighted Average
 Remaining
 Contractual Life
 (in years) | 
|                                    |              |                                 |  |                                                           | 
|$                                   | 3.81         |                                 |  | 56,250                                                    |  |  | 9.62 | 
|$                                   | 4.48         |                                 |  | 40,000                                                    |  |  | 7.97 | 
|$                                   | 7.00         |                                 |  | 1,239,864                                                 |  |  | 7.97 | 
|                                    |              |                                 |  |                                                           |  |  |      | 
|$                                   | 3.81 - $7.00 |                                 |  | 1,336,114                                                 |  |  | 8.04 | 
|                                    |              |                                 |  |                                                           |  |  |      | 

At
December 31, 2008, the aggregate intrinsic value of options outstanding and
exercisable was $0.

At
December 31, 2008, all outstanding options under the Plan were fully vested
with no remaining unrecognized compensation expense.

F-14

---



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 were valued at
approximately $6,300 using the Black-Scholes model and remain outstanding as
of December 31, 2008.

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 and were valued at approximately $127,000 using the Black-Scholes
model for valuation. All warrants
remain outstanding as of December 31, 2008.

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 fair value of the shares at the issue date was approximately
$377,000. The Company is amortizing the
fair value as compensation expense over the 48 month vesting period in
accordance with EITF Issue No. 00-12 Accounting by an Investor for Stock-Based
Compensation Granted to Employees of an Equity Method Investee and FASB 123(R)
Share-Based Payment. Approximately
$94,250 and $47,000 of compensation expense was recorded during 2008 and 2007,
respectively.

NOTE H. FAIR VALUE MEASUREMENTS

As
discussed in Note B. Summary of Significant Accounting Policies,
the Company adopted SFAS No. 157 on January 1, 2008, which among other things,
requires enhanced disclosures about assets and liabilities measured at fair
value on a recurring basis. The adoption
of SFAS No. 157 was limited to financial assets and liabilities, which
primarily relates to the Companys derivative contract.

SFAS
No. 157 includes a fair value hierarchy that 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
 December 31,
 2008 |         | Quoted
 Prices
 in Active
 Markets for
 Identical Asset
 (Level 1) |   | Significant
 Other
 Observable
 Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |        
|                        |  |                                                    |         |                                                                    |   |                                                   |  |                                              |        
|                       
|Derivative
 liabilities |  | $                                                  | 484,131 |                                                                    | $ |                                                  |  | $                                            | 484,131 |  | $ |  | 
|                        |  |                                                    |         |                                                                    |   |                                                   |  |                                              |         |  |   |   | 

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 I. 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, 2008 and
2007, 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, 2008 and 2007, the Company had receivables due from Brinks Home
Security who comprised approximately 28% and 29%, respectively, of total trade
receivables. During the years ended
December 31, 2008 and

F-15

---



2007, Brinks
Home Security accounted for 35% and 41%, respectively, of net sales. The loss of Brinks Home Security would
materially decrease the Companys net sales.

A
significant portion of the Companys inventory purchases are from two
suppliers, representing 38% and 36% for the year ended December 31, 2008, 42%
and 34% for the year ended December 31, 2007.
The Company purchased approximately 51% and 50%, respectively, of its
product through domestic sources with the remainder purchased from
international sources, predominately China, for the years ended December 31,
2008 and 2007. The majority of the
Companys international purchases were coordinated through an independent
sourcing agent. 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 will 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.

NOTE J. COMMITMENTS AND CONTINGENCIES

Litigation

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

Operating Leases

The
Company leases certain office and warehouse facilities and various vehicles and
equipment under non-cancelable
operating leases. On February 1, 2002,
the Company entered into a lease for a warehouse facility. This lease was amended in 2003 and again in
November, 2006. The amendment expanded
the Companys warehouse facilities by approximately 67,000 square feet to a total
of approximately 216,000 square feet.
The amended lease extends the Companys
terms through March 31, 2013 with monthly base payments beginning
January 1, 2007 totaling approximately $38,800 for 2007, $41,900 for 2008 and
2009, $46,400 for 2010 through 2012, and $0 (zero) for the final three months,
January 1, 2013 through March 31, 2013.
The Company entered into a warehouse facility lease effective August 1,
2007 with monthly payments of approximately $6,000 through July 31, 2010. On April 30, 2008, the Company entered into
a new lease agreement for 21,427 square feet of retail and warehouse space in
Las Vegas, Nevada. The Company is leasing this space for approximately $13,600
per month beginning September 1, 2008 through August 31, 2011. Monthly base payments for the first two
months was $0, for the next ten months is $13,607, for the second year is $14,151 and for the third year is
$14,718. Vehicle and equipment leases
mature on various dates through 2013.
Minimum future payments on all leases for real and personal property as
of December 31, 2008 are as follows:

|                            |            |  |   |           |  | 
|--------------------------- | ---------- |  | - | --------- |  | 
|Years
 ending
 December 31, |            |  |   |          
|                            |            |  |   |          
|                            | 2009       |  | $ | 832,681   | 
|                            | 2010       |  |   | 901,871   | 
|                            | 2011       |  |   | 779,546   | 
|                            | 2012       |  |   | 641,022   | 
|                            | 2013       |  |   | 28,182    | 
|                            | Thereafter |  |   | 7,770     | 
|                            |            |  |   |           | 
|                            |            |  | $ | 3,191,072 | 
|                            |            |  |   |           | 

Rent
expense for the years ended December 31, 2008 and 2007 totaled approximately
$943,000 and $818,000,
respectively.

Employment
Agreements and Arrangements

In
December 2006 the Company entered into a three-year employment contract with
Randy Hardin under which he served as the Companys president and chief
executive officer. Under that
agreement, the Company agreed to pay Hardin, in addition to benefits generally
available to all other executives of the company, a base salary plus an annual
bonus equal to 10% of its audited pre-tax net income as adjusted, provided that
its pre-tax net income exceeded a targeted amount established by the Board. The
employment agreement also provided for a grant of options to acquire 475,000
shares of the Companys common stock at the
IPO price ($7.00 per share) and the use of a company-leased vehicle. For 2008,
Hardins base salary was
$242,000 and his bonus compensation was $178,707.

On
January 21, 2009 the Company entered into a Separation Agreement with Hardin
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 will not during the Restricted
Period (i) compete with the Company in any of its lines of business including
the battery and related power a 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,
will be recorded as an expense in the first quarter of 2009.

F-16

---



In
December 2006 the Company entered into a three-year employment contract with
Ian Edmonds under which he serves as the Companys executive vice-president
and chief operating officer. Under the
agreement, Edmonds receives, in addition to benefits generally available to all
other employees, an annual salary, an annual bonus based on company performance
and his individual performance that is completely at the discretion of the
Board, an initial grant of options to acquire 356,250 shares of its common
stock and a company leased vehicle. For
2008, Edmonds base salary was $214,500 and his bonus was $58,000.

In
December 2006, the Company entered into a three-year employment contract with
Mimi Tan, under which she serves as the Companys senior vice-president
of business development and marketing and corporate secretary. Under the agreement,
Tan receives, in addition to benefits generally available to all other employees,
an annual salary and an annual bonus based on company performance and her individual
performance that is completely at the discretion of the Board. In 2008, Tans base salary was $166,113
and her bonus was $46,000.

NOTE K. 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,
2008 and 2007.

NOTE L. SUBSEQUENT EVENTS

In
January 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. The total
purchase price was $1 million.

In
January 2009, Randy Hardin, the Companys chief executive officer
resigned. Hardin will receive aggregate
payments of approximately $513,000 over a two-year period, which includes health
insurance costs over that period. Ian Edmonds,
the Companys executive vice president and chief operating officer, was
appointed chief executive officer on an interim basis.

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, cancelling its relationship with that agent. Under the agreement, the
    Company will 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.

F-17

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